Ensuring good corporate governance to secure the long-term future of your organization

By Jennifer Montérémal

Published: November 16, 2024

Good corporate governance seems to be a sine qua non of successful, long-lasting organizations. And with good reason: it ensures a perfect distribution of powers and an effective application of the global strategy, in order to guarantee the entity's performance and generate maximum value. All in strict compliance with current regulations.

In recent years, however, corporate governance has evolved to serve more than just the interests of shareholders. The interests of all stakeholders are now taken into consideration.

So what does it look like today, and how is it defined? What are the principles of corporate governance? How can its effectiveness be ensured, and with what tools?

These are just some of the issues we'll be addressing in this article.

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How is corporate governance defined?

What is corporate governance?

Corporate governance, also known as corporate governance, is defined as a system deployed with the aim of directing and controlling the company in the most optimal way, while protecting the interests of stakeholders.

It is based on :

the processes and regulations that govern our work,
but also on the company's values and culture.

Organizational governance is the system by which an organization makes and implements decisions to achieve its objectives.

Norme ISO 26000

Ideally, corporate governance involves a range of stakeholders, both internal and external, with a view to improving the distribution of power. Although the concept was originally developed to protect the rights and interests of shareholders, today it also concerns :

employees
suppliers
customers
banks, etc.

Some experts go even further, pointing out that corporate governance needs to take a more holistic view, considering all the components that impact the entity and the world of work in general, such as environmental issues.

☝️ Corporate governance is not just the preserve of large corporations. Indeed, it is recommended that organizations of all sizes develop an effective governance approach to enhance their performance.

The differences between corporate governance and business management

Corporate governance should not be confused with business management. While the two concepts are complementary, they are nonetheless distinct.

Here is a table summarizing their main differences:

	Corporate governance	Corporate management
Definition	Corporate governance concerns the structures, processes and mechanisms by which a company is directed and controlled.	Corporate management concerns the day-to-day operations and administration of the company to achieve its objectives.
Objectives	It aims to ensure transparency, accountability and fairness in corporate decision-making.	It aims to steer the company's operations and resources to maximize performance and profitability.
Key players	It involves the CODIR, shareholders and sometimes other stakeholders.	It involves executive officers, such as directors and managers.
Key functions	Define the company's major orientations and strategies. Oversee management to protect the interests of shareholders and other stakeholders. Implement control and risk management systems.	Plan and execute operational strategies. Make decisions concerning human, financial and material resources. Supervise day-to-day activities to ensure efficiency and productivity.

What are the principles of good corporate governance?

Corporate governance is based on universally recognized principles, the pillars that reinforce its solidity.

These principles vary considerably from one source to another, but here are the main ones, which we find in particular in a partnership governance model (we'll come back to this notion later):

Independence of directors: this principle guarantees the freedom of the board of directors to act in the best interests of the company... and not just those of its executives.
Integrity: organizational integrity applies not only to compliance with laws and regulations, but also to other factors such as employee safety.
Accountability: insofar as corporate governance serves the interests of all stakeholders, it requires "accountability" to all players, not just shareholders.
Strategic planning: this means constantly questioning the strategy envisaged, and monitoring the actions taken to apply it as effectively as possible.
Transparency: optimal communication, guaranteeing maximum transparency, is one of the keys to corporate governance. It is no longer aimed solely at shareholders, but at all stakeholders, both internal and external.
Fairness and balance: these principles promote diversity and parity within the company, even at the highest levels (gender balance, for example). Furthermore, directors must be selected for their skills and their ability to best represent stakeholders... and not for personal reasons.
Respect for the environment: the environment is a major issue for companies today. For both legislative and ethical reasons, corporate governance must include respect for sustainable development within its scope.
Flexibility: not only the principles set out above, but also the application of corporate governance, must be adapted to each structure in order to gain in relevance. A large international corporation is not governed in the same way as a small local VSE!

What are the main types of corporate governance?

Traditionally, there are two types of corporate governance.

Shareholder governance

Shareholder governance, also known as the shareholder model, defines the prevailing norm.

More concretely, it consists of giving priority to the interests of shareholders, by offering them control over the actions deployed within the company, and by favoring a shareholder/manager balance.

Partnership governance

Partnership governance, also known as the stakeholder model, is the most popular type of governance today. It takes into account all stakeholders and their interests.

In other words, strategy is no longer driven solely by profitability and increasing shareholder wealth. The value generated by the entity takes on a broader meaning, and includes other elements such as consumers and the environment.

Who are the players in corporate governance?

While the logic of corporate governance implies that all stakeholders are taken into account, certain players have a greater responsibility for achieving the organization's objectives.

This is why corporate governance is largely structured around the Executive Committee, or CODIR.

This body is traditionally made up of the Chief Executive Officer, together with representatives of the company's departments (notably department directors or managers). The purpose of this body? To make strategic decisions and monitor performance indicators to improve the overall efficiency of the entity.

☝️ Note that there are other bodies playing an important role in corporate governance. These include

The COMEX, or Executive Committee: its functions are similar to those of the Management Committee, and it assists the CEO. However, it generally meets in smaller groups.
COPIL, or Comité de Pilotage (Steering Committee): this body has a more operational role in the execution of global objectives, and operates within the framework of the company's major projects.
COMOP, or Comité Opérationnel: similar to the above. In some large companies, it is responsible for implementing COPIL decisions.

