Corporate Governance and Sustainable Development

At the present moment when only a few economies of the world have recovered from the global economic crisis that befell, and only consequential spill over has occurred for the rest, corporate governance has become a vital solution for the economic growth and sustainable development to which every economy aspires.
When we talk about Serbia, the Balkans, and other economies that are in transition from a planned to full market economy, the economic crisis that we faced, and which unfortunately has not yet passed, is only partly a result of the global financial and economic crisis. The primarily reason the Serbian economy, and other transit economies, is developing under very volatile and problematic circumstances is the economic systems are constantly being tested due to inherited, and it is fair to say not enough and in some parts absolutely undeveloped, economic and commercial structures.
However all crises, and their economic consequences, have a positive side. They create a general alarm for change and illustrate that the previous systems need to be improved for future progress. The positive impact of the economic crisis could be used as a guideline for establishing stable and above all sustainable development.
The National Strategy for Sustainable Development of the Republic of Serbia was adopted by the Government for the period 2008-2017 and defines sustainable development as a target-oriented, long-term, continuous, comprehensive, and synergetic process that affects all aspects of life including economic, social, environmental, and institutional.
It is well known that good corporate governance, and management in general, are of vital importance for sustainable development.
Well-functioning legal and state institutions with the necessary rule of law are vital for good governance. A weak judicial system where laws are not respected and implemented, particularly regarding corruption, leads to the undermining of respect for the rule of law, widespread degradation, and threatens aspirations towards sustainable development and progress.
Therefore in order to develop, attention and efforts must be directed towards establishing a functioning legal system where the penalties for non-compliance with legal norms are imposed and applied. Otherwise, the beta risk affecting the attractiveness of investing in a particular country, in this case Serbia, will continue to grow, and for the very companies that need to be the main drivers of overcoming a particular countries economic problems, the increase in alpha risks affects the quality of their corporate management.
As Joan Robinson said: "The purpose of economics is not in constructing the model, but in a constant effort to make life easier to all humanity."
The question that inevitably arises at this point is how does good corporate governance affect sustainable development? Good corporate governance contributes to sustainable economic development by improving company business results, increases operational efficiency, and facilitates and improves access to capital markets.  This leads to a reduction in company capital raising costs, increases the value of assets, and thereby contributes to a better corporate reputation.
Unfortunately, it seems that only few societies truly understand the depth and complexity of these issues.
The transition period of the national economy, and society as a whole, represents a comprehensive adaptation to new and, above all, required standards.  In the Republic of Serbia and greater region, the desired standards taken are the standards of the European Union.
At the beginning, it is necessary to access certain parts of the comprehensive restructuring of corporate management. This is a complex and often time-consuming process but must be approached if we want to make progress.
In order to ensure a proactive approach to sustainable development, as viewed through the prism of good corporate governance, it is necessary to focus and direct limited government and domestic investments towards the most profitable companies.
In most cases, if a specific company wants to survive in this new business environment it must completely stop the current practice of business, work and behavior. A company must adapt to these new conditions by adopting the principles of good governance to implement change. The changes that must be introduced are comprehensive and require the construction of a new, efficient system of business values that will dominate the quality of operations, business ethics, and above all, the business culture.  These changes are necessary not only for a particular business organization, but possibly the entire economic system.
Improving good governance practices in society also leads to improved accountability systems. These accountability systems significantly decrease the risk that employees will commit fraud or conduct business for their own personal benefit.
Significant strides towards sustainable development would be achieved if we actively and responsibly implement these solutions to overcoming existing problems.
As Adam Smith said: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”
  • Professional article published by Bar Association of Serbia
Written By: 
Bojana Bogojević
Lawyer and Corporate Governance Specialist