Take a look at why a Corporate Governance Rating is important to an organization.
While Corporate Governance is the system by which corporations are directed and controlled, Corporate Governance Rating (CGR) is the valuation of those systems performed by several organizations. CGR are typically valuated by investors when making investment decisions.
Good corporate governance matters. Corporate directors sometimes question the usefulness of “good governance” and ask whether implementing corporate governance measures makes a difference. In fact, as research demonstrates, there is a statistically significant and positive relationship between corporate governance measures and company value.
Companies and their boards are searching for the best corporate governance rating for a number of reasons:
- Attract investors
Investors look closely at CGR when assessing a financial opportunity presented by a company. A rating is also valued by small investors, institutional investors, executive search firms and accounting firms.
- Avoid negative media attention
Given the widespread media focus on corporate governance, it’s not uncommon for poor governance practices to make it into the news. Ratings are now being widely published online. Directors may also be concerned that poor governance ratings for companies with which they are associated may reflect adversely on the quality of the boards on which they serve.
- Increase shareholder value
There is increasing empirical evidence that good governance correlates with increased shareholder value and bad governance is a red flag for increased risk. Weak corporate governance can potentially undermine creditworthiness in several ways, and should serve as a warning to credit analysts.
- Shareholder activism
Directors who remain insensitive to the current shareholder governance climate may not withstand the shareholder activism that is rolling through stockholder annual meetings. Once-passive institutional and retail shareholders are now flexing their muscles and achieving impressive successes on shareholder ballots. Shareholder resolutions are achieving unprecedented success and boards of directors are listening.
Work with qualified advisors to develop sound corporate governance policies for your company. The results will be worth the effort when your organization achieves the CGR it deserves.
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