Corporate governance and its impact on profitability, sustainability and value creation

What is corporate governance from a financial perspective?

Essentially, corporate governance is the set of internal rules, policies and structures that define how a company is governed and how relationships are articulated between its management bodies, owners (shareholders) and other interest groups (employees, customers, suppliers, the community, etc.).

From a financial perspective, this concept focuses on the mechanisms that ensure the company’s management acts in the best interests of its owners, promoting decisions that drive sustainable value creation.

This includes key aspects such as the composition and operation of the board of directors, shareholders’ rights and equitable treatment, the transparency and reliability of financial information, and the existence of internal controls that prevent deviations, fraud or abuse.

A good corporate governance system seeks to align managers’ incentives with those of shareholders, balancing power between senior management and ownership.

Appropriate incentives are established (for example, remuneration plans linked to long-term objectives) and checks and balances (such as independent directors and internal audits) to minimise the risk that those who manage the company pursue personal benefits or short-term results to the detriment of the long-term value demanded by shareholders.

In short, corporate governance, seen through the lens of finance, is about ensuring the company is managed prudently, transparently and with a focus on value generation, protecting both owners’ investment and the interests of stakeholders as a whole.

When senior executives and directors operate under solid governance principles—transparency, accountability, equitable treatment, independence, responsibility and sustainability, among others—investor confidence is strengthened and the foundations are laid for the company’s long-term competitive success. Below, we set out these core principles and why they are crucial in practice.

Core principles of good corporate governance

Although specific frameworks may vary, there is consensus around several basic principles of good corporate governance that any company should adopt:

• Transparency: This involves disclosing relevant information about the company truthfully, fully and in a timely manner. Governance bodies should provide shareholders and other interested parties with clear reporting on the financial position, results, shareholding structure, material risks, strategic plans and any relevant facts.
  A culture of transparency reduces uncertainty and information asymmetries, enabling investors to make informed decisions. “Showing your cards” openly builds credibility in the market and prevents rumours or misunderstandings that could affect the company’s valuation.
• Responsibility (Accountability): The company’s directors—especially the Board of Directors—must fully assume the consequences of their decisions and actions towards owners and other stakeholder groups. This principle requires the board to act at all times in the best interests of the company, assessing risks, defining strategy and diligently supervising management.
  Senior management has a duty to account for its performance: it must explain and justify its strategic decisions and results to the General Meeting of Shareholders in a clear and balanced way. Likewise, responsibility involves establishing internal control and audit mechanisms to monitor compliance with approved policies and agreed objectives.
  A truly responsible board clearly defines the level of risk the company is willing to assume, maintains formal corporate reporting processes and behaves with integrity, so that both successes and failures are communicated and managed honestly.
• Equitable treatment and independence: All shareholders, including minority shareholders, must receive fair and equal treatment. Good corporate governance ensures that no shareholders are improperly favoured over others, protecting minority shareholders in particular against potential abuse by controlling shareholders. Each shareholder must have their rights respected and effective means of complaint if those rights are infringed.
  Independence on the board of directors is fundamental: having independent directors (members who are not part of the executive team and are not linked to controlling shareholders) brings objectivity to decision-making and helps dilute the concentration of power. These directors, with an autonomous judgement, can supervise management impartially, avoiding conflicts of interest and safeguarding the company’s overall interests.
  An independent director “must not simply be a friend of the owners”, but someone capable of saying no when necessary, representing the voice of all shareholders.
• Effectiveness and efficiency: The governance structure must be effective in strategic direction and oversight, while also promoting efficient management of resources. Effectiveness means that the board of directors and its committees genuinely perform their function competently: they make sound decisions with adequate information, anticipate and manage risks, and guide the company towards its long-term objectives.
  Efficiency refers to optimising processes and resources to achieve results with agility and minimal waste. Good corporate governance establishes procedures that avoid unnecessary bureaucracy and enable a rapid response to changes in the environment.
  For example, an efficient board plans meetings sufficiently in advance and with the necessary information, delegates detailed analysis to specialised committees (audit, risk, nominations, etc.) and follows up on implementation of its decisions. It also clearly defines the responsibilities of each body (general meeting, board, senior management) to avoid overlaps or control gaps.
  In short, the governance system must work in practice, ensuring the company operates in an agile and effective way, focused on its strategy and long-term competitiveness.
• Focus on sustainability (ESG criteria): Best practices in corporate governance increasingly integrate Environmental, Social and Governance criteria (ESG) into corporate strategy. This means that the board of directors considers the impact of its decisions not only on immediate financial results, but also on the environment, society and the future sustainability of the business.
  Modern corporate governance drives responsible policies: for example, commitments to reduce environmental impact, good labour practices and respect for human rights, diversity and inclusion within the organisation, etc. Sustainability and corporate social responsibility reports are often published to account for these areas.
  Ultimately, corporate governance and sustainability go hand in hand: a well-governed company seeks to create value not only for the shareholder, but in a balanced and responsible way with its surroundings, ensuring its long-term viability.
• Aligned and appropriate remuneration: Remuneration policy for directors and senior executives is another critical pillar. It must be clear, transparent and aligned with the company’s long-term performance and corporate interest. In practice, this means designing salaries, bonuses and incentives so that they reward the achievement of sustainable objectives, avoiding excessive rewards based on short-lived successes that could compromise the future.
  For example, it is advisable that variable remuneration depends on multi-year metrics (several years) and that there are reversal clauses or “malus” provisions to recover bonuses if hidden risks or losses subsequently emerge. It is also important to disclose remuneration information to shareholders in specific reports, so they can assess whether leaders are being paid proportionately to the results delivered.
  Transparency and balance on this topic is fundamental, as disproportionate or poorly designed pay has been at the centre of many criticisms and corporate scandals. Best practice recommends that a remuneration committee (mostly composed of independent directors) proposes and oversees these policies to ensure impartiality.
  A well-governed remuneration policy aims to attract and retain high-quality executive talent, but always under structures that align managers’ incentives with the company’s long-term interests, avoiding conflicts of interest and fostering sustainable value creation.

