Corporate Governance as an Ethical Business Strategy

Alexandra Lasso, lawyer in Panama and expert in Financial and Corporate law, shares this article on the implementation of a good corporate governance in Panamanian organizations, its benefits, and applicable regulations.

When discussing the management of companies and Panama's position as an important financial, corporate, and logistical center, it is essential to consider how decision-making is conducted by those involved in the administration of the company or organization. This necessity has given rise to the concept of corporate governance emerges.

Adopting good corporate governance practices is crucial for maintaining and enhancing Panama's appeal as an investment destination. It also strengthens the overall economic system, fostering a safer and more reliable business environment.

The first regulation on corporate governance in Panama originated from the banking sector in 2001. This regulation was later repealed and replaced by Agreement No. 5-2011, issued by the Superintendency of Banks of Panama, along with its amendments. Under this agreement, corporate governance is defined as "the set of rules that guide the relationships between the entity's management, its board of directors, its shareholders or, where applicable, the owner of the bank shares, and other stakeholders to provide the structure through which objectives are set, the means to achieve those objectives, and the system for monitoring their performance."

From the above, it can be understood that corporate governance refers to the system by which companies are directed and controlled. This concept aims to specify the distribution of rights and responsibilities among the different participants within the company.

The implementation of corporate governance is mandatory only for companies listed on the Panama Stock Exchange, financial entities, or regulated companies. However, its adoption has been promoted among non-regulated entities due to its ability to enhance sustainability, efficiency, and competitiveness. Viewed as a business strategy, good corporate governance provides numerous competitive advantages.

Corporate governance encompasses practices and policies that ensure transparent, responsible, and equitable management. The implementation of good corporate governance in Panamanian companies offers multiple benefits, including:

1. Transparency and Accountability: Robust corporate governance promotes transparency in decision-making and accountability of the executives. This translates into greater trust from investors, employees, and other stakeholders. Moreover, accountability measures ensure that the company’s interests are safeguarded.
2. Access to Capital: Companies with strong corporate governance practices often have better access to financing. Both domestic and foreign investors are more willing to invest in companies that demonstrate a high level of transparency and internal control. This enhances the company's image and increases its market attractiveness.
3. Competitiveness and Sustainability: Companies with good corporate governance are better prepared to face challenges and seize opportunities. This improves their financial stability and allows for sustainable growth in the short, medium, and long term.
4. Prevention of Fraud and Corruption: The implementation of clear controls and policies helps prevent fraud, corruption, and malpractice. This is crucial for maintaining the company's integrity and reputation.