The Corporate Governance as a competitiveness factor

The Corporate Governance as a competitiveness factor

The last years have witnessed an increase in the need for transparency in the Romanian business environment. Shareholders, stakeholders and third parties have increasingly expressed their desire to increase, in particular, the transparency of non-financial information. These developments are partly reflected in new EU legislation, regulations on non-financial disclosure requirements of public interest entities and the Shareholder Rights Directive.

From the perspective of the stakeholders, credible information about the governance structures, functions and processes of a company has become a major area of ​​interest in this context. This is not just the basis for proper management and monitoring of companies (private or state), but also a strong indicator that they are exposed to a dynamic and complex environment in a rapidly evolving reality.

As a result of increasing stakeholder demand for greater transparency, management should provide information on the maturity level of governance structures, functions and processes. Governing boards should also explain the efficiency of these systems and how they respond to the expectations of stakeholders. The culture of fair governance of a business increasingly plays an important role in integrating good corporate governance into an organization.

Challenges

The typical challenges faced by boards of directors and other governing bodies, as they review and address their corporate governance culture, may include:

  1. Lack of transparency regarding the level of maturity of existing governance on the structures, functions and processes of the company
  2. Uncertainty about the adequacy of existing structures, functions, existing corporate governance processes and organizational culture, considering the size and legal quality of the organization
  3. Uncertainty about the efficient and effective functioning of existing structures, functions, governance processes and organizational culture
  4. The current governance structures do not meet the expectations of management, investors and other stakeholders
  5. Inconsistent, incomplete or redundant processes, inefficient reporting lines and lack of corporate governance documentation

Potential benefits

  1. Improved transparency of the current maturity level of governance structures, functions and processes, as well as the adequacy of the organization structure and operational effectiveness
  2. Modularized approach to corporate governance entities and areas of scope, methods used and depth of analysis (identification of differences between the current and the desired state)
  3. Personalized evaluation criteria that reflect international standards (OECD principles) as well as national and company regulatory requirements
  4. Detailed recommendations and action plan to eliminate differences in maturity level
  5. Facilitate the launch of a corporate governance dialogue with investors, customers and other stakeholders

Conclusion

Improving the business climate is not an option but a necessity if Romania wants to reach its competitiveness potential. The adoption of the regulatory framework and the implementation of the core elements of corporate governance are the means to this end.

As a consequence, the importance of corporate governance will need to grow in the coming years, and the process must be sustained for companies with a majority state cap, both through the legislative and executive bodies. On the other hand, unlisted companies on the Bucharest Stock Exchange (BVB) should increasingly go into the implementation of corporate governance structures, given its benefits.

The challenge for companies in Romania to be competitive on a changing market will drive them towards an effective corporate governance system if they want to attract financial and human capital.

Foto: Unsplash

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