Corporate governance has become an essential element for ensuring transparency, enhancing accountability, and protecting investors’ rights, which contributes to the stability and growth of institutions. It is not just regulatory rules, but an integrated framework that enhances efficiency and reduces risks.

In this article, we review the objectives of corporate governance, and some information you may need to know in the future.

What is corporate governance and its importance?

Corporate governance is defined as a set of rules and procedures that establish a regulatory framework aimed at ensuring transparency, integrity, and accountability within institutions. Governance emerged as a response to the financial and economic crises faced by global companies, as it aims to enhance investor confidence, achieve optimal use of resources, and reduce operational risks.

Good governance is essential to ensure that companies achieve their strategic objectives in a sustainable manner, leading to balanced economic growth over the long term.

By establishing specific regulatory controls, corporate governance helps reduce opportunities for administrative and financial corruption, and promotes sound management practices. The Kingdom of Saudi Arabia is one of the countries that has paid great attention to developing the corporate governance system, as regulations and systems have been launched to enhance compliance with international standards.

Governance also contributes to improving the work environment and strengthening the relationship between shareholders, boards of directors, and executive management, to ensure that all decisions are in line with the company’s overall objectives and the vision of investors.

Important statistics about the impact of corporate governance

Reports from global economic organizations indicate that companies that apply strict governance standards achieve stronger financial performance compared to those that do not follow such policies. For example, a study issued by the World Bank found that companies with strong governance structures achieve an increase in market value of up to 20% compared to other companies.

As studies conducted by the Organization for Economic Co-operation and Development indicate,The OECD found that companies with effective boards of directors and transparency and accountability practices reduce corruption by up to 30% and achieve 15% higher financial stability on average.

In the Arabian Gulf region, the Saudi Capital Market Authority reported that listed companies that adhered to governance regulations witnessed a 25% increase in investor confidence levels in recent years, which strengthened their position in global financial markets.

The development of corporate governance systems globally and locally

Corporate governance has evolved over the past decades, especially after financial crises that exposed weaknesses in the internal controls of some large companies. The United States began developing strict corporate governance laws following major financial scandals such as the Enron case in the early 2000s, which led to the issuance of the Sarbanes-Oxley Act in 2002, which tightened financial controls on companies listed on US markets.

In Saudi Arabia, the Capital Market Authority has launched a corporate governance regulation that has been continuously updated, and includes principles such as the separation of executive management and the board of directors, ensuring fair representation of shareholders, and enhancing transparency in financial reporting.

One of the most prominent initiatives launched by the Kingdom to enhance governance is the “Vision 2030” program, which calls for improving the efficiency of institutions by applying the best governance practices, which enhances the sustainability of the national economy.

Reliable Governance Systems

There are many modern technical systems that can be relied upon to efficiently implement corporate governance standards. The most prominent of these systems are:

Doc Suite System: It provides innovative solutions in document management, organizing administrative communications, and automating operational processes, ensuring higher levels of transparency and accountability within companies.

SAP Governance, Risk & Compliance: Helps companies implement governance and risk management policies efficiently.

Oracle Risk Management Cloud: Monitors compliance and analyzes financial data to ensure sound decisions are made.

IBM OpenPages: Provides advanced analytical tools to monitor governance performance and reduce operational risks.

Challenges Facing Corporate Governance

Despite the great benefits of corporate governance, there are many challenges that may hinder its implementation in the required manner. The most prominent of these challenges are:

Resistance to change within companiesSome executives find it difficult to adopt strict governance policies, especially if they limit their absolute authority or impose additional controls.

Lack of experience in applying modern standardsMany organizations do not have sufficient competencies to help them understand how to implement governance systems effectively.

Compliance with international lawsAs globalization increases, companies have to comply with multiple and different governance standards, which can be administratively burdensome.

High costsSome SMEs find that implementing governance requires significant investments in technology and human resources, which can be a barrier to expansion and growth.

However, with technological development, it has become possible to overcome these challenges by relying on integrated digital systems such as DocSuite, which enables the automation of processes, reduces operational costs, and enhances compliance with governance regulations more efficiently.

