WHAT IS CORPORATE GOVERNANCE?
Corporate governance refers to the system by which companies are directed and controlled. It includes a set of rules, practices, and processes that govern how a company is managed and supervised.
In this regard, Administrative Resolution RA/AEMP/N°330/2023 of 08/12/2023: “Guidelines for Good Corporate Governance” defines corporate governance as follows:
“…Good corporate governance is a set of practices and techniques that enable any commercial company to manage, direct, and control its operations under standards of efficiency, fairness, transparency, and integrity; through the implementation of guidelines that are efficiently and effectively articulated in the relationships among management, partners or shareholders, and interested third parties…”
Additionally, the ASFI, through the Compilation of Financial Service Regulations, defines corporate governance as:
“…A set of principles, policies, rules, and measures that regulate the relationships among the members of the Governing Bodies of the supervised entity, allowing it to operate at a minimum under standards of efficiency, fairness, transparency, and integrity…”
From this, we can conclude that corporate governance (or “good corporate governance,” as the regulation aims to promote) constitutes an integrated system of rules, protocols, practices, and all types of measures through which companies are directed and controlled. It includes the relationships among company management, the board of directors, shareholders, and other stakeholders. Good corporate governance ensures that the company operates efficiently, transparently, and responsibly, protecting the interests of all involved and promoting market confidence.
IMPORTANCE OF CORPORATE GOVERNANCE
The implementation of good corporate governance practices in companies provides an opportunity for development, sustainability, and growth, as it strengthens areas such as:
- Transparency and Accountability: Good governance ensures that company decisions are transparent and that senior management is held accountable. This builds trust among investors and stakeholders, potentially leading to greater access to capital and better financing conditions.
- Responsibility: Good corporate governance clearly defines the responsibilities of each board member and executive, ensuring that decisions are made in an informed and responsible manner.
- Risk Reduction: Through effective internal controls and oversight mechanisms, companies can better identify and manage risks. This is crucial to prevent fraud, errors, and poor practices that could harm the company’s reputation and financial viability.
- Fairness: Ensures fairness among all shareholders or partners, regardless of their size or stake, which is essential to maintain investor trust and loyalty.
- Sustainability: Good governance practices promote the long-term sustainability of the company, considering not only financial outcomes but also the social and environmental impact of its operations.
- Improved Performance: Companies with solid governance tend to show better operational and financial performance. Clear decision-making and alignment between management and shareholder interests contribute to more efficient and effective management.
- Regulatory Compliance: In a world of increasingly strict regulations, corporate governance ensures that the company complies with all applicable laws and regulations. This minimizes the risk of penalties and reputational damage.
By implementing good corporate governance practices, companies improve their corporate image, reduce risks, increase access to financing, and support sustainability and growth.
KEY ELEMENTS OF CORPORATE GOVERNANCE
Administrative Resolution RA/AEMP/N°330/2023 of 08/12/2023: “Guidelines for Good Corporate Governance” identifies four blocks of guidelines related to safeguarding the rights of partners or shareholders, establishing rights and responsibilities for management, providing access to company information, and including stakeholders. Although these recommendations are voluntary for commercial companies, many are based on the current Commercial Code, which is mandatory. It is important to highlight that, except for companies in the financial sector—which due to their nature are required to implement an integrated system of good corporate governance practices—other companies are not legally obligated.
Among the main principles of good corporate governance are:
- The establishment of a Board of Directors responsible for the strategic direction and oversight of the company.
- Ensuring that relevant information is communicated clearly and accurately to all stakeholders.
- Setting up mechanisms to identify and manage risks that may affect the company.
- Promoting ethical and responsible behavior within the organization and towards society.
Corporate governance is essential for any company seeking to grow sustainably and responsibly. Having a team of professionals specialized in corporate law ensures the implementation of strong and effective practices that will strengthen your organization.
Although the general perception is that good governance practices apply only to large companies, the truth is that they can be adapted to any type of company, regardless of size, nature, or operational complexity. Micro, small, and medium-sized enterprises can also adopt good corporate governance practices within their structures and benefit from their advantages in terms of growth and continuous improvement.
HOW CAN WE HELP YOU?
At our law firm, we have a team of corporate law experts committed to helping you implement the best corporate governance practices in your company. Our services include:
- Advisory for the Establishment of the Board of Directors: We assist in setting up an effective board with qualified and committed members.
- Development of Policies and Procedures: We create clear policies and procedures to ensure transparency and accountability.
- Training and Education: We provide training programs for directors and employees on good corporate governance practices.
- Audits and Reviews: We conduct internal audits to assess and improve existing control and risk management mechanisms.
Don’t leave the sustainability of your business to chance. Contact us today for a consultation and discover how we can help you build a strong and effective corporate governance structure. Your success is our commitment.
Frequently Asked Questions (FAQs)
What is corporate governance?
Corporate governance is the system of rules, processes, and practices by which a company is directed and controlled, ensuring transparency, efficiency, and accountability.
Is corporate governance mandatory in Bolivia?
It is mandatory only for financial institutions. For other companies, the adoption of good governance practices is voluntary but highly recommended.
Can small businesses implement corporate governance?
Yes. Corporate governance practices are adaptable to businesses of all sizes, including micro, small, and medium enterprises.
What are the main benefits of good corporate governance?
Improved transparency, reduced risk, enhanced reputation, easier access to financing, long-term sustainability, and better business performance.
What role does the Board of Directors play in corporate governance?
The board is responsible for strategic direction and supervision, ensuring that the company operates according to legal and ethical standards.
The content of this article does not reflect the technical opinion of Rigoberto Paredes & Associates and should not be considered a substitute for legal advice. The information presented herein corresponds to the date of publication and may be outdated at the time of reading. Rigoberto Paredes & Associates assumes no responsibility for keeping the information in this article up to date, as legal regulations may change over time.
