The Importance of Effective Corporate Governance

The success of a business is contingent on policies that cater to the requirements of investors, stakeholders and managers. Corporate governance lays the groundwork for how companies set and implement these policies. Effective governance is more vital now than ever in the current climate of shifting demands and expectations.

Corporate governance can only be effective when the culture, values and mission of the company are well-understood. It is also necessary to have systems in place that enable companies to identify and mitigate risk before they happen. This includes the creation of an ethical code of conduct, a system for reporting and regulating conflicts of interest.

The board should promote transparency, accountability and openness to all stakeholders both internal and external. The board is accountable for ensuring that the assets of the company are used in a way that generates long-term value to shareholders. This is achieved through a process that involves the identification of risks, the development of strategies for managing risks and evaluating performance in relation to the goals.

Boards should think about appointing an independent lead director (also called the presiding Director) to ensure that they lead their boards independently. This is especially crucial when the company has a CEO and chair post. Boards should include non-management members in evaluations of CEOs, if appropriate, and evaluate senior management’s overall performance.

The board should meet regularly with stakeholders, including shareholders, regarding issues that affect the company’s value creation over the long haul even if they are not in a position where they have direct influence over corporate strategy or decision making. It should encourage shareholders who wish to influence corporate decisions to publicly disclose their ownership and identity, when federal securities laws allow it.