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What is at the origin of Corporate Governance?

Marco Villas Boas – Senior Partner at DMS PARTNERS

A few centuries ago, Humanity witnessed the invention of the steam engine, which revolutionized the production of goods, transport and countless other sectors of the Economy.

Mobilizing entrepreneurs and capital generated by profits, a new structure emerged: the capitalist company.

Initially created and managed by the entrepreneur, the company's economic success - achieved despite countless practices today considered at least unsustainable - led to growth in which the figure of the creator was no longer able to lead it in all aspects.

It was necessary to hire managers to divide the tasks, in a movement that provided the opportunity for the separation of capital and labor.

In this broad scenario that is still current, the entrepreneur begins to guide the company and monitor the results. Managers are responsible for planning and executing operations, commanding a team of employees.

Management by managers does not always express - in many situations even today - the intention and expectations of the entrepreneur. These eventual divergences characterize what is known as agency conflict: owner's expectations = X and efforts/results sought by managers = Y.

The impasse persists.

How to bridge the gap? How to avoid conflicts between entrepreneurs (or partners) and managers?

It took many decades to understand the problem and gradually develop a mitigating solution: Corporate Governance.

Governance deals with a set of practices, processes and structures (PPEs) to better deal with the sometimes divergent or even conflicting interests between partners and managers. And, by extension, between the company and all its stakeholders.

If there is a strategic direction that guides the company and sets expectations for result and also plans to execute operations, we have a form of Corporate Governance, albeit incipient and not perceived.

So the question arises: if Corporate Governance already exists, why then the worldwide movement to develop it even further?

The answer lies within itself: because it is born incipient, imperceptible and imperfect. AND because for each company, depending on its origin, maturity and risks, there is a governance solution.

It is an evolutionary path. How and where do you start?

Follow in the next post.

Count on the advice of DMS’ team of Corporate Governance experts


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