Stakes and objectives of corporate governance

Enhanced growth and performance

Although corporate governance today is more holistic in nature, no longer focusing solely on increasing wealth, the organization's performance remains a major challenge, if only to ensure its long-term survival.

Corporate governance provides a framework for the actions deployed at operational level to achieve the objectives defined by the overall strategy. At the same time, it ensures control over these actions, how they are carried out and by whom.

👉 Ultimately, this approach helps to ensure the company's growth and longevity.

Enhanced credibility and trust

Today's companies also face the challenge of maintaining a good image among their various stakeholders.

Since good corporate governance leads to greater profitability and transparency, it helps to build credibility with potential investors, acquirers, lenders and so on.

Moreover, by considering interests other than its own financial profits, such as social and environmental components, the organization develops a better image:

with consumers, who are more inclined to trust it,
employees, who are more willing to invest in their missions when their benefits enter the equation. What's more, this tends to improve the company's employer brand, which, in the long term, boosts employee productivity.

Distribution of power

The professional world has changed dramatically in recent years. With the rise of new practices such as participative management and the disappearance of silos, every stakeholder participates directly or indirectly in this governance.

As a result, the distribution of power has become increasingly complex. Internally, it's a question of determining the best way to make decisions, encouraging consultation, defining optimal management practices and so on.

At the same time, companies need to bear in mind that all players now have an impact on them, even external ones. We are thinking, for example, of the growing influence of customer opinions or environmental protagonists.

Compliance with regulations and corporate governance codes

Improving overall performance must be done in accordance with the law and the company's articles of association. Corporate actions remain highly regulated, and regulations are constantly evolving. All these factors must be taken into consideration, and with the utmost seriousness, to avoid abuses and increase the confidence of all stakeholders.

On the other hand, while governance rules as such are not recognized by regulatory or legislative texts, there are codes that provide a framework for organizations whose financial securities are listed on the stock market:

the AFEP-MEDEF code: adopted by almost all SBF 120 companies, it sets out a number of recommendations on corporate governance, particularly with regard to the compensation of executive and non-executive directors.
the Middlenext code: this is aimed at the smallest listed companies. It provides guidelines on compliance with standards and regulations, as well as advice on how to improve efficiency and competitiveness.

Value creation

Value creation remains the ultimate goal of good corporate governance.

But this notion must be understood in a broad sense. If value creation means, among other things, financial value, then enriching shareholders or management is no longer the only priority. Governance now embraces a more global approach, in particular to regain consumer confidence, shaken in recent years by repeated scandals.

As a result, it now includes the human dimension, and organizations need to recognize the value contributed by each protagonist, particularly employees, in order to establish their solidity and credibility.

How can effective corporate governance be put in place?

Determining long-term strategy

Corporate governance involves developing a robust strategy, supported by a long-term mission and vision.

To achieve this, organizations need to rely on a number of factors:

their values, which must be understood by all players in order to carry them through on a day-to-day basis,
the environment and the market,
the satisfaction of all stakeholders, etc.

Defining a framework and rules

Good corporate governance means defining the rules that govern the organization, resources and framework put in place to ensure the effectiveness and conformity of actions.

In other words, it's a question of knowing precisely who does what and how, from both a decision-making and operational point of view.

Ensuring strategic alignment

Strategic alignment defines the organization and actions deployed to ensure that operations are in line with :

the global strategy,
processes, frameworks and distribution of authority.

☝️ This operation involves striking a balance between achieving the entity's objectives in line with the financial and human resources available.

Controlling activities

Strategic alignment requires control operations. Companies :

precisely monitor their results,
detect any anomalies, future risks or areas for improvement, with a view to taking corrective action.

Indeed, one of the fundamental principles of corporate governance is flexibility: organizations must be fully prepared to adapt to changes in the market and society.

Governance bodies

The various governance bodies play a vital role in the smooth running of a company. We have already mentioned several of them, such as the Executive Committee and the Steering Committee.

Good corporate governance implies that these major bodies meet regularly, as they facilitate interaction between the various stakeholders to ensure fair, well-informed decision-making.

What are the tools of corporate governance?

To ensure optimum performance in corporate governance, a company can make use of different types of tools.

These include

document management software, as it is important for all stakeholders to be able to work and exchange on a large number of documents, even remotely,
meeting management software, to optimize the management of large meetings,
electronic signature software, to support the dematerialization and digital transformation of organizations,
project management software, to put into practice the actions defined at board meetings and monitor overall strategy,
business intelligence software, to support business decision-making by analyzing company data.

💡 Good to know: to help companies avoid getting lost in the multiplication of tools (often costly, to boot) and centralize essential functionalities, there are solutions 100% dedicated to corporate governance. For example, the DiliTrust Governance suite is a comprehensive service that enables you to manage your corporate governance via a dedicated, secure portal. These include the Board Portal and Legal Entities modules, which facilitate the management of face-to-face and/or remote governance meetings, as well as the digitization and simplification of the legal management of your group's companies.