Benefits of good corporate governance

Applying these good corporate governance practices is not only an ethical matter or about complying with regulations: it also provides tangible benefits in financial performance and corporate sustainability. Among the most notable advantages are:

• Investor confidence and access to capital: Companies with strong corporate governance generate greater trust among investors, creditors and financial markets. When investors perceive that a company is managed transparently, with rigorous controls and respect for their rights, they are more willing to invest and to provide financing on favourable terms. This can translate into a lower cost of capital, as perceived risk is lower.
  In essence, good governance acts as a quality seal that attracts capital: institutional funds and professional shareholders often scrutinise governance quality before committing money, preferring well-managed companies where their investment is protected.
• Better financial performance and long-term value: Numerous studies have found a correlation between high corporate governance standards and stronger economic performance. Companies with professional and independent boards and robust internal controls tend to make better investment decisions, manage risks prudently and avoid deviations that erode results. This translates into more stable and sustained profits over time, with lower volatility.
  In addition, by aligning management with owners’ interests, it supports a long-term growth mindset. A properly supervised management team is unlikely to mortgage the future for short-term gains: on the contrary, it will invest in profitable projects, innovation and sustainable development.
  Over time, this good management is reflected in a higher company value, both in terms of equity (share valuation) and competitive strength in its sector.
• Risk reduction and resilience in crises: Good corporate governance works as a crisis-prevention mechanism. Rigorous control and oversight practices help detect and correct potential irregularities, fraud or strategic mistakes before they become serious problems.
  For example, effective internal audit can uncover embezzlement or accounting manipulation early; an active risk committee can identify excessive exposures in certain investments; a vigilant board can stop imprudent management decisions. This helps avoid or mitigate unexpected losses, legal sanctions or scandals that could irreversibly harm the company.
  Likewise, well-governed companies are usually better prepared to face external crises (such as economic recessions, abrupt regulatory changes or exceptional situations like a pandemic) because they have contingency plans, an ethical culture and an agile but controlled decision-making structure. In short, good governance strengthens organisational resilience: the ability to withstand shocks, adapt and survive in adverse environments.
• Corporate reputation and stakeholder confidence: The way a company is governed directly affects the image it projects externally. A company that acts with integrity, reports truthfully and respects its shareholders and other interested parties builds over time a solid reputation for seriousness and reliability.
  This attracts not only investors, but also customers, business partners and human talent: many people and organisations prefer to engage with companies perceived as ethical and well managed. Conversely, governance scandals (accounting fraud, corruption cases, minority shareholder abuse, etc.) typically bring severe punishment from both the market and public opinion.
  The company’s valuation can collapse due to loss of confidence, the best employees may leave, customers lose loyalty and there may even be boycotts or sanctions. A track record of good governance, by contrast, becomes an intangible asset of enormous value: it protects the brand, generates loyalty and goodwill, and in difficult situations provides an additional vote of confidence from stakeholders, who tend to give the benefit of the doubt to companies with good governance.

