Corporate governance is the system by which companies are directed and controlled, and the board of directors is responsible for the governance of that system. The board’s purpose is to support effective and prudent management that delivers long-term success for a company. This is a big responsibility that isn’t always easy in a world of increasing competition, reduced barriers to entry, and pressure on costs and profits. Layer on the human dynamics that emerge within a board, and achieving good corporate governance gets even more complex.
What are the key elements of effective corporate governance?
Aprio was founded in 2003 with the aim of supporting good governance for all organizations, large and small. Since that time, we’ve had the opportunity to work with thousands of board members and corporate secretaries and we’ve observed patterns in how to ensure good corporate governance. Here is our top 10 list of lessons on how to ensure good corporate governance:
1. Recognize that good corporate governance is not just about compliance
Part of a board’s role is ensuring corporations are meeting their compliance requirements – compliance with legislation, financial regulation, and codes of practices. But this isn’t their only role and boards need to balance compliance monitoring with driving corporate performance by developing strategies and supporting corporate policies. Boards also need to clearly define their role and functions versus those of the management team. The division of roles will vary from board to board, but clearly defining who’s accountable for what will go a long way to building a productive relationship with the management team.
2. Clarify the board’s role in strategy and risk management
It’s generally accepted that the board has a significant role to play in strategy and risk management. Given the board’s responsibility for corporate long-term performance, the board needs to contribute to the development and adoption of the company’s strategic direction. This can range from being directly involved in defining strategies to simply providing approval to those developed by management.
The governance of risk is also a key board function, and every board should develop a system for risk oversight and management. Remember to think beyond the board’s audit report. “Risk” incorporates all potential risks to the company – e.g. financial risks, cybersecurity, legal and regulatory policy changes, competitor response, global economic conditions, and more. Management typically offers support in defining and quantifying risk, but the board is accountable for managing it. Effective risk management leads to better decision making because boards develop a deeper, more accurate understanding of the cost-benefit or risk-rewards tradeoffs involved.
3. Monitor organizational performance
Monitoring corporate performance is an essential function of the board and an important ingredient to ensure good corporate governance. This is achieved by first identifying the company’s key performance drivers (KPIs) and establishing appropriate measures for determining success or failure.
As a board, directors should define an agreed format and frequency for reporting to ensure that all matters that should be reported, are in fact reported. Board portal software can support performance monitoring by creating a track record of board decisions and impact on performance with all board reports archived in a centralized place. Directors can easily search historic board agendas or motions over time and review any minutes or board member comments annotated on reports.
4. Build a skills-based, diverse board
Research shows that the make-up of a corporate board impacts a board’s culture and engagement. And while there is a trend towards more board diversity, there’s mixed evidence linking diversity to performance. Diversity matters, but it must go beyond gender, age, and ethnicity.
Professional diversity and a broad skill set are equally important for increasing the diversity of perspectives represented on the board. While directors are required to have basic finance and accounting competencies to sit on a board, it’s critical to assess what other core skills are needed. Skill set inventories and assessments can be helpful to define what each board member provides and where gaps exist. Behavioural competencies such as managing conflict, problem-solving, effective listening, and diplomacy should also be considered, as these qualities will influence the relationships around the board table – both between directors and with management.
See related: 5 benefits of corporate governance software
5. Appoint an effective, competent chairperson
The board chairperson establishes the board culture and trust required to ensure good corporate governance. As the “leader” of the board, the chairperson should demonstrate strong leadership skills, sharp business acumen, and solid professional ethics. The chair needs to develop a strong working relationship with the CEO and have the technical skills to conduct meetings effectively and lead the board through decision-making and other core board activities, such as recruitment, orientation, and board assessment.
While a productive relationship with the CEO is key, the chair plays a critical role in helping the board act independently, keeping directors focused on the company’s mission, ensuring the board understands its responsibilities, and maintaining appropriate boundaries with staff. While people in the board chair role are often former CEOs, effective board leaders understand the significant difference in their role as the board chair. Simply put, the board chair is not the CEO.
6. Support equal voices for all board members
Giving directors an equal voice is critical to keeping them engaged and to maintaining a sense of belonging on the board for all board members. Many times, board meetings favour the director who is the loudest talker, which limits the perspectives needed for making sound decisions. The board chairperson plays an important role in drawing in perspectives of all directors – ensuring all members are heard before decisions are finalized or one director is permitted to take the floor a second time. By carefully monitoring body language for signs of boredom, irritation or discontent, the chair can intervene quickly.
