5 Corporate governance best practices that will benefit your company
In short, corporate governance or board governance is the standard of rules that allows organisations to ensure that they are serving the needs of their shareholders, stakeholders, management team and customers effectively and responsibly. However, included in this is that they are running the company in a way that meets the company’s short and long-term goals.
Best practices apply equally to new corporations as they do to well-established ones. Best practices for corporate governance apply to large companies, small companies, public companies and private companies. They even apply to nonprofit organisations and other entities.
Governance practices of the right size will have a positive impact on corporate performance in the long run. Nevertheless, organisations must form and carry out those that comply with both their specific needs and legal requirements. Listed are 5 major best practices of corporate governance every board of director can implement which is beneficial for every organisation.
Boards should include members with diverse backgrounds and skill sets. Board members should hold each other accountable for giving board duties adequate time to thoughtfully address important matters and decisions. The board should continually work to develop its members’ knowledge in the area of corporate governance. Boards should collaborate with management, using their expertise to broaden perspectives and analyze decision-making.
Boards should have a composition that incorporates all of the necessary skills and abilities to make sound decisions for the corporation. Board directors must have implicit trust in each other so that board discussions are productive, even when debates are long and wrought with many strong opinions. Board directors, board committees and the whole board should participate in annual self-evaluations to identify their strengths and weaknesses.
Maintain an unambiguous line of accountability among the management, Executive Officers, Chair and Board.
Board directors stand as the voice of the corporation. As such, they’re often called on to make public presentations. Board directors must consider their fiduciary duties whenever they speak for the corporation. The best nominees are people with a high level of ethics, honesty and integrity in their speech, their works and their relationships with people.
Boards should have a clearly stated conflict of interest policy and ensure that board directors declare all conflicts of interest and refrain from voting on such matters. Boards should also institute policies for whistleblowing and reporting noncompliance.
Best practices for accountability include making decisions about the correlation between attracting the most talented board nominees and offering them enough compensation to make board work worth their while, but without creating a conflict of interest. It’s generally preferred for board committees to manage and oversee board director remuneration.
Companies should regularly identify and assess the risks they face, including financial, operational, reputational, environmental, industry-related, and legal risks. Potential risk should be carefully weighed with the potential return on investment. They should also build an internal framework that flags existing and potential risks.
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