Taken together, these advantages explain why corporate governance has moved from being seen as mere regulatory compliance to being regarded as a strategic investment. A well-governed company not only avoids problems; it enhances its chances of success in the market.

Consequences of poor corporate governance: notable cases

Just as good governance adds value, poor corporate governance practices can destroy a company. In Spain there have been numerous examples of fraud and scandals where governance failures played a central role. Here are some well-known cases illustrating the consequences of poor corporate governance:

Pescanova (2013): hidden debt and financial collapse

Pescanova was at the heart of one of the biggest corporate scandals in Spain. Under the leadership of its then chairman, the Galician multinational concealed a huge financial debt for years, shifting it to subsidiaries and manipulating its accounts to appear solvent. It also deliberately delayed publishing its financial statements, misleading both the market and its own directors.

When the true situation came to light in 2013, Pescanova was pushed into insolvency proceedings: its share price collapsed (losing close to 70% of its value in a few weeks) and thousands of investors saw their savings invested in the company evaporate. This case revealed a complete absence of effective internal controls and the complicity or passivity of a board of directors that did not know—or did not want—to stop senior management’s abuses.

In short, Pescanova showed how poor corporate governance practices can lead to disaster even for a sector leader.

Gowex (2014): the accounting fraud of a star start-up

Another high-profile scandal was Gowex in 2014. This technology company, dedicated to providing public WiFi services, went from being the star of the Spanish market to collapsing overnight when it was revealed that its accounts were pure fiction. Gowex’s founder and CEO admitted to having falsified the accounts for at least four years, inventing revenues that never existed to project an image of spectacular growth.

Gowex was listed on the MAB, a market with looser requirements than the main exchange, highlighting failures in the supervision and auditing of these smaller companies. The result was suspension of trading and Gowex’s bankruptcy, causing multi-million losses to numerous shareholders and triggering a crisis of confidence in the MAB.

Many investors questioned the reliability of Spanish small caps after seeing that such a crude fraud had gone unnoticed by regulators and auditors. The Gowex case underlined the importance of rigorous audits and independent controls, even for emerging companies outside the spotlight of major analysts.

Abengoa (2015): over-indebtedness and lack of transparency

The collapse of Abengoa is another example of how deficient corporate governance can worsen a financial crisis to the point of nearly sinking a company. Abengoa, a Spanish giant in engineering and renewable energy, expanded aggressively worldwide, financing its growth with vast amounts of debt. Meanwhile, its financial statements presented an overly optimistic picture of its situation, to the point that many investors did not perceive the seriousness of its problems.

Abengoa is a clear example of the risks of a board that is not sufficiently independent and a lack of transparency: an emblematic company that, because it lacked proper limits and controls in its management, came close to bankruptcy and dragged down the investment of thousands of people with it.

These are not the only examples of poor corporate governance in Spain. The Bankia crisis in 2011–2012, for example, was also linked to deficient management, conflicts of interest and a lack of internal controls, with disastrous consequences for savers and for the stability of the financial system.

