Corporate governance is a concept from the last century, but which is gaining prominence today. Not only is the positioning of companies in the public interest. Transparency, the search for diversity and environmental concern within the organization constitute the front line when it comes to generating value.
It is necessary for corporations to be accountable to consumers and shareholders. A faithful way to deliver this relevant information about a company is to know how to “govern”, that is, how to exercise corporate governance.
What is corporate governance?
Corporate governance is the organization's set of rules. They will guide actions so that the interests of managers, partners, investors and stakeholders stay aligned.
In Brazil, since the 1990s there has been the IBGC, the Brazilian Institute of Corporate Governance. This non-profit organization is a national reference. It contributes to the sustainable development of organizations by generating knowledge of best practices in corporate governance.
The IBGC defines corporate governance as “the system by which companies and other organizations are directed, monitored and encouraged, involving relationships between partners, board of directors, management, supervisory and control bodies and other interested parties”.
In this way, corporate governance seeks to convert basic principles into a set of objective practices. The intended result is to align economic interests with the company's long-term viability.
These recommendations affect the way the organizational structure drives decision making. Each step of the company has a well-designed process to facilitate control, acquisition of resources and maintenance of management.
The first codes of good corporate governance practice emerged in the 1990s and were improved over time. In Brazil, the IBGC has a publication from 2015 intended for these codes.
What are the objectives of corporate governance?
Corporate governance aims to ensure healthy growth for a company. This means not only sustainable growth, but a 360° vision that generates a good relationship with society as a whole.
The objective is to ensure the longevity of the business. To this end, principles and pillars are established that guarantee that the interests of the protagonists are met, without non-compliance with laws and orders and other failures in this process.
How important is corporate governance?
The importance of corporate governance is to benefit each and every company from the group of good practices to be followed. It facilitates one of the great qualities sought in an entrepreneur, which is decision making.
Imagine a company as a vessel. The CEO/President and leadership are the captains of the ship. Each decision can affect the quality of the route, just as being prepared for storms and difficult moments prevents shipwreck.
However, these decisions should not be made out of pure inspiration. Just as a boat captain would use a map, governance indicates ways to mitigate conflicts and facilitate control in order to increase the value of the company and its entire ecosystem.
Over the years, according to IBGC, it was found that investors are more willing to pay higher amounts to companies that adopt good corporate governance practices.
What are the principles of good corporate governance?
There are four basic principles that guide, to some degree, the set of practices in the Code of Best Corporate Governance Practices. These principles serve as the basis for adapting the company's governance and internal and external reliability. Are they:
Transparency
Desire to make information available to interested parties and not just those required by law. It should not be restricted to financial performance, but consider all factors that are connected in the management process.
Equity
And this availability of information must follow the principles of equality. That is, treating everyone on an equal footing considering their rights, duties, expectations and interests.
Accountability
Those responsible for the governance sector need to be accountable for their activities in a clear and concise manner. The agent will be fully aware of the consequences of their actions and must act with maximum diligence in their role.
Corporate Responsibility
Care for the economic viability of companies, reducing negative externalities of business and operations. The governance agent considers the different capitals (financial, human, social, environmental, etc.) in a given business model in the short and long term.
How to apply good corporate governance?
To apply effective corporate governance, it is necessary to communicate the set of rules in a simple and transparent way. The constituent agents of the business ecosystem must understand its meaning.
In this sense, there are several possible first steps. The starting point depends on the needs of each company. One of the ways to start may be by organizing the accounting part.
Then, it’s important to think about the structure. If there is no Board of Directors, you can start with a board of consultants, with external professionals who will help with taking minutes, meetings, assemblies, disseminating information, etc.
When there is finally synergy and the company learns to follow the set of corporate governance processes, its own council is formed. The next steps are the creation of executive and statutory committees, which will provide more traceability in decision-making processes.
8 benefits of good corporate governance
The higher the corporate governance index, the more solid a company will be inclined to be and reap the benefits of it. By improving processes, there will be a reduction in failures and fraud.
The organization's reputation will also be valued. In this way, the transparency and reliability that a company with a good reputation has will attract the attention of investors with large investment capabilities.
Another benefit is the decentralization of management. Thus, with more agents involved in controlling, supervising and reviewing processes, less responsibility will fall on one or two figures of power.
Furthermore, it will strengthen the compliance, often confused with the concept of corporate governance. We will explain why, despite the proximity of the terms, they are not the same thing.
See 8 benefits of corporate governance for a company and/or organization.
- Clear definition of everyone's roles in the company: shareholders, advisors, executives, especially in family businesses;
- Improvement of the decision-making process of senior management and management, defining those responsible for each stage of a process, such as generating ideas, approval, implementation and monitoring;
- Improvement of executive performance evaluation and reward mechanisms;
- Reduced likelihood of fraud occurring due to better risk management and improvements to internal controls;
- Greater management transparency before the company’s stakeholders;
- Reducing the risks of financial crises;
- Better operational performance of companies as a result of better decision processes and, therefore, better allocation of resources.
