Corporate governance is the set of rules, procedures, and practices that companies use to manage themselves. This governance framework provides the checks-and-balances to keep companies accountable to their employees, shareholders and other stakeholders.
Corporate governance models are different in today’s business world and they all have an impact on the performance of a firm. Some governance systems focus more on the stock exchange, while others are more focused on the company’s customers or employees.
The primary responsibility of the board is creating the company’s strategic plan for the long-term and ensuring the compliance with ethical and legal standards. The board should also oversee management, including the CEO. This requires active participation of all directors and preparation for board meetings.
A well-functioning structure for committees allows the board to discuss and review topics more in depth than may be possible at board meetings that are full. The board should determine the roles to be carried out by each committee and determine the members of the committees.
The structure of a company’s governance should be fair to all of its shareholders. This means that it should not take decisions that favor one shareholder group over another. It also means treating suppliers, vendors and communities equally.
The role of the board is different according to the industry and country. In the United States, for example the Securities and Exchange Commission (SEC) has established a set of best practices for boards in areas like ESG reporting and cybersecurity, as well as governance structures. The SEC’s requirements are enhanced by guidance from top universities worldwide for excellence in management and leadership.