The Impact of Corporate Governance on Investor Success

For investors, good corporate governance is vital in giving them oversight of a company's internal policies, control mechanisms, and decision making.

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If investors can make an accurate assessment of how effectively the principles of corporate governance are applied in the organizations in which they hold stock or plan to invest, they are better equipped to make decisions regarding the risks and potential outcomes of their investment. In our experience,investors who are equipped with more hands-on experience of how to evaluate and drive the adoption of corporate governance, and how to monitor its implementation within a given company are better able to avoid risk, make more informed decisions about their portfolio, maximize their returns, and plan for a seamless and successful exit.

Evaluating investments

Developing a better understanding of corporate governance frameworks is a vital tool in helping investors in Middle Eastern businesses assess risk and evaluate investment opportunities. It is of particular importance where the target companies are private and unlisted, as these businesses are not legally obliged to implement the same governance frameworks as publicly listed organizations. Investors benefit from differentiating between companies based on the extent to which they have introduced elements of corporate governance and the effectiveness with which these have been implemented. This enables investors to better evaluate and compare potential investments in terms of risk and return.

Monitoring investments

Having an informed overview of the day-to-day running of the businesses in which they invest allows investors to better protect their interests. Potential issues that might arise with management, compliance, recruitment, and so forth can be identified and action taken before the performance of the business is severely impacted protecting their investments. This knowledge is also vital in planning an exit strategy that benefits both the investor and the organization itself, maximizing investor returns while reducing the risk of disruption to business continuity.

Reputational management

A detailed understanding of the management of Environmental, Social, and Governance (ESG) issues within investee businesses is an increasingly important factor in mitigating risk and ensuring optimal performance. In a globally connected world, reputational damage related to improper handling of these issues can have a significant and sudden impact on a company’s fortunes, and it is crucial for investors to regularly monitor the ESG status of an investment to protect them and their portfolio from any potential reputational damage, and by extension, financial loss.

A better understanding of corporate governance gives investors greater influence over their returns

With a fully developed understanding of the principles and implementation of corporate governance, investors are able to positively improve accountability, transparency, and good decision-making within the businesses they are invested in. Better informed investors, who are able to evaluate and differentiate between prospective and current investment targets are in a much stronger position when it comes to managing their portfolio and planning their investment lifecycle, from initial purchase through to exit strategy. In an ever-changing business landscape, successful investors must adopt an approach of continuous learning, to stay abreast of the latest developments in corporate governance and apply that knowledge to protect their interests and maximize their returns.

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Interesting Facts

Did you know that companies with a strong corporate governance function generate as much as 29% more profit for shareholders? Or that companies making ESG improvements in emerging markets outperformed their competition by almost 15% over 5 years? Download our infographic to learn more about the range of effects corporate governance can have on investments.

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Our Services

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Upcoming Trainings

We offer a range of capacity-building programs to develop investors’ understanding of corporate governance, demonstrate how to evaluate the governance function of their investments, and train key people within the organizations they are involved with.

If you have any questions or would like to reach out to us on the programs, please email: [email protected]

Our Experience

Over the last decade, MEIoD has worked with hundreds of investors across the Middle East to improve their knowledge of corporate governance, assist them in evaluating potential investments, and implement better governance structures within investment targets.

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