Company Culture

Corporate Governance at a Glance: What Does It Mean and Why Is It Important?

Reading time 6min

Where is your company headed? Taking a look at your company management should be enough to find out their long-term plans and goals, as well as strategies. But what path are you taking?

And is modern corporate governance already part of your management style?

Here, we'll review corporate governance at a glance and explain how it can play an essential part in your organization.

What is Corporate Governance?

What is Corporate Governance?

Corporate management refers to the management of a business organization. This refers to people who manage a company as well as processes for achieving the company's goals.

Fundamentally, the aim of corporate governance is to design business processes effectively and efficiently and to ensure the continued existence of the company.

Areas of Responsibility in Corporate Governance

Areas of Responsibility in Corporate Governance

Corporate governance includes defining goals and plans, making (and sticking to) these decisions, and finally implementing and reviewing what is happening in the company based on these conclusions. The tasks are comprehensive, which is why the areas are divided as follows.

Normative Corporate Governance

The rules and principles according to which a company acts are defined within the framework of normative corporate management. As a basis for corporate culture and the development of strategies, an orientation towards norms is crucial. This also sets the foundations for the mission and vision of a company.

Normative governance is responsible for ensuring long-term development capability and assuring moral responsibility towards third parties.

Strategic Corporate Governance

Without a plan, a company can quickly lose perspective. Strategy corporate management helps to define company success by short-, medium- and long-term goals**. Among others, company management can set the following goals:

  • Expanding the product portfolio
  • Addressing a new target group
  • Entering international markets
  • Developing new business areas
  • Changing to sustainable, value-oriented management

Setting a time frame and prioritizing goals are important here.

Operational Corporate Governance

Once the strategic goals have been set, we must ask ourselves how those goals can be achieved. Operational management takes on this task and defines internal organizational structures.

Fundamentally, it is necessary to define what is needed to achieve the company's goals.

  • Which employees and expertise are needed?
  • How, and where, will the personnel be deployed?
  • What work equipment is required?
  • What processes and procedures are required?
  • What locations (branches and offices) are needed?

Employees should know the vision of the company and understand the organization's specific operational goals.

Management must be open to change here along with its employees. Investment is essential for company growth and development.

Controlling as Part of Corporate Management

Those who make investments should also check whether they are paying off and going as planned. Controlling is therefore of central importance for company managers and sustainable management within any company.

Additionally, company goals must be measurable. Controlling uses key figures for this purpose. These can be used to help determine how close the company is to achieving its goals, how efficient or effective operational management is, and whether the goals can still be achieved at all.

With the help of controlling, company management can determine the next steps and intervene in time in case of unexpected problems.

Social Management

Social management is important because a company stands or falls with its employees. Personnel should no longer be considered as solely an economic resource in companies.

Employee management must devote more and more attention to social aspects. Leadership competence also includes ensuring motivation, a good working atmosphere and satisfaction among team members. As such, Human Resources Management is also something that management must take into account.

Socially-oriented management brings economic benefits. For example, satisfied employees who contribute to the company's vision are more productive and less likely to be ill. However, it is a challenge for company management to find a good balance between economic and social leadership.

Modern Corporate Governance

Modern Corporate Governance

There is no universally valid definition for modern management. We will look at management style and leadership when coupled with modern values.

Modern Management Style

Flat hierarchies characterized by transparency, openness and trust are part of a modern management style, as are agile working methods. Modern management hands over personal responsibility to the employees and leaves room for self management and making their own decisions (i.e., ownership).

Is it even necessary for employees to show up at the office anymore? Today's leadership styles also embrace remote work and open up access to talent worldwide.

Agility means flexibility and ensures that changes can be addressed quickly. In fast-changing markets, modern leadership style brings benefits that employees value and can strengthen a company's competitiveness in an already saturated market.

Modern Leadership

Sustainability, environmental responsibility, and addressing ecological issues are already a major focus for many companies. Companies are adapting their values to consumer demand and addressing global issues. While environmentally friendly and resource-saving business practices often involve higher costs, companies must adapt to current changes in order to stay ahead of the competition.

Modern companies are also social responsibility and demonstrate social commitment. They ensure fair and sustainable working conditions both for their own employees and for suppliers.

The well-being, health, and overall work-life balance of team members also come to the fore in modern corporate management. Considering the current study of the Foundation of Health Knowledge, it becomes clear that more and more people in Germany suffer from chronic diseases. Employers can support employees by providing a healthy work environment and healthcare packages.

Corporate Governance: Practice Applications

Corporate Governance: Practice Applications

Different approaches can be adopted when managing a company. In most cases, these are combined, which does not necessarily lead to a conflict of objectives. For example, value-oriented management often also includes a focus on environmental practices, as this is demanded by today's consumers.

Environment-Oriented Approach

An environment-oriented approach attempts to reconcile economy with ecology. This approach is part of normative corporate management and defines the rules for a responsible approach to the environment.

Companies can use short-term and long-term measures here – for example, using filters to reduce pollutants in the air or switching to renewable energy sources.

Value-Based Approach

What is the value of a company and can it really be evaluated solely on the basis of its stock market price? The value-oriented approach refrains from this and includes other factors for company evaluation in order to calculate an actual value. Risks are added to the revenues.

Value-based management is designed to ensure that the company can continue to achieve its financial goals well into the future.

Socio-Oriented Approach

Profitability is not enough for long-term success. Social approaches must be taken into account as well. The socially oriented approach takes responsibility towards society and pursues humanitarian goals by, for example, taking into account the well-being of its employees.

Level-Oriented Approach

Three different management levels take on different management tasks:

  • Top management: normative and strategic management
  • Middle management: tactical corporate management
  • Lower management: operational corporate management

The level-oriented approach is a structural characteristic of corporate management.

Bottom Line: Corporate Governance

Bottom Line: Corporate Governance

The way you design your corporate governance mainly has to fit your company. As a decision maker, you are still flexible in this respect; as a corporation, on the other hand, there are already many traditions, rules, and standards in place.

Nevertheless, it is important that you constantly review your company's management practices, consider ways in which you can improve, and remain open to changes – for example, with approaches of modern corporate management.

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