Overall, all these episodes have driven reforms in regulation over the last decade and greater awareness of the need to strengthen good corporate governance, to prevent history repeating itself. Today, there is a much broader consensus on which practices are considered unacceptable and on the importance of good corporate governance.

A culture of regulatory compliance (Compliance) and internal controls

A key pillar of good corporate governance is adopting a strong culture of regulatory compliance (compliance) and implementing effective internal protocols. These tools act as a safety net that prevents or detects unlawful conduct and poor practices within the organisation before they cause greater damage. Creating a corporate culture oriented towards compliance brings multiple concrete advantages:

• Prevention of sanctions and financial losses: By ensuring the company and its employees comply with laws, regulations and ethical standards, the company avoids multi-million fines, lawsuits and other costs arising from infringements.
  A robust compliance programme (codes of conduct, ethics training, whistleblowing channels, etc.) reduces the likelihood of becoming involved in corruption, fraud or anti-competitive practices that could lead to criminal or administrative sanctions against the company.
• Protection of financial integrity: Internal protocols—such as periodic internal audits, financial controls, segregation of duties in key processes and oversight committees—help detect budget deviations, accounting fraud or embezzlement early, before they escalate. This safeguards the company’s assets and maintains investor confidence in the accuracy of the financial information reported.
  For example, dual-signature procedures for material payments or approval limits by hierarchical level are practices that make it harder for a single individual to commit resources improperly.
• Reputation and stakeholder confidence: Companies that demonstrate a genuine commitment to compliance and ethics build a strong reputation in the market. Investors, customers, suppliers and partners prefer to engage with organisations of integrity that minimise legal risk and scandals. A single ethical incident can spread quickly through the media and social networks and seriously damage corporate image.

Investing in prevention (compliance) is far more cost-effective than facing the consequences of a reputational crisis. Moreover, a workplace governed by ethics and legality also improves internal morale: employees feel safer and prouder to belong to a company with strong values, which translates into greater commitment and productivity.

In short, regulatory compliance and good governance go hand in hand. It is not only about avoiding fines, but about creating an environment of trust where everyone—from the board to the last employee—knows what behaviours are expected and which are unacceptable. Spanish companies have made significant progress in this area after the scandals experienced, incorporating Compliance Officers, ethical codes and increasingly strict controls to protect their integrity.

Examples of good corporate governance in Spanish companies

Fortunately, alongside negative cases there are also many examples of companies that have adopted exemplary corporate governance practices and have been recognised for doing so. Two illustrative cases in the Spanish market are Inditex and Iberdrola, leading companies that have managed to combine profitability with responsible management:

Inditex: leadership with transparency and responsibility. The Inditex group (parent of global brands such as Zara) is internationally recognised not only for its financial success, but also for its strong corporate governance practices. The company maintains a Board of Directors structure with a high level of independence and diversity, ensuring effective control over strategic decisions.

In addition, Inditex separates the roles of chairman and chief executive officer (CEO), avoiding excessive concentration of power in a single person.

During the COVID-19 crisis, Inditex demonstrated its commitment to good governance: it maintained transparent communication with the market about the pandemic’s impact, adapted its General Meeting to a remote format to ensure participation of all shareholders despite health restrictions, and adjusted executive remuneration in a context of declining activity. These measures earned it recognition for corporate responsibility.

Inditex’s policies reflect a long-term management philosophy, where business sustainability and social commitment go hand in hand with profitability. As a result, Inditex enjoys investor confidence and a strong reputation as a transparent and fair company.

Iberdrola: commitment to transparency and sustainability. The energy company Iberdrola has positioned itself as a benchmark for good corporate governance in Spain, repeatedly recognised in international rankings of companies with best practices. Iberdrola has built a governance and sustainability system that incorporates the highest standards of business ethics, informational transparency and shareholder participation.

The company actively encourages shareholder engagement, organising continuous communication programmes and meetings that allow it to hear their concerns and suggestions. In its General Meetings, Iberdrola usually achieves very high participation rates and near-unanimous support for the board’s proposals, reflecting the trust it has been able to generate.

