Corporate governance is a set of rules, procedures and methods that companies use to manage themselves. The framework of governance establishes the checks-and-balances that keep businesses accountable to their shareholders, employees and other stakeholders.
Corporate governance models are different in the modern business world, and all have distinct effects on the efficiency of a business. Some governance systems focus more on the stock exchange, while others are more focused on a company’s customers or employees.
The board’s primary duties include controlling the company’s strategic vision and ensuring that it is ethically and legally compliant. The board also has to oversee management including the CEO. All directors must be involved and ready for board meetings.
A committee structure that is efficient lets the board examine and debate issues more thoroughly than might be possible during full board meetings. The board must determine which committees will be responsible for the functions they are assigned and who will be a part of each committee.
A company’s governance system should be fair for all its shareholders. This means avoiding actions that favor one group of shareholders over another. Also, it means treating suppliers, vendors and communities with respect.
The role of the board in corporate governance differs depending on the industry and the country. In the United States for example, the Securities and Exchange Commission has created a set of best practice guidelines for board members on topics such as ESG reporting cybersecurity, cyber security, and governance structures. The SEC’s requirements are supplemented by guidance on good practice from world-class university centers of excellence in leadership and business management.