Driving Success in M&A with Corporate Governance
In addition, it is responsible for mitigating risks and threats, such as:
- Fraud and Corruption: Unethical and illegal practices can undermine a company's reputation and generate substantial financial losses. Corporate governance, with its internal control mechanisms and rigorous auditing, creates an environment where such practices do not find fertile ground.
- Failures in Decision-making: Decisions that are hasty or based on incomplete information can have disastrous consequences. Corporate governance, through its specialized committees and transparent deliberative processes, ensures that decisions are taken in a thoughtful and responsible manner.
- Compliance Issues: Failure to comply with laws and regulations can result in fines, sanctions, and even legal proceedings. Corporate governance, with its emphasis on compliance, ensures that the company is up to date with its legal and regulatory obligations.
- Operational Risks: Failures in processes, systems, and infrastructure can cause interruptions in operations and financial losses. Corporate governance, with its focus on risk management, proactively identifies, monitors, and mitigates such risks, ensuring the continuity and efficiency of operations.
In this sense, the installation of the structures of corporate governance[1] It comes with a guide to companies towards real business sustainability and transparency or what we call Accountability, one of the founding pillars of corporate governance, according to the Brazilian Institute of Corporate Governance — IBGC.
Thinking about success in M&A, more than a set of rules and structures, corporate governance represents a management doctrine that permeates all organizational processes, from strategic decision-making to daily operations.
Of course, we need to think about the accountability of senior leadership, after all., “the stairs are washed from top to bottom”, that is, the most strategic aspects that permeate the company's governance need to be built and validated by senior leadership. The tone that comes from the top is essential for the success of corporate governance within organizations.
On the other hand, when it comes to the process of mergers and acquisitions (M&A) it is even more appropriate to talk about corporate governance, as they represent strategic opportunities for companies to grow, expand their markets, and diversify their businesses.
In a pragmatic way, there are some important vectors that we can mention that drive the completion of successful transactions, for success in M&A:
- Increase Investor Confidence: Strong corporate governance demonstrates to investors that the company is managed in a responsible and transparent manner, which increases trust and facilitates the raising of funds to finance M&A.
- They facilitate Due Diligence: Corporate governance makes the process of due diligence more efficient and transparent, since the company's financial and corporate information is well organized and readily available[2].
- Reduce Post-Acquisition Risks: Corporate governance helps integrate the cultures and processes of companies involved in M&A, minimizing the risks of conflicts and integration problems.
- Increase the Chances of Synergy: Corporate governance facilitates the identification and realization of synergies between companies involved in M&A, which maximizes the value of the transaction.
It is worth noting that in the successful M&A process, corporate governance it is not a mere additional cost for companies, but rather a strategic investment which generates concrete returns in terms of risk mitigation, increased competitiveness and successful transactions. It is important to note that by adopting a robust governance culture, companies build solid foundations, generating value for shareholders and potential shareholders
Almost in unison, we heard comments that “corporate governance is yet another cost for corporations. Staying compliant is expensive.” Especially when it comes to medium-sized companies and especially family businesses.
However, as seen above, at the time of a shareholding sale process, or in the search for an investment partner, companies with well-established corporate governance processes end up having a greater value than companies without corporate governance. At that moment, there is a real perception of the added value that corporate governance brings to shareholders' businesses. Transforming all that cost into financial value, into added value.
Likewise, when it comes to processes of succession and perpetuity of organizations. All success stories are permeated by corporate governance. The corporate mortality rate in Brazil is extremely high. The difference between the survival or not of an organization is directly linked to the implementation of governance instruments and the firm purpose of its leadership to implement and maintain governance processes.
We can state with complete certainty that corporate governance creates value for the business. Every real invested tends to turn into a result in the future. Either through added value in future exit negotiations, or in other words, in the better management of the business, generating effective results in the company's profit margin.
Por Glades Chuery and Paulo Cesar Martins Viana
Get in touch with TATICCA Allinial Global Brazil, which provides integrated auditing, accounting, tax, corporate finance, financial advisory, risk advisory, technology, business consulting and training services. For more information, visit www.taticca.com.br or email taticca@taticca.com.br. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.
[1] IBGC — Pillars of Governance, being the IBGC.
[2] Readily available — readily available.
