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Corporate Governance

“The best way to create trust in an organization is to open all doors – from top to bottom and from bottom to top and into all directions.”
Robert H. Rosen

Trust is as much the basis of sound human relations as it is the foundation of flourishing relationships between organizations. As the world gets smaller, the importance and the frequency of inter-organisational relationships increase. One of the main sources of success is developing and managing such a network of relationships. Therefore, being credible is of utmost importance.

To give an example, companies, in order to compete worldwide, become increasingly dependent on financial markets, both in terms of loan utilisation and in attracting equity capital. Those who establish a relationship based on trust with the financial markets gain an important competitive advantage. Similarly, as the role of the companies in economic development increases, their responsibilities towards the society expand to cover not only the shareholders, but also simultaneously all stakeholders. Those who do not take their relations with all stakeholders seriously cannot sustain their competitive advantage. Hence, the credibility of organisations vis-à-vis financial markets as well as all stakeholders become indispensible for their success. In building trust, the quality of the management depends as much upon the quality of managers as on the quality of the corporate structure itself.

Corporate governance means the quality, reliability, and transparency of the corporate structures. Establishing fair, transparent, and effective principles which govern the relations between the shareholders themselves, small and large; between the shareholders and the board of directors; between the board and the top management; between the top management and the employees is critical for building trust. Corporate governance is also important for the creditors, suppliers, customers, and the entire society. The Excellence Model of The European Foundation of Quality Management, aiming to enhance the competitiveness of European organizations, has adopted this approach.

Though there is not a single recipe in ensuring good corporate governance, some practices are more successful. Appointing two different persons as the Chairman and the Chief Executive Officer and appointing an independent auditor are good examples in this connection. Another increasingly sought requirement in the context of corporate governance is to disseminate information according to international standards and making it available simultaneously to all shareholders, regardless of their size and of whether or not they are represented in the board. This trend is confirmed by the recent announcement of the German VW that it would henceforth prepare its financial information in line with US GAAP, the world’s most strict standard.

Good corporate governance is a critical element of building trustful relationships which in turn is becoming a critical success factor in the competitive environment of the new millenium. In order to be able to compete in the global economy, organizations need to understand and adopt key concepts such as participatory decision making, transparency, and accountability.

Dr. Argüden
yarguden@arge.com


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