Every corporation should follow best practices for corporate governance. 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 organizations and other entities.
The benefits of following best practices for good corporate governance are many and the potential impact is boundless. Good corporate governance improves overall performance and promotes trust among shareholders and other stakeholders. Good corporate governance provides for sound strategic planning and better risk management. Corporations that embrace best practices for governance continually move toward long-term sustainability. Good governance prevents litigiousness and provides far-reaching legal protections for corporations.
Following the principles of good corporate governance takes a bit of effort. However, while corporations can expect to invest some of their corporate dollars in governance, taking steps toward best practices doesn’t have to be expensive.
What is Corporate Governance
In essence, corporate governance or board governance is the standard of rules that allows organizations 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.
When it comes to improving corporate governance, technology is a corporation’s best friend. Diligent Corporation offers a comprehensive enterprise governance management solution that strengthens and supports corporate governance best practices, with solutions for every budget.
What Are the Best Practices for Corporate Governance?
Best practices incorporate many different aspects of board work. They entail taking a critical look at the qualities and characteristics of board directors, who they are as people, and the way they approach governing an organization. Governance can incorporate many different practices.
Specifically, some of the primary best practices include building a competent board, aligning strategies with goals, being accountable, having a high level of ethics and integrity, defining roles and responsibilities, and managing risk effectively.
Building a Competent Board
Corporate governance today has a new focus on diversity and independence. This is because boards have the task of dealing with issues that are highly complex and often technical in nature. Many perspectives around the board table make for good decision-making. Most governance experts favor the notion of boards having a majority of independent directors.
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.
Aligning Strategies With Goals
Another corporate best practice refers to boards that align their strategies and risk management activities with the company’s goals. Boards should use all of their human resources and other tools to identify and assess all forms of risk. The board needs to work together to develop the company’s risk tolerance and risk profile. Additionally, they need to ensure that the company has the proper framework and controls in place, so they can monitor risk and mitigate it when necessary.
Corporate best practices require board directors to look at risk and strategy on a short- and long-term basis.
The many scandals that have made headlines demonstrate why accountability has such a strong position in best practices for corporate governance. Boards need to develop strong internal controls and to monitor them often.
Having reporting systems that are accurate and transparent, and that have a system of adequate checks and balances, is considered an important part of best practices.
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.
Having a High Level of Ethics and Integrity
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.
Defining Roles and Responsibilities
Another hallmark of best practices is to separate the roles of the Board Chair and the CEO and to have distinct roles for each of them.
All board directors should have job descriptions and an outline that describes their duties and responsibilities. Boards almost always need to delegate some of their responsibilities to committees, such as the nominating or governance committee, audit committee, compensation committee and other special committees, as needed.
Diligent’s Governance Cloud Provides Solutions for Best Practices for Corporate Governance
Diligent Boards is a board portal that provides a technological solution for conforming with best practices for corporate governance. The portal has software that stores electronic books for board meetings, committees and other purposes. The portal has a place for board director profiles and biographies, as well as listings for job descriptions, duties and responsibilities.
Diligent Boards protects against legal risks because it provides boards with secure documentation that demonstrates how board directors arrived at their decision-making.
The program makes it easy for board directors to communicate and collaborate in any setting. All communications are documented securely in the portal. Diligent Messenger is a secure and private communication tool that lets board directors share messages and information, including attachments, to another board director, private groups or the whole board. It even lets directors retract messages they didn’t intend to send.
Diligent has several other electronic tools in its Governance Cloud that interface with the board portal that also help to ensure best practices for corporate governance.
There are programs for Director & Officer questionnaires and another for board self-evaluations. Still another tool for Resolutions & Voting ensures accountability by documenting and securing votes and resolutions, which are dated with time stamps and electronic signatures.
Diligent’s Insights program is a software program that curates videos and articles exclusively for board directors so that they can get the latest in industry and corporate news, tailored to their interests.
Best practices for corporate governance are advancing all the time. That’s why technological solutions like those in the Diligent Governance Cloud can help corporations ensure best practices. The electronic board tools will continue to evolve right along with best practices. Corporations can’t afford not to follow best practices, so Diligent representatives are happy to work with companies of all sizes and budgets. Diligent’s suite of products is purposely built with good corporate governance at the forefront of their design.