Corporate Governance Objectives

Corporate governance aims to enhance efficiency, transparency and accountability within organizations, ensuring business sustainability and protecting the rights of all stakeholders. The following are the most prominent goals that governance seeks to achieve:

1. Enhancing transparency and financial disclosure

Financial transparency is one of the most important goals of corporate governance, as it ensures the publication of accurate and regular financial reports that reflect the true status of the company. This helps prevent manipulation of financial reports, and provides investors and shareholders with a clear view of the company’s performance, which contributes to building trust and increasing investments.

2. Protecting the rights of shareholders and stakeholders

Governance seeks to balance the rights of shareholders and executives, so that management decisions do not negatively affect investors, customers or employees, and ensures that shareholders participate in making major strategic decisions, such as appointing board members or approving important financial policies.

3. Improve decision making efficiency

Corporate governance helps establish a clear regulatory framework for administrative decision-making, which reduces randomness and contributes to increasing the efficiency of institutional performance. It also works to reduce the impact of personal interests or external pressures on decisions, which ensures the company’s sustainability and ability to compete.

4. Reducing administrative and financial corruption

Applying governance standards combats financial and administrative corruption within institutions, as strict regulatory controls are imposed to prevent conflicts of interest and enhance accountability, which limits the misuse of financial resources or manipulation of revenues and expenditures.

5. Promoting sustainability and social responsibility

Corporate governance encourages the adoption of sustainable policies that preserve the environment and support social issues, through companies’ commitment to ethical practices, which can improve their public image and enhance their relationship with society and customers, which contributes to achieving long-term economic and social development.

6. Support financial stability and reduce risk

Governance helps manage financial and operational risks effectively, as it establishes control systems that prevent financial crises within companies, and contributes to improving the credit rating of companies, which facilitates their access to financing and investments.

7. Promote economic growth at the macro level

The benefits of governance are not limited to companies only, but extend to the national economy as a whole, as it helps attract foreign investments, improve the business climate, and increase the confidence of financial markets, which leads to achieving sustainable economic growth.

Benefits of implementing corporate governance

The benefits of corporate governance go beyond compliance with regulations and laws. It represents a fundamental pillar for achieving financial and administrative sustainability within institutions. Among its most important benefits are the following:

Improve financial performanceStudies show that companies that follow strong governance standards achieve higher returns in the long run, due to improved operational efficiency and reduced financial corruption.

Boost investor confidenceHaving clear governance regulations makes investors more confident in the company, which leads to increased investment volume and attracting capital.

Reduce legal and administrative risks: Implementing corporate governance standards helps avoid legal issues and regulatory problems that companies may face as a result of mismanagement or ill-considered decisions.

Corporate Governance Principles According to International Standards

Governance is based on several principles according to international standards such as:OECD (Organization for Economic Co-operation and Development), which includes:

Transparency and financial disclosure: Publish accurate financial reports regularly to ensure all stakeholders are informed of the company's status.

AccountabilityHolding executives and board members clear accountable for their decisions and performance.

Shareholders' Rights: Guaranteeing the rights of both small and large investors, and providing mechanisms to protect them from unfair decisions.

Independence in decision makingReducing the influence of personal interests on company decisions, through the presence of independent committees within the board of directors.

Digital transformation plays an important role in enhancing corporate governance, as technology contributes to increasing transparency and improving internal control. The most important of these modern tools are:

• Artificial intelligence techniques in data analysis and decision making.
• Document management systems such as DocSuite facilitate electronic archiving and accurate transaction tracking.
• Using blockchain technology to protect financial data and prevent manipulation of financial reports.

Corporate governance objectives are the cornerstone of the success of modern institutions, as they contribute to improving financial and administrative performance, reducing risks, and enhancing sustainability. With the development of technology, it has become necessary to use advanced governance management systems, which allow tracking financial transactions, analyzing data, and ensuring compliance with governance regulations, which enhances the effectiveness of companies in achieving their strategic goals.