How to Implement Good Corporate Governance
It was architect Daniel Hudson Burnham who said, “Make no little plans; they have no magic to stir men’s blood.” In the corporate world, however, big plans require a big effort. Corporate governance exists to help companies carry them out by providing a framework of rules and procedures that extend to everyone, from board directors and senior management to shareholders and customers. In short, corporate governance is designed to help companies make smarter decisions according to the letter of the law.
Some, like The Coca-Cola Company and Bank of America, have such confidence in their corporate governance policies that they post them to their websites. So what does it take to create a good one? Is yours up to snuff?
Build a Strong Board of Directors
Responsible for overseeing your company’s affairs, your board of directors should be comprised of experienced, passionate people who possess the time and energy needed to fulfill the role. Generally nominated by long-term shareholders, board members should also be a diverse group that brings varied insights to the table. Just as your company makes an effort to attract and retain top management talent to ensure a competitive advantage, so too should you work to create a skilled and decisive board.
That means giving them the tools they need to do their job effectively. Expose them to an orientation program that will prepare them to delve into your industry and familiarize them with the competitive landscape. Educate them on an ongoing basis, and keep them engaged to maximize the value of each director’s unique perspective.
Your directors should be well aware not only of their responsibilities, but also of your company’s existing policies. For example, does your board have a maximum length of service? What kind of evaluation process do you employ to ensure that all members are performing? Make your stance clear, so that directors know what’s expected of them and can focus fully on the task at hand.
Foster Loyalty and Trust
A public company’s loyalty is, above all else, to its shareholders. Directors must therefore uphold the shareholders’ interests and maintain the highest ethical standards.
The secret lies in collaboration and an open dialogue. Some companies encourage board members to have direct contact with shareholders or assign select directors to liaise with them on key issues. As directors are tasked with making the company’s most critical decisions, contact with shareholders is important to ensure that those decisions have the desired outcome.
An offshoot of loyalty to shareholders is transparency, not just about quarterly financial results but roles and responsibilities within the company, goals, challenges, strategic decisions, and upcoming mergers and acquisitions. In its report on corporate governance in the public sector, Deloitte explains, “It is becoming more important than ever to… maintain faith in the system and promote better service to the public, accompanied by transparent and controlled operations.” Creating a culture of trust can also have a ripple effect that positively influences your company’s reputation, employees and brand.
On the logistics front, it’s vital that companies have a system in place to set and carry out the board’s agenda and activities, including tasks like mapping short and long-term strategies, electing a CEO and determining compensation, and assessing opportunities and risks. This involves routinely asking whether you’re meeting objectives and doing what you set out to do. Communication is key:
Communication and information flow between the board and management, along with communication with all shareholders and stakeholders, are among PricewaterhouseCoopers (PWC)’s rules for good corporate governance.
There are tools designed expressly to facilitate this. Board portals, for example, allow directors and administrators to interact with each other through a secure platform, which can significantly boost mobility and productivity among top decision-makers.
Corporate governance isn’t a one-size-fits-all solution. But keep these best practices in mind and you’ll be better equipped to execute your company’s plans — big and small.
Diligent is the leading provider of secure corporate governance and collaboration solutions for boards and senior executives. Over 4,700 clients in more than 70 countries and on all seven continents rely on Diligent to provide secure, intuitive access to their most time-sensitive and confidential information, ultimately helping them make better decisions. The Diligent Boards (formerly Diligent Boardbooks) solution speeds and simplifies how board materials are produced, delivered and collaborated on via any device, removing the security concerns of doing this by courier, email and file sharing. Visit www.diligent.com or follow Diligent on Twitter @diligentHQ to learn more.