Corporate Governance

Corporate Governace is a set of norms, values, policies and procedures that regulate the organization and operation of a company. It also establishes the relationships between top management, shareholders and employees, allowing the company to perform with responsibility, transparency and professionalism.

Published on November, 2020 Eduardo Garza & Jesus Malagon
Situation in Mexico
The weight that family owned companies have in the national economy gives the study of Corportate Governance in Mexican organizations an enormous relevance. In 2020, 90% of companies in Mexico were operated by families, which generated 80% of the total employment. At a national level, few companies actually have the correct guidlines and practices for improving performance, it’s management and supervision. In most of the cases, the decision makers are not always the ideal persons to do so, thus affecting the growth and development of the organization.

Main factors for the failure of Corporate Governance in Mexico
In the future, the sustainability of organizations will rely on its levels of development and diversification within their markets. It is fundamental for all organizations to have plans for future growth, expansion and diversification of the business. In Mexico, given the origin of the companies, there are no established long-term strategies to guarantee the development and existence of the company.

The main causes of failure in the strategic planning of companies stem from the flawed concept of focus and communication, the clarity of the strategy and the definition of objectives and indicators. Additionally, the leadership succession is usually a subject of conflicto for the majority of companies. The problema arises from management that refuse to cede control of the company to the next generations.

The conflicts between family member shareholders and the next generation are usually an important factor in the failure of the company’s continuity. Boards are made up of mostly of family members that do not have a Corporate Governance manual.

Key benefits from the adoption of a Corporate Governance
Corporate Governance practices allow organizations to endure, generate value, to be accountable, transparent and to be fair with their shareholders. Additionally, it allows for better and greater financing, as well as an improvement in their reputation, increasing the value of the company.

Corporate Governance allows for the existence of counterbalances and clear rules for decision making, giving management greater certainty. There are immediate benefits in the family businesses related with a clear definition of the course of the company, as well as its capacity for conflict resolution, risk mitigation and the establishment of oversight mechanisms. These practices give the clarity needed to pose an objective view of the future of the company, allowing for the peaceful transition of top management.
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