Corporate governance is often viewed as a barely necessary evil, burning resource whilst delivering little in terms of value, but new research is set to change all that.
Is governance the secret to building success?
Mention corporate governance and what do you get? An eye roll? A pained sigh? A begrudging acceptance that investing in decision-making infrastructure would be a great ‘nice to have’?
Many organisations feel this way, approaching the UK Corporate Governance Code (the Code) with a tick box mentality designed to deliver the bare minimum necessary to comply with regulations.
The problem is that not only is this approach expensive and inefficient, but it’s also dangerously misguided, potentially costing you a lot more than money. Put bluntly it could cost you your business. It doesn’t have to be this way.
A different approach
Our research proves the link between strong governance and growing financial performance. The report highlights how the most successful companies use the Code as a blueprint for the perfect environment for sustainable value; how their corporate governance practices focus all the organisation’s assets, whether they be financial, human, intellectual or beyond, on aligned goals, value generation, whilst simultaneously ensuring that risks are taken and managed appropriately.
Our report shows conclusively that this approach delivers. Both in terms of increasing the business’s capacity to create value and to sustain it for the long term, companies getting smart about governance are seeing the benefits.
What success looks like
Spanning a decade of data from the Grant Thornton Corporate Governance Index (CG Index), which tracked over 500 FTSE 350 companies across ten different industries, the research found that companies consistently investing in decision-making infrastructure:
- delivered double the total shareholder returns than companies failing to invest in decision making frameworks
- remained twice as likely to retain a FTSE 350 capitalisation as companies scoring lowest for quality of governance
Perhaps most importantly the research found that when a company significantly improves its corporate governance practices, it transforms its ability to create value. Noting that, for those companies improving their governance practices, each step up between quartiles in the CG Index tracked:
- an average 44% increase in operating cashflow
- 46% increase in free cashflow
- 10% improvement in operational efficiency.