Organization of effective corporate governance involves establishing clear and standardized roles, responsibilities, accountability and transparency for all stakeholders. It also assists in promoting an environment which values diversity and encourages fairness. These frameworks are applicable to a wide range of organisations from large corporations to professional associations and families.
The board develops and approves corporate strategies designed to produce long-term value that is sustainable; chooses the chief executive officer (CEO) and supervises management of the business. It also invests capital as well as evaluates and manages risks and sets the “tone at the top” for ethical conduct. The board usually comprises comprised of insiders such as founders, major shareholders, and executives. They are additionally joined by independent directors who have experience in managing or directing large companies. Independent directors are considered to be helpful in governance because they don’t have the same connections to insiders that could create conflicts of interests.
The composition of the board is crucial since board members are often faced with technical issues which require a variety of perspectives. For this reason, experts in governance generally recommend that a board should have at minimum the majority of independent directors. In addition, tenure and diversity are important in ensuring the board’s effectiveness, especially when discussions are long and brimming with opinions. The board’s new members can offer fresh perspectives, while those with a longer time on the board can provide continuity and knowledge of the institution.
The board is also accountable for understanding, evaluating and directing the annual operating budgets and plans of management. The board, through its corporate governance and nominating committee, should also engage in regular contact with major shareholders to determine their views and keep in touch with them regularly on issues that affect the business.