Why Corporations Don't Realize Governance Risks Until Too Late | MinuteBox Cloud Entity Management

Why Corporations Don't Realize Governance Risks Until Too Late

Companies that make corporate governance an integral part of their risk management strategy are positioned for compliance. Corporate compliance means any audits of internal controls, organizational governance, and subsidiary management procedures are smoothly executed. It’s governance policies that are one of the principal non-financial factors to set corporations up for strong fiscal performance.

It seems like a no-brainer; however, far too many companies fail to take the risks of poor subsidiary management seriously. They’re not small fish in the pond either. Companies like Eron, Cadbury, Xerox, Wal-Mart, and other Fortune 500 brands have faced significant costs resulting from poor corporate governance.

How corporate governance improves financial performance

In a two year study involving publicly traded companies on the S&P 500 Index, corporations with strong governance policies outperformed the weakest firms by 15%. The study also determined companies that faced governance crises underperformed in their sectors by as much as 35%, on average, a year after their compliance crisis. This resulted in a loss of shareholder value exceeding $490 billion.

Despite the costs of poor corporate governance, it remains an ongoing challenge for many firms. Poor corporate governance structures result in bad decision-making, lack of accountability and transparency, and a direct loss of financial returns.

Common red flag warnings of poor corporate governance

What are some of the warning signs that indicate a corporation is falling into a governance crisis? Fiscal mismanagement is one of the biggest red flags in any governance audit. Businesses can look no further than the financial scandal that tanked FTX as a case study of how not to manage corporate funds.

Additionally, an inept leadership team and board of directors cause expensive corporate governance problems. Companies that promote based on nepotism or “yes-man” cultures can ignore disciplined expert advice on business strategy, organizational hierarchy, or financial incentives, resulting in costly mistakes for the business.

How to avoid falling into corporate governance pitfalls

Effective leadership makes all the difference between companies that fall into the group of top-performing S&P firms and the ones that find themselves at the bottom. Leaders that set the tone right from the top create corporate cultures built upon shared values and behaviors. Executives that adhere to those values will make responsible decisions with the entities that, in turn, create more profitable long-term results for the corporation.

By avoiding things like nepotism and unmerited promotions to leadership positions, corporations can build a leadership culture that makes the best strategic decisions for their business entities. Adopting a business regimen that demands accountability and transparency with all corporate records ensures receipts for all business decisions are documented. In the event of a corporate audit, the company can comply with the regulators and maintain a responsible brand reputation.

Use subsidiary management software for accountability

So what’s the best approach to maintaining compliance with responsible corporate governance? As it turns out, technology can help corporations of all sizes maintain rigid, accurate, and transparent records to support good and responsible governance.

Subsidiary management technology uses cloud-based solutions to help companies digitize all corporate records in one centralized platform. The platform includes advanced search parameters that allow in-house counsel to find, sort, and report on any records of notice for executive review or approval, as well as any audit requests from outside regulators. Plus, since the platform is cloud-based, any leaders that require access to the records can view them from the convenience of any location in the world.

Subsidiary management platforms also allow your counsel to quickly generate reports that summarize things like capital purchases, mergers and acquisitions, or the transfer of shareholder equity amongst investors. All legal dates and expiries can also be tracked within the platform, which is very important if any licensing deals require renewals or renegotiations.
In the end, responsible corporate governance is one of the defining factors that separate successful companies from mediocre ones. Using subsidiary management technology, which you can learn more about with educational discussions, you can help your own company remain compliant with good corporate governance, and set your business up for success in the future.