A good corporate governance framework balances the interests of shareholders, employees, customers, and society. An independent board of directors oversees the implementation of policies governing business practices, including management, human resources, sales, manufacturing, customer service, corporate communications, and investor relations. The board’s independence from management is vital to serve shareholders’ interests, and it should hold management accountable for ethical and community responsibilities.
Choosing the best corporate governance framework for a company means finding the right balance between serving shareholders, employees, customers and the wider society in which the company operates. Typically, the foundation of a strong corporate governance framework is an independent board of directors that oversees the implementation of a corporate vision. The directors are guided by a set of policies which govern business practices across all areas of operation, including management, human resources, sales, manufacturing, customer service, corporate communications and investor relations.
Serving the best interests of those who own shares in the company is generally considered the core mission of the corporate governance framework. The board’s independence from management becomes vital in this aspect of corporate governance, as the board may sometimes be called upon to disagree or even remove management serving shareholders. A good corporate governance framework guarantees the board of directors this independence even if the selection of board members can be influenced by top managers.
A board of directors typically does not get involved in the details of the day-to-day operation of a company. The best corporate governance framework, however, clearly describes in writing that management serves the board of directors and that management is responsible for full disclosure to the board of all board members necessary to evaluate management’s performance. This disclosure includes all information about the company’s performance required to make substantive assessments. Often, the involvement of the board of directors in determining the compensation of top managers is an important tool for effective board oversight.
A company’s employees also have an interest in a good corporate governance framework. Day-to-day operations are usually not the responsibility of the board of directors; a robust corporate governance framework, however, will give the board of directors the ability to require that the company complies with all employee relations standards and practices. This supervisory responsibility often includes a feedback system so employees have an alternative avenue to voice concerns if they are not addressed after exhausting all channels provided through management.
Businesses are increasingly called upon not only to be good stewards of shareholder investments, but also to be good citizens of the communities in which they operate. The best corporate governance framework requires that the board of directors hold management accountable in this regard and gives the board the authority to evaluate management’s performance and, if necessary, request changes. The same goes for the ethical running of the company by executives, which is a board member in the best corporate governance structures.
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