In addition, it was a pioneer in Spain in publishing detailed sustainability and tax transparency reports, and it maintains a strict compliance system to ensure the whole organisation acts with integrity. Thanks to this comprehensive approach, Iberdrola has consolidated its position as one of Europe’s most highly valued utilities, combining financial profitability with outstanding performance in ESG criteria.

Its case shows that good corporate governance practices are not incompatible with growth; rather, they enhance it: the company has grown internationally with a clean and responsible energy strategy, supported by the confidence provided by its good governance reputation.

These examples from Inditex and Iberdrola show that good corporate governance is not abstract theory, but has very real and positive effects. Companies across sectors that adopt these principles attract quality investment, remain resilient in challenging environments and generate a favourable social impact, which in turn supports their valuation and business success.

Corporate governance frameworks and standards

The governance principles and practices discussed do not come out of nowhere: they are supported by various international and national reference frameworks. These frameworks provide guidelines and recommendations that have been adopted by regulators and companies worldwide to raise governance standards. Some of the most notable are:

• G20/OECD Principles of Corporate Governance: Initially issued by the OECD in 1999 and updated periodically (the most recent revision is 2023), they are a global benchmark in corporate governance. These principles guide governments and regulators in assessing and improving their own rules and codes.
  Among their guidelines are ensuring shareholders’ rights and equitable treatment (especially minority shareholders), recognising the role of stakeholders in value creation, ensuring transparent disclosure of relevant financial and non-financial information, and defining the key responsibilities of the board of directors.
  The OECD Principles emphasise that a strong governance framework strengthens confidence in markets, enables companies to access financing on better terms, and contributes to financial stability and sustainable economic growth. Although voluntary, many countries (including Spain) have used these principles as a basis for their own recommendations and governance regulation.
• CNMV Good Governance Code (Spain): At the national level, the Comisión Nacional del Mercado de Valores has been issuing a code of good governance recommendations for Spanish listed companies since 2006. The current code (updated in 2020) contains 64 specific recommendations, under the “comply or explain” principle: listed companies must comply with these practices or, if not, publicly explain their reasons for not doing so.
  The recommendations cover aspects such as board composition (proposing a significant proportion of independent directors and gender diversity), how specialised committees operate, risk management and internal controls, remuneration policies linked to long-term results, the quality of financial and non-financial reporting, active shareholder participation at general meetings, among others.
  While not all these guidelines are legally mandatory, the Spanish Companies Act does require listed companies to publish an annual corporate governance report stating their level of compliance with the CNMV code. In practice, this code has substantially raised governance expectations in Spain, bringing the governance of Spanish companies closer to international standards and reinforcing investor confidence in the Spanish stock market.
• ISO 37000 (Governance of organisations): This is an international standard, published in 2021, focused specifically on providing guidelines for effective organisational governance. It is the first ISO standard dedicated entirely to good governance.
  Unlike other ISO management-system standards (which are certifiable), ISO 37000 does not set certification requirements; instead, it offers principles and guidance so that any organisation (large company, SME, public entity, association, etc.) can assess and improve its governance system.
  Developed with contributions from experts from more than 70 countries, ISO 37000 compiles global best practices around values such as long-term value creation, responsible strategy and leadership, ethical culture, accountability, risk management and stakeholder participation. Its aim is to provide a common language and a universal framework for discussing good corporate governance.
  Many companies use this standard as a voluntary reference to diagnose governance strengths and weaknesses, and in Spain private certifications of “well-governed company” based on ISO 37000 are already being offered. Ultimately, the existence of this standard reflects that good governance is a matter of worldwide relevance and that even non-listed organisations seek to benchmark themselves against international best practices.

These reference frameworks, alongside others such as the World Bank/IFC guidelines for corporate governance in emerging markets, share the same underlying goal: fostering more transparent, responsible and sustainable organisations. They have been shaped by lessons learned from countless real cases and serve both to inspire regulatory changes and to guide companies’ self-regulation.

Applicability to medium-sized and family-owned businesses

Good corporate governance is often seen as a concern mainly for large listed companies. However, governance principles and practices are equally applicable and beneficial for medium-sized companies and even family business groups. In fact, many basic recommendations (transparency, internal controls, defined responsibilities, etc.) make sense for any organisation seeking to endure and grow in a solid way.

