What is corporate governance and why does it matter?

by MPA11 Dec 2015
On the November 30 episode of my Lykken on Lending radio show, I had the opportunity to interview my friend and colleague Andy Schell on the idea of corporate governance. What is corporate governance, exactly? Sometimes in our industry, we can use jargon that unnecessarily complicates what we're talking about. So, what does corporate governance really mean? According to Andy, corporate governance simply means establishing guidelines that determine how a company is run.

For publicly traded companies, compliance management systems are required. When you're accountable to the public, you don't have a choice; you have to have established guidelines. But, if you are an independent mortgage banker, is it really necessary to invest the time and money into developing a system of foundational guidelines? Do the more entrepreneurial among us still need corporate governance?

According to Andy, the benefits of corporate governance far outweigh the costs. Even if you don't have a board or investors who are forcing you to develop a compliance management system, it is beneficial for you to do so on your own accord. In doing so, you'll have a list of rules that you can go back to when there is a question about a decision you've made or a decision you are considering making.

If you are ever audited, having corporate governance will provide you support and rationale for any behavior that is called into question. Yes, it can be costly and strenuous to implement, but – especially in an era of excessive regulation – you’ll almost certainly find that it pays off in the end.
 

Poll

Is TILA-RESPA a good or bad thing long term?