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When it is about corporate governance, you’ll want to ensure your board is following best practices to achieve success. It’s not enough to simply check the right boxes and follow the minimum requirements. Instead, a strong board should be continually evaluating its own performance to find ways to improve. The most effective boards are those which excel in this particular area.
One important governance best practice is to help shareholders to be aware of the board’s role, responsibility, and accountability. This includes explaining the aligning of the board’s compensation with the company’s goals and defining what constitutes an effective system of oversight as well as checks and balances.
A clear framework to manage the risks of a company is also important. This means establishing an understanding of the company’s short and long-term risk profile, and working together to determine the way in which the board will assess the risks. It is also about ensuring that the management and board have the tools to assess the risks, which could include internal factors like cultural norms or inadequate communication between directors.
It’s also vital to listen to the concerns of shareholders and encourage participation. This is particularly crucial in the current environment of increased shareholder activism. Boards, for instance, should collaborate with shareholders in order to detect and address shareholder discontent even before the proxy season begins.
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