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Governance Principles in Strengthening Business Trust and Sustainability


Corporate Governance principles are often referred as requirements and recommendations prepared by the supervision authorities or international professional organizations only for the publicly listed, the state-owned and the big multinational companies. However following these principles - far beyond the prescribed compliance requirements - is important for all market-driven economic entities due to establishment and maintenance of trusted business relations.

Trusted Business is highly substantial for all stakeholders, such as the owners and investors, the employees, the customers and suppliers, the creditors, and the authorities and associations of public interest for social, economic and ecologic sustainability. As the aware business risk taking is an essential element of the economic growth and innovation, it is definitely stressful how the involved parties “grease the skids” for successful management of uncertainties effecting business goals, like operational, environmental, legal, societal, human, health, etc. risks - in either micro or macro environment. The lower is the level of business trust measuring acceptance and undertaken of unavoidable uncertainties in business relationships, the higher is the cost of risk-taking due to mistrust (like in the form of higher interest rates, insurance and enforcement costs, etc.), which leads to lower efficiency and competitiveness by the unsubstantiated increase of operational costs.

It is important to all economic and social partners, that the enterprise governance milieu - by keeping in mind all the needs and requirements of the markets’ demand and supply relations, the regulatory environment enforcing public societal interests, and the company stakeholders’ expectations together -supports the optimal framework of risk taking in establishing and maintaining long term and fruitful business relationships necessary for the sustainable development. Therefore it is desirable for the achievement of a standard level of business trust that those governance principles and enabling practices which are commonly interpretable and observable by all types of economic entities will be as widely as possible acquainted and also applied according to the specific business conditions. Implicitly the enterprise has the more and the more types of business relationships and stakeholders, the more important is the control and transparency of its governance system supporting business trust. Nevertheless, the successful conformity to governance requirements and the credible presentation of the achieved results are equally important to the entities either in start-up, growing or matured phases - independently from size, industry sector or ownership types.

For publicly listed companies, the regulators or supervision authorities request compliance to the local corporate governance codes or recommendations. In Europe the “comply or explain” type disclosures are generally accepted, however stakeholders would be more happy with wider transparency of how the fulfilled compliance objectives are achieved instead of just receiving short explanations of why some compliance requirements are missed or managed in different than the recommended way.

Small or Medium sized Enterprises are typically not requested to disclose conformity statements. However if their products or services are embedded into their customers’ production lines, the necessary technical, quality and financial indemnity insurance requirements and the validation processes are established and maintained within formal supply chain management. In outsourcing business even the small entities might be asked to provide independent audit reports for Service Organization’s Control. Funding agencies, investors and financial institutions can rate their potential SME clients not only based on the historical financial figures, in optimal business environment the “soft” organizational management factors and company goodwill are also evaluated and important for decision making. For these reasons, even the SMEs can benefit from presenting their governance capability conforming to international standards without exaggerated implementation and assurance costs by adapting the Governance Model for Trusted Businesses aligned with their own business goals and environment. Most of the given governance processes and necessary practices don’t need to be implemented in different or new way from existing company management practices by linking existing - already proofed - management practices to generic governance objectives for better achieving transparency to external stakeholders.

 

Contributors

 

bgf


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AMCHAM


ECQA

NIH

EIT

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ISCN_logo

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education and culture


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