Collaborating with directors individually before board meetings can also support in building trusted relationships, identifying agenda items, and sharing the latest news. Boards that develop trust in knowing that they will be included in discussions and that all perspectives will be given equal consideration creates a more collegial and productive team environment.
Technology like Aprio’s board portal software can further democratize the board environment. Board portal technology ensures that every member has the same access to updates or alerts, no matter their relationship with executives or the chair. Not only do directors have the same access to information, key votes, and progress on issues, a board portal gives directors a way to ask questions, annotate documents, and raise their concerns online. An introverted director may not feel comfortable standing up to the loudest member in the room, but they can easily share their questions or concerns online for the chair to ensure they are addressed in the meeting.
7. Build and maintain a strong governance infrastructure
Typically, corporations have specific policies in place to guide organizational behaviour, which helps shape its actions and decisions. To ensure that the accountability between board and management is clearly delineated, it’s important for the board to develop policies in relation to delegations – and ensure every new board member is oriented to these policies and has continuous access to them.
Poor internal processes and procedures can lead to inadequate access to information, weak communication, and uninformed decision making, resulting in frustrated and dissatisfied directors. Improving board meeting processes, pre-meeting communications, meeting agendas, board packages, and the committee structure can often make the difference between a mediocre board and a high performing board. Modern boards are using board portal software to give directors 24/7 access to board information and corporate policies and procedures, which is a secure and time-efficient tool to support the foundation for your governance infrastructure.
8. Ensure the directors have the information they need, when they need it
We all know the mantra that better information leads to better decisions, but understanding what “better” really means is where things get fuzzy. Information provided by management and board committees can enable good corporate governance or disable it. Board members can present information in a way that influences a decision or it can be presented in a more balanced way. Ideally, board briefings should present the available options, with positives and negatives of each option, and then provide a recommendation based on the context of the company – its values, available resources, and its accountability to shareholders.
When you are preparing to send information to the board, consider: is the information informative? Informative information is clear, succinct, timely, transparent, complete, pertinent to the topic, and evaluated within the context of the organization. Technology today plays a key role in ensuring board meeting information is timely and also convenient to review for busy board members that may be travelling or juggling many professional and personal responsibilities. Board portal software provides directors one secure place to access all board information with instant links to any updates, accessible by computer or mobile device.
Research on board engagement shows that efficient board communication is a major influencer on board engagement and the effectiveness of board meetings. Beyond board meeting packages, also consider site visits, and individual director development programs to provide directors the information they need to contribute constructively.
See related: How does a board of directors portal impact board governance?
9. Encourage a culture of collaboration and accountability
The most productive board meetings are used for discussing issues, seeking meaningful board input, and making strategic decisions, not briefing directors on background information or rehashing old issues. These are the meetings that engage directors. To get there, it’s smart to encourage collaboration and discussion between board meetings and to make directors accountable to come fully prepared, ready to contribute. Beyond that, the board chair needs to govern time usage with a firm hand. Ensure appropriate time in the board meeting is allotted for questions, discussion, and decisions.
If you’re using board portal software, the chairperson or CEO can spark collaboration by posing questions ahead of meetings to provoke discussion and can see within the software which directors have reviewed materials or engaged in the debate. A phone call before the meeting to directors that seem disengaged may provoke their meeting preparation.
10. Routinely evaluate the board’s performance
Finally, boards need to be aware of their own strengths and weaknesses in order to govern effectively and encourage high standards of performance. Each director should be contributing towards clear performance expectations and, at least annually, measuring their own contribution. Some boards do peer assessments and overall board performance reviews as well. Routinely evaluating the composition of the board, not just the performance of the directors, is also important to ensure the skills and experiences of the directors meets the shifting needs of the organization.
Your board portal software can support performance assessments or evaluations for individual directors and for boards as a whole through confidential surveys where data is easily collected and summarized for interpretation. Given that board information is archived in a board portal, the technology also supports a macro assessment of board performance over time.
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Ensure good corporate governance with a board portal
While there are many best practices on how to ensure good corporate governance, they are all made easier with the help of purpose-built board portal software. Board portal software like Aprio makes it efficient to ensure good corporate governance by:
- Making board information equally accessible to all board members
- Providing a convenient way for board members to review board materials, ask questions, and annotate documents
- Providing secure and continuous access to corporate and board policies
- Supporting annual board performance evaluations
Ready to learn more about how Aprio board portal software can help you ensure good corporate governance? Book a demo today, or check out the top 10 things to assess when evaluating board management options.
