When it concerns corporate governance, it is important to ensure that your board follows best practices for success. It’s not enough, however, to just check the appropriate boxes and meet the bare minimum requirements. Instead, a strong board should constantly evaluate its own performance in order to find ways to improve. The most effective boards are ones which excel in this particular area.
A good governance practice is to ensure that shareholders are aware of the board’s roles, responsibilities and obligations. This includes explaining how the board’s compensation aligns with the goals of the company’s strategic plan and also defining what is effective oversight and a strong system of checks and balances.
A clear strategy to manage the risks faced by the company is essential as well. It is important to understand the risk profile of the company both in the short- and long-term. Then, work with the board on how it will evaluate the risks. It is also crucial to ensure that the board has the tools necessary to recognize risks. This includes internal factors, such as cultural practices and poor communication between directors.
It’s also important that you listen to shareholder concerns and encourage them to participate. This is particularly important in the current context of increasing shareholder activism. Boards must, for instance, work with shareholders in order to discover and address the discontent among shareholders long before the time for proxy voting begins.
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