Best practices in corporate governance are more than just ticking the boxes to meet regulations. They are a set of guidelines that aid companies in performing better and establish trust with shareholders and other stakeholders. They serve as a roadmap for a company’s future, and they are applicable to large or small companies both private and public, and also to businesses of all types.
Good governance begins with the people. Boards must select the most qualified candidates, establish an efficient recruitment process, and ensure that their members are completely engaged in the job. They should also ensure that they have the right skills to effectively review management practices.
The next step is to create a system of checks & balances that reduce conflicts of interests. This involves establishing guidelines for directors of the board, the audit committee and compensation committee, and having policies in place to promote transparency and integrity, as well as ethical conduct.
Additionally boards must also have an established leadership structure and an independent director who is the lead. This is true whether the board includes a separate or combined chair and CEO. A strong independent director on the board is essential to building a culture that encourages collaboration and a sense of consensus.
Furthermore, the most effective practices in governance require boards to regularly and openly communicate with their shareholders and other stakeholders. This includes making their financial reports and other information available. It also means regular updates on the latest governance practices or developments and encouraging dialogue with the stakeholders.