Good corporate governance is the foundation of great companies that last. It builds trust among stakeholders and ensures that capital is used for the most productive purposes. Not surprisingly, good governance improves company performance and economic returns.
The core elements of good corporate governance are few and simple. Good corporate governance rests on the Cardinal Principles of integrity, transparency, and accountability. The best-governed companies' returns on equity exceeded their worst-governed peers' by 11 times, according to the FTSE 350 index. Over a ten year period, the share prices of companies with strong corporate governance outperformed those with poor governance records by 109%. It is clear that placing these values at the centre of a company's corporate culture creates long-term value for customers, employees, and shareholders.
Great companies that last have great leaders – those prepared to make difficult decisions, and to do so ethically. Codes of conduct and statements of values have meaning only if the company leadership honours them in every decision and action. Leadership is the single most important ingredient in attaining and maintaining good governance.
The governance of a nation's financial market also plays a significant role in determining the availability and cost of capital. When capital markets operate with clear, firm, and ethical regulations, capital flows freely and efficiently to those who use it wisely and account for it transparently.
History has shown that prosperous countries are characterised by transparent high-trust societies where capital is freely available and efficiently priced to reflect the level of risk being taken. These countries have intelligent regulation and enforcement. In contrast, countries with weak investor protection, lax property rights, and unpredictable enforcement mechanisms create barriers to investment, undermining economic development and national prosperity.