A corporate governance audit is a review of a company’s operations by its board of directors or executive management to ensure everything is in good working order. It can review internal and external factors, including the independence of board members, and should be conducted regularly to create an open and transparent environment.
A corporate governance audit is a process often known as a systematic curiosity process. An organization’s board of directors or executive management will review their company’s operations to ensure that everything is in good working order. Similar to a medical checkup, a corporate governance audit enables owners, board members, and executives to correct business problems before they do undue harm to the business, make business decisions that improve the business, and create a set of repeatable procedures for maintaining a business environment.
Companies may not go through the corporate governance review process very often. Like most audits, spending a lot of time reviewing corporate governance can result in executives not focusing properly on their normal activities. Most of the time, the company will use its own corporate attorneys, senior accounting staff, or an outside firm to handle this task. Government agencies may request these audits as part of regular company audits. This allows public companies to remain compliant with the requirements for selling stock on a national stock exchange.
The corporate governance audit can review factors internal or external to the company. Internal factors involve looking at the company’s CEO’s actions, how well the company insulates itself from unforeseen crises, what the company’s main goals are, and whether the company adequately defends itself against takeover bids. External factors within the scope of the audit include reviewing what stock analysts may say about the company, services received from accounting firms and audit teams, and the amount of liability or other assurance the company it must cover losses or other business problems.
Another important issue found in the corporate governance audit is the review of each member of the board of directors. In most cases, the board of directors should remain independent of the company’s management team. The board of directors should act with the fiduciary responsibility of the shareholders. Otherwise, the independence of the members of the board of directors can be violated and the question of their actions can be determined, whether they act for themselves or for the shareholders. Audits help highlight issues that can be corrected quickly, avoiding any negative press and further complications in the governance process.
Companies should create a plan to audit their governance on a regular basis. Executives, owners and board members can also sign agreements to properly engage in the audit and review the necessary actions. This creates an open and transparent environment within the company. Setting this tone can also help future governance audits go more smoothly and potentially cost less money. The organization may also be able to suppress rumors or other issues by presenting audit information to external stakeholders.
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