Why is corporate governance so important for companies?

In today’s commercial environment there is an expectation on businesses to not only meet their minimum legal requirements, but to also make a contribution to society. This has come to be reflected in the concept of corporate social responsibility.

Corporate social responsibility refers to a form of corporate self-regulation whereby a business considers its impacts on and responsibility for its activities on the environment, consumers, employees, stakeholders and communities. Thus there is focus on more than just the bottom line of economic profit. The emphasis on corporate social responsibility arose from a dissatisfaction with the ways companies derived their profits without giving back to the community.

Corporate governance is similarly given particular emphasis in today’s commercial environment. Corporate governance refers to the systems by which corporations are directed and controlled. Just as corporate social responsibility arose from a dissatisfaction with the actions of companies, corporate governance arose from dissatisfaction with the ways companies governed themselves.

Corporate governance focuses on principles such as accountability, probity, transparency and equity. Corporate governance ensures that the board of a company, and its directors and other officers, understand and respect their responsibilities to act in the company’s best interests and to respect the rights of shareholders and other stakeholders of the company.

In a tight economic climate where obtaining investment can be difficult, it is essential that companies respect corporate governance principles. Most companies now devote sections of their annual report to reporting on corporate social responsibility and corporate governance. In fact, all UK companies with a Premium Listing of equity shares must report on their compliance with the UK Corporate Governance Code. Under the Listing Rules, companies must either state that they have complied with the Code or else explain why they have not.

With an increasing focus on environmental and social concerns, such issues are only going to become more important. As any commercial lawyer will explain, for a company to succeed into the future, it will need to embrace principles such as corporate governance principles. A commercial lawyer can explain how to incorporate these principles into a company’s operations.

If you would like to obtain legal advice on corporate governance, Contact Law can put you in touch with a local specialist company law solicitor free of charge. So, if you have any questions or would like our help in finding local company law solicitors, please call us on 0800 1777 162 or complete the web-form above.