Governance is the relationship between a company’s shareholders, board of director and management. This framework aligns the interests of all parties and helps the company succeed in its long-term plans. Corporate governance practices that are effective are founded on principles of transparency, accountability, and responsibility, which will help to build trust with investors customers and employees and foster an environment that is healthy for the company.
A good board of directors consists of of insiders (major shareholders, founders and executives) and independent members with no close connections to the business. Directors from outside bring a new perspective and understanding that can be beneficial in making business decisions. They can also serve as a sounding-board for insiders and give them additional insight and support.
Another crucial aspect of governance is the principle of fairness that requires the company to treat all shareholders, vendors and employees equally. This is achieved through the public disclosure of information, like major decisions as well as financial performance and the outcomes of meetings.
A good board will have a process which allows it to review its effectiveness, as well as the effectiveness of its committees regularly. Surveys or self-evaluations can help achieve this. The board should also evaluate the CEO and senior managers on a continual basis and, if necessary be a part of their evaluations. The board should also establish the conduct standards for committees, members, and the senior management. This will ensure that the leadership of the company as well as its members are accountable for their actions.