The success of a company is dependent on the policies that satisfy the requirements of investors, stakeholders and managers. Corporate governance is the foundation for how companies establish and implement these policies. In a world of ever-changing demands and expectations, effective governance is more crucial than ever before.
Corporate governance is only effective when the culture, values and purpose of the company are understood. It is also important to have systems in place that enable a company to recognize and reduce risk before they happen. This includes the creation of the code of conduct, effective reporting channels and regulating conflicts of interest.
The board must promote transparency, accountability and openness to all stakeholders both internal and external. The responsibility of the board is to ensure that the resources of the company are used in a manner that create long-term value for shareholders. This is achieved through an approach that involves identifying risks, developing strategies to manage risk, and monitoring performance against the goals.
Boards should consider appointing an independent director as the lead (also called the presiding Director) to ensure that they are running their boards without interference. This is particularly important when the CEO and chair are combined. Boards should also include nonmanagement members in CEO evaluations, when appropriate, and assess the overall performance of senior management.
The board should be able to regularly communicate with shareholders and other stakeholders on issues that impact the long-term value of the company even if they’re not in the position of directly influencing corporate strategy or decision making. It should encourage shareholders who wish to influence corporate decisions to disclose their identity and ownership, in the event that federal securities laws allow it.