Corporate governance refers to the system of rules, procedures, and practices that companies use to manage themselves. This governance framework provides the checks and balances that hold companies accountable to their shareholders, employees and other stakeholders.
Corporate governance models differ in today’s business world, and they all have an impact on the effectiveness of a firm. Some governance systems focus more on the stock market, while others are more focused on the company’s customers or employees.
The board’s primary duties include setting the company’s long-term strategic vision and ensuring that it is ethically and legally compliant. The board is also responsible for overseeing management and the CEO. This requires active participation from all directors and the preparation of board meetings.
A well-functioning structure for committees allows the board to consider and discuss topics more in depth than may be possible at full-board meetings. The board should decide which committees will fulfill what functions and who will be a part of each committee.
The management structure of a business should be fair for all shareholders. This means avoiding decisions which favor one shareholder group over the other. Also, it means treating suppliers, vendors and communities fairly.
The role of the board can vary depending on the sector and country. In the United States for example, the Securities and Exchange Commission has developed a set best practices for board members on topics such as ESG reporting cybersecurity, cyber security, and governance structures. The SEC’s requirements are supported by guidance from top university centers worldwide for excellence in leadership and management.