- Generation of better labor, social and environmental relationships.
Corporate governance and compliance
Originating from the English verb “to comply”, compliance is the action in accordance with a rule or instruction. In business, the compliance sector is responsible for ensuring compliance with laws and regulations and preventing conflicts of interest.
Corporate governance is a set of values, including ethical values, that guide the organization's actions. Therefore, compliance, it can be concluded, is a part of 100% focused on laws and regulations, which are important for the governance system.
Compliance, meanwhile, is the way companies stay organized in compliance with the law. Corporate governance, meanwhile, will align the mentality of managers in all instances, especially legal channels.
Learn about the pillars of corporate governance
There are 8 pillars of corporate governance: ownership, principles, purposes, power, roles, practices, people and longevity.
Finally, when these 8 principles are applied by transparent corporate governance management, they positively assist a company's entire planning.
Property
It concerns the structure of the company and the legal regime of its constitution. They are what differentiate the corporate governance guidelines between one company and another.
Principles
They are the ethical basis of corporate governance. This is where the basic principles are found: transparency, equity, accountability and corporate responsibility.
Purposes
It refers to the definition of a company's mission and values, which must contribute as much as possible to the long-term return of stakeholders and shareholders.
Roles
The roles of owners, directors, CEOs, managers and advisors are distinct, well defined and known to everyone.
Power
Power structures must be well-defined, transparent and accepted by everyone.
Practices
The establishment and strengthening of boards of directors, executive management and the audit system are the foundation for good practices.
People
They are the key element of corporate governance systems, responsible for operational excellence, optimizing investment returns, generating wealth and increasing the market value of companies.
Perpetuity
Its objective is to keep the company alive, active, active and with growing participation in the sectors in which it operates.
5 iFood corporate governance practices
Corporate governance at iFood is present in transparency in the disclosure of results, equity, accountability and corporate responsibility.
See below 5 iFood corporate governance practices.
- The release of the first ESG report – 2021 Impact Report – with data, balance sheets and results of governance actions, among others.
- The iFood Include program, which aims to promote equity, diversity and inclusion in job vacancies offered by the company.
- In the sphere of corporate responsibility, iFood has data protection and security of personal information in the iFood application, which are priorities for the company.
- iFood is committed to its stakeholders: employees (FoodLovers), delivery drivers, partner establishments, delivery drivers and consumers.
- Signing of the UN Global Compact with a commitment to aligning its strategies and operations with the principles established by the UN in the areas of sustainability, education and social inclusion.
Who is the priority stakeholder for corporate governance?
The priority stakeholder for a company's corporate governance is the shareholder, whose interests guide the company's management decision-making.
Therefore, the more these decisions are guided by corporate governance mechanisms, such as corporate responsibility and transparency, the greater the confidence of shareholders.
Therefore, governance practices such as accountability, independent election of the board of directors, selection of executives and adoption of internal practices also increase shareholders' confidence in the company.
Corporate governance and ESG
To understand the relationship between corporate governance and ESG, first it is important to have the meaning of the acronym on the tip of your tongue. ESG (acronym in English for environment, social and governance) is a set of actions divided into social, environmental and governance pillars.
This makes it easier to understand the relationship. Governance is one of the pillars that guide ESG. Following this agenda, it is possible to check whether a company is sustainable in the long term in matters that go beyond finance and also understand its concern with the impact it causes on society
- In the environmental factor: the company is committed to mitigating environmental impacts and seeking renewable solutions.
- In the social factor: commitment to the human rights of workers and suppliers.
- Governance: focus on concise administration, with appropriate conduct, audits and responsible advice.
iFood has as one of its priority areas of action, the ESG, and the foodtech perspective is divided into four main priority areas: food security, inclusion, environment and education. Thus, the company's big dream was born: Feeding the future of the world is the greatest purpose.
Much more than being the largest foodtech in Latin America and revolutionize the delivery market, the company seeks to take advantage of its impact to benefit those who need it most and thus provide a sustainable ecosystem to all.
8 tips on how to apply corporate governance
Therefore, to apply corporate governance, there must be interest, commitment and determination from the board, executive, partners and members of the administrative council.
Finally, see below 8 tips on how to apply corporate governance in a company.
- Define a set of standards and policies that define the responsibilities of the company's direction, operation and management.
- Create internal control mechanisms that guarantee compliance with established standards and policies.
- Implement a well-defined management structure with hierarchical levels responsible for each function.
- Identify potential risks and create control and monitoring mechanisms to minimize their impact.
- Establish a path for the company to follow to achieve its financial and operational objectives.
- Develop metrics to monitor the company's performance so that you can identify areas for improvement.
- Promote a compensation system that rewards performance according to goals achieved.
- Improve communication and be open to suggestions from employees, by promoting efficient communication channels between team members.
Find out more What is social ESG and why it matters for companies