SMEs and family businesses face particular governance challenges. In family companies, for example, ownership and management are often concentrated in the same people (members of the founding family), which can lead to highly centralised and sometimes informal decision-making.

Implementing good governance practices in this context can mean steps such as: creating an advisory board or a professionalised board of directors with independent directors who bring objectivity; clearly defining the family’s roles in management (separating family matters from business matters as far as possible); establishing generational succession protocols to ensure business continuity; and adopting formal financial reporting and internal control policies that bring transparency to company performance.

These measures help professionalise SME or family business management, mitigating the risks of arbitrary decisions or family conflicts affecting the business.

In addition, medium-sized companies seeking to grow or attract external investment (for example, bringing in a financial partner, private equity, or simply obtaining bank credit on good terms) benefit directly from improving corporate governance. Many investors assess management and control standards before injecting capital into a non-listed company.

Thus, an SME that has strengthened its governance—with audited and transparent accounts, governance bodies exercising effective control and a clear long-term strategy—will inspire greater confidence and will be able to access resources for expansion on more advantageous terms. Even in terms of internationalisation or competing with larger companies, having good governance structures adds credibility and can be a differentiating factor.

It is also worth noting that there are specific initiatives and guides to help SMEs on this path. International organisations such as the IFC (International Finance Corporation) of the World Bank have published corporate governance guides for small and medium-sized enterprises, adapting the major principles to a smaller scale. In Spain, institutions such as the Instituto de la Empresa Familiar and other business forums also promote governance codes for family businesses.

All this reflects that the business community increasingly understands that good governance is not exclusive to large corporations. Any company, regardless of its size, can benefit from more transparent management, internal controls proportionate to its activity and a culture that values responsibility and ethics in every decision.

Implementing governance improvements in an SME or family business does not have to be costly or complex: you can start with simple but impactful steps, such as creating internal by-laws, holding periodic board meetings with minutes and follow-up on decisions, including trusted external directors, or establishing clear communication channels with partners and employees.

The key is to understand that the final objective is the same for all companies: to ensure long-term viability and success. And for that, organising the company with good governance practices is as important as having a good product or service.

Conclusion: a strategic advantage for any company

Strengthening corporate governance translates into more robust, trustworthy companies that are more attractive to investors, partners and other stakeholder groups. Lessons learned from financial scandals have led many organisations to raise their standards, aware that corporate governance has moved from being “an obligation to comply with” to becoming an indispensable strategic tool.

In an increasingly competitive and transparent global business environment, having an impeccable reputation and responsible management is no longer optional, but a key factor that distinguishes leading companies.

For organisations—large or small—that aspire to endure and prosper, it is worth investing time and resources in building effective governance structures. This means promoting internally a culture of honesty and excellence, forming balanced and competent leadership teams, planning with a forward-looking vision and communicating clearly to the market and stakeholders.

The foundations of good governance—transparency, responsibility, fairness, sustainability and appropriate risk control—remain valid even as new challenges arise, such as digital transformation or growing environmental and social requirements. In fact, these challenges make it even more necessary to have solid guiding principles for decision-making that benefits the company and society in the long term.

However, not all companies have the experience or internal resources to implement governance improvements on their own. In this regard, relying on external specialists can make the difference. Maraz Corporate Finance is a financial advisory firm specialising in medium-sized companies and large family-owned businesses that understands very well the importance of good governance.

Through its strategic financial consulting services, outsourcing of finance leadership (external CFO), board advisory, restructuring and fundraising support, Maraz helps professionalise company management and strengthen control and planning structures.

In conclusion, good corporate governance is not a luxury or a passing trend, but a pillar on which trust and enduring corporate success are built. Any organisation that aims to grow in a solid way should advance in corporate governance. The results will speak for themselves: greater access to opportunities, risks under control, committed teams and a reputational asset that will protect the company even in the most difficult times.

Javier de Rojas Roca de Togores

Partner - Maraz Corporate Finance