• 86% of surveyed representatives of Latvian companies admit that the implementation of corporate governance principles can positively affect business sustainability and attract investors
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86% of surveyed representatives of Latvian companies admit that the implementation of corporate governance principles can positively affect business sustainability and attract investors

26 August 2021

Today, the implementation of corporate governance principles in the operation of companies is becoming a necessity, because it benefits not only the operational performance of the business but also its reputation and related technological progress and improvements.

Companies in Latvia are also beginning to strengthen their awareness of strategically managed business planning, risk management, and the functioning of a company focused on sustainability, which is essentially developed and included in the Code of Corporate Governance Principles. Companies' interest in the implementation of corporate governance principles was speeded up by the pandemic when there was a need to arrange all work-related processes in the new - remote mode. Meanwhile, effective implementation of corporate governance principles is possible if the company understands the advantages of its implementation, growth potential and is ready to plan and implement the principles of corporate governance in practical work.

The BDO Latvia survey “Implementation of Corporate Governance Principles in Companies in Latvia” which was organized in cooperation with the Latvian Exporters Association "The Red Jackets" and Lursoft, surveyed Latvian companies board members, owners, and decision-makers. Survey respondents were from the energy and natural gas distribution, transport, IT, healthcare, cosmetics, and food industries. The understanding that the implementation of corporate governance principles is an equally relevant question in both large and small companies is justified by the number of employees in the companies - which ranged from a few dozen to almost 900 employees. The average last year turnover of the surveyed companies was around 112 million EUR.

The implementation of corporate governance principles in the coming years will continue to be topical - this opinion is confirmed by 73% of respondents. Among the reasons why corporate governance in a company is worth strengthening, respondents mainly mentioned the improvement of the efficiency of the company's operations and the opportunity to increase long-term value. 86% of respondents admit that the company's sustainability and performance will positively attract investors and a sustainable investment policy.

The implementation of corporate governance principles plays an important role in cases where a company has decided to become a listed company. 20% of respondents admit that they are either already listed on the stock exchange or soon plans to do so. This indicates a positive trend among large companies - business ethics strengthening and the implementation of corporate governance principles while attracting new investors to expand.

One of the cornerstones of the implementation of corporate governance principles is the company's strategy. One-third of the respondents admit that the strategy has not been developed in the company at all, however, the task of its development is to determine the achievable goals and the time for the implementation of the goals, promoting the company's competitiveness.

Productivity and the quality of results are determined by the basic principles of ethics and internal culture - it is positive that 64% of respondents have already implemented the Code of Ethics, while almost 35% of companies do not yet have such practice.

The speed with which strategic goals can be achieved is determined by the company's ability to manage promptly potential obstacles. This is acknowledged by 82% of respondents, indicating that in their daily work, operational risks are assessed and monitored. There are some concerns about being transparent and a convenient internal control system in the fight against money laundering and risk management policy is implemented in only 50% of the surveyed companies.

Competitive remuneration and transparent procedure for its determination allow to attract the best specialists and motivate for long-term cooperation - this is acknowledged by 59% of respondents who have already developed the company's remuneration policy, while some respondents have not yet managed to formulate the basic principles of remuneration policy.

In recent years, increasing attention has been paid to the flow of information and confidentiality, which affects both the interests of the company and customer data. The positive fact is that almost 80% of respondents have identified information flow, confidentiality, and transparency procedures. Moreover, companies confirm that data protection is also ensured in the flow of information.

However, a survey conducted in the USA and Canada about the implementation of corporate governance principles shows that it is a much more common practice abroad - 84% of respondents have been following the basic principles of corporate governance for more than ten years. In 96% of cases, principles of corporate governance are implemented to ensure compliance with regulations, basic ethical principles, and risk management. The principles of corporate governance must be described by flexibility - the ability to tailor specifically to your business and like their recommendation. For example, implementation of corporate governance principles in the Asian region is a mandatory requirement only in 24%.[1]

The results of the survey show that among the companies, the implementation of corporate governance principles and strengthening practices will be a topical issue in the future as well. At the same time, it must be acknowledged that the smooth progress of the process is prevented by the lack of available information and knowledge about the implementation of corporate governance principles. The opinion of the respondents is clear - the implementation of corporate governance principles is a valuable practice that contributes to the achievement of the company's goals. It should be noted that the perception - what works for everyone does not work for anyone - does not apply to corporate governance. Though exactly opposite - a set of corporate governance principles allows select flexible guidelines and adaptation a corporate governance model that best suits your business interests.