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Defining Corporate Governance

Corporate governance refers to the system of rules, practices and processes by which an organization is controlled and operated. It involves a balancing of interests across stakeholders including shareholders, management, government, customers and communities.

To highlight the importance of effective corporate governance today, one only needs to look at recent missteps. Corporate crises like Theranos, Wells Fargo and Volkswagen each represent an instance where the rules and processes that governed the organization weren’t upheld. In the wake of reputational incidents like these, the questions that’s always asked is, “Where was the board?”

The board of directors is designed to be a watchdog of corporate governance. Representing the shareholders, board members are responsible for ensuring the proper systems are in place (i.e., governance policies, risk controls, executive compensation) for a company to be operating efficiently, profitably and ethically. How is corporate governance evolving? In what ways is it ripe for change?

Corporate Governance Trends

Adapting to an Evolving Landscape

The world around today’s corporations is changing. Markets are becoming more competitive. Shareholders are becoming more active. Companies that fail to innovate fast enough are being left behind. As a result, corporate governance structures must adapt.

We’ve seen various changes in corporate governance over the last few decades—some in the form of government regulation (e.g., Sarbanes Oxley, Dodd-Frank), while others are shareholder imposed (e.g., investors withholding votes for boards lacking gender diversity). We’ve seen changes in the boardroom as well. The role of a board member has become more strategic. The risks overseen at the board level have grown in number and complexity, which means the skill sets that today’s boards need are evolving as well.

Corporate Governance Around the World

The systems and rules that comprise corporate governance can vary around the world. In the U.S., a board of directors is elected by the shareholders with a focus on director independence; in India, founding family members usually have a controlling interest over the board; in China, government officials have a seat at the table; and in Germany’s dual-board system, it’s common for workers or labor representatives to hold significant sway.

Global Perspectives

In a recent series of episodes, we explored the differences between some of these corporate governance structures around the world with a focus on the board’s role. Sarah Mathew, a director serving on boards in Europe and the US, outlined nuances in shareholder engagement, activism, term limits, CEO compensation and board leadership. What can US boards learn from their European counterparts and vice versa?

Diligent recently launched the Diligent Institute, a new think tank and research arm that’s devoted to publishing two to three global research reports each year. Don’t miss the Institute’s first publication, Winds of Change: Environmental Sustainability Rises to the Board Level, which explores how boards around the world are overseeing environmental sustainability issues.

Modern Governance Tools

The rate of change in today’s business and governance landscape requires an integrated set of tools that can keep pace. General counsels and corporate secretaries must find efficiencies to manage all the entities and responsibilities under their purview. Board members need a system that delivers visibility and data from across the organization. Management teams need a secure platform for sharing sensitive documents and communications with the board and one another. And all stakeholders need access to the same data their investors have.

Connecting the Dots

Only Diligent provides a software system that integrates each of these governance functions: board management, entity management, governance risk monitoring, secure messaging and file storage, and more. Real-time reports, minute-taking, electronic voting and questionnaires make the paperless process seamless and efficient. Diligent’s governance data raises red flags across company peer groups and entities. Even at the board committee level, director search and pay-for-performance modeling are at the fingertips of Diligent users. Click here to learn more about Diligent’s modern governance solutions.