When it concerns corporate governance, you'll need to ensure your board follows best practices to achieve success. It's not enough, however, to just check the appropriate boxes and adhere to the minimum regulations. A well-run board should be continually evaluating its own performance to find ways to improve. The best boards are ones that excel in this field.
One important governance best practice is to make it clear for shareholders to understand the role of the board, its responsibilities, and accountability. This includes explaining the relationship of the board's compensation with the company's goals and defining what constitutes an effective system of supervision and checks and balances.
A clear framework to manage the risks faced by the company is also essential. This means establishing an understanding of the company's short – and long-term risk profile, and working together to define the way in which the board will assess the risks. It is also important to ensure that the board has the necessary tools to identify the risks. This includes internal factors like cultural norms and poor communication among directors.
Being attentive to shareholder concerns is also crucial. Encourage engagement. This is particularly crucial in the current climate of increasing shareholder activism. For instance, boards must work with shareholders to proactively recognize and address discontent from shareholders prior to the time of proxy season.
