ABiQ outlines 5 things investors should look out for in corporate governance. Corporate governance is the framework by which a company is directed and controlled. Investors should always be on the lookout for companies with a solid corporate governance system, as this will ensure a greater chance of profitability in the long run.
What is corporate governance?
Corporate governance is the framework by which a company is directed and controlled. Corporate governance ensures that the interests of shareholders, executives, and other stakeholders are aligned. Corporate governance identifies who has power, accountability, and decision making abilities. Corporate governance enables a company to run more efficiently.
What should investors look out for?
Good corporate governance can do wonders for a business. Investors should always be on the lookout for companies with a solid corporate governance system, as this will ensure a greater chance of profitability in the long run. Below, ABiQ outlines some of the top corporate governance best practises:
A diversified board
A diversified board is always a positive. If all board members have the same experience, skill sets, and abilities, it will limit a company’s ability to achieve success. A diversified board will help to introduce new, creative strategies to solve unique problems.
Auditor independence and transparency
Auditor independence and transparency is vital. Investors need to know they can trust the financial auditing that takes place. Auditor independence is important as it shows that the reports are accurate and can be trusted.
Regular compensation review
Compensation review is an important part of corporate governance, both at a management and executive level. Compensation should be set to industry standards. When compensation is too high, this may create a conflict in a directors independence or their ability to discharge their duties.
A company should always have clearly defined roles and responsibilities. If there are no clearly defined roles and lines of accountability, no one can ever be accountable for their actions. Each director or group of directors should have certain defined responsibilities that they are held accountable for.
Effective risk management
Effective risk management is vital. A company should regularly review, identify and assess their risks. It’s better to mitigate risk before a risk arises.
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