Corporate governance: Sunk cost or rewarding investment?
Deloitte study shows companies are rewarded by the market and can realize real returns from complying with the new corporateDOWNLOAD
Toronto, July 6, 2005 – The ongoing corporate governance requirements both in Canada and the U.S. have generated public debate in relation to the mounting costs that companies are forced to incur during the compliance and certification process. However, Deloitte demonstrates how it is possible for Canadian companies to turn the ‘sunken cost’ of compliance into real business advantage through maximizing business benefits beyond compliance.
Based on its experience in assisting more than 800 North American companies address the new corporate governance and CEO/CFO certification requirements, Deloitte has found that compliance need not be a lost cost. Instead, Canadian companies embracing corporate governance will ultimately be rewarded by the market. Compliance can also act as a springboard to realize significant business advantages including improved revenues, better safeguarding of assets and improved efficiency of business operations.
“The consequences of not fully complying with corporate governance requirements span way beyond the personal liability of the CEO and CFO. Historically we see that companies’ market cap has been negatively affected by a restatement of financial results, while on the other side of the equation investors are willing to pay a premium for good governance,” says Doug Wilkinson, partner with Deloitte’s Enterprise Risk group in Canada. “Companies need to embrace corporate compliance now given that the new disclosure control requirements are effective this year with the new internal control over financial reporting requirements starting to take hold in 2006. Canada should learn from the Sarbanes-Oxley experience in that first year compliance is a 12 to 18 month journey requiring specialized skill sets.”
In a recent global study conducted by Deloitte in cooperation with the Economist Intelligence Unit, titled ‘In the Dark’, more than half (56%) of the 250 executives and board directors surveyed considered quality of governance among the top three corporate performance areas investors reward most heavily.
Complying with corporate governance requirements and demonstrating good governance doesn’t only affect a company’s stock price or access to capital. Embracing the spirit, and not just the letter of the law, also provides companies with significant opportunities to see a return on their investment and increase efficiency beyond regulatory compliance.
Deloitte clients have reported a number of common themes with respect to the business benefits beyond compliance that have been realized through compliance with the requirements:
In conclusion, Deloitte Partner Terry Hatherell stated, “Canadian companies need to understand that effective corporate governance, and specifically addressing the requirements of CEO and CFO certification, is a long-term exercise that doesn’t end after year one. Elements of sustainability should be built in and addressed right from the start. Without question, complying with the new requirements will have a cost. The challenge, however, is for companies to capitalize on and crystallize the many business benefits available beyond pure compliance.”
Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 6,100 people in 47 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein.