good corporate governance

The benefits to a company of practising good corporate governance are now well known. It can raise capital more cheaply in a world where capital is a scarce resource; when it has a downturn it will have support from its stakeholders in its turnaround attempt; its business will be more sustainable; when the board makes a wrong business judgment call – and dealing with uncertain future events it will do so – it will not be seen as a scandal but as a consequence of the risk/reward ratio involved in equity investment; and its reputation is enhanced. While there is empirical evidence establishing these benefits the question remains what is good corporate governance? Does it follow that a company which religiously follows the guidelines of a code applicable in its country of registration is practising good governance? The quantitative application of guidelines has, in certain instances, become a mindless occupation. Some companies have even appointed compliance officers to tick off the company’s compliance with the guidelines. The compliance officer reports to the board that there has been compliance. This evidences a lack of application of mind by the board as to whether it is governing in an acceptable manner. When all is said and done the market place is the ultimate compliance officer. That is why in several jurisdictions the route has been chosen of “comply or explain” in regard to how a company is governed rather than “comply or else”. In a regime of comply or explain the directors are duty bound to apply their minds as to the guidelines which are most suited for the business of the company. If they believe that non-compliance with a guideline is in the interest of the company and they explain it the true test will be whether the market accepts that explanation or whether stakeholders flee the company. If investors and other stakeholders continue to support the company then the question answers itself. The strategic or business plans