No matter the size, every corporation and non-profit organization should invest time in considering how they can leverage corporate governance. Even if your organization follows corporate governance standards, regularly evaluating how they are applied should be a part of your due diligence. 

One reason? A minority of C-suite executives, just 30%, rate their boards' overall performance as excellent or good, according to a recent survey by PwC. 

This suggests that boards may not be able to quickly adapt to rapidly evolving challenges and business risks. 

What Is Corporate Governance? 

Corporate governance is a set of rules, processes and policies that are typically defined by the board of directors. While the board of directors is usually responsible for oversight, this oversight can be influenced by other stakeholders, such as shareholders, management, and regulatory and legal requirements. 

The goal of a successful corporate governance model is to ensure that an organization is effectively run, working in the best interests of all stakeholders. It provides the structure for making decisions, managing risks, and ensuring accountability at all levels of the organization. 

Corporate Governance Standards 

The standards for corporate governance are largely driven by the board of directors, as they typically are the primary direct stakeholders. Generally, governance standards will take into account transparency, risk management, ethics, and accountability. 

Fairness 

Fairness is treating all people — employees, vendors, customers, shareholders and the broader community — justly and morally. Consider drafting a code of conduct to define expected behaviors, promote integrity, and provide an inclusive environment. 

Responsibility 

The board of directors must act in the best interest of the company, its employees and shareholders. This includes oversight of corporate matters and management activity, as well as recruiting and hiring a CEO. Companies must also make sound decisions on managing risks and compliance and regulatory matters. 

Accountability 

The board of directors and senior leadership are responsible for their actions. This means meeting objectives, including financial targets, as well as meeting legal and regulatory standards. They establish clear lines of responsibility and explain and communicate all issues of importance to all stakeholders. 

Risk Management 

Risk management means understanding all risks to the organization and approving the framework to manage and mitigate risk. The board and senior leadership must act swiftly to protect the organization if events occur that could harm the company, its employees or its stakeholders. 

Transparency 

Transparency means providing information and communicating in a timely manner regarding important activities, financial performance, governance activities and risks to stakeholders. Investors must have all information that is relevant to investment decisions, while regulators must be given accurate disclosures. 

Corporate Governance Procedures 

How an organization decides to provide and ensure proper governance will depend on the framework it chooses to establish. Any framework that is created or chosen should explain how the organization is directed, controlled and held accountable. There are several well-established models to consider: 

Shareholder Model 

Sometimes referred to as the Anglo-American model, the shareholder model is designed with the shareholder in mind, focusing on financial and stock market performance. 

In this model, the board of directors and shareholders are primarily in control. The shareholders elect the board members, who are responsible for making the most important organizational decisions. Managers within the company are then tasked with running the day-to-day operations in a way that maximizes shareholder value. 

In addition, shareholders have voting rights and can also approve major corporate decisions. 

The shareholder model relies on continuous communication between the board of directors, shareholders and company management, with important issues being discussed in a thorough and timely manner. 

Continental Model 

The continental model, typically leveraged in continental Europe, is composed of a two-tiered board structure: a supervisory board and an executive board. 

The supervisory board is composed of employee and shareholder representatives, typically known as outsiders. Financial firms such as banks that have financial stakes in the organization may also have supervisory board representation. The supervisory board oversees the executive board and generally ensures that the organization aligns with government or national interests, as well as meeting regulatory and legal requirements. 

The executive board, or the management board, is typically composed of company insiders, such as senior executives. This board handles the day-to-day management of the organization. 

Policy Board Model 

Developed by John Carver, this model puts a high level of confidence in the CEO or president as the top leader oversees all employees and daily operations. The CEO will hold regular meetings with board officers to update the board on important activities. 

In the policy model, the board of directors has powers that are secondary to the CEO, and board members do not typically interact with staff. However, board members do work with the CEO on specific matters that lend themselves to the expertise of board members, such as legal matters or fundraising. 

The policy board model can be a good fit for non-profit organizations, where centralizing decision-making is a typical approach, as opposed to the shareholder model, where ownership and decision-making are spread across many shareholders. 

Corporate Governance Templates 

There are several documents that can help to formalize and communicate governance structure, policies and processes. These corporate governance tools are the most common and can, of course, be customized to better suit the needs of your organization. 

Corporate Governance Policy Template 

Having a formal corporate governance policy will ensure accountability by establishing disclosure and reporting rules, ethical standards and shareholder rights. There are several sections to consider, including: 

• Principles of Corporate Governance: Define how this policy will continuously enhance and strengthen corporate governance to ensure transparency and fair and timely decision-making. State how often this policy will be reviewed and amended (if needed); a common timeframe is yearly.
• Board Structure: This section spells out the roles and responsibilities of each board member, naming all members. Include all committees that support decision-making, such as audit, risk management and compensation.
• Compliance and Regulation: Indicate that the company will adhere to all relevant laws and regulations by briefly explaining the mechanisms that are in place to help protect the organization.
• Risk Management: Note how risk is managed within the organization, as well as the mechanisms in place for stakeholders to report risks to the board.
• Disclosure and Reporting: State the importance of reporting information with accuracy in a timely manner. 

Board Meeting Agenda Template 

Establishing a structured agenda will provide consistency and establish trust. While meeting agendas can have sections in common, here are a few to consider: 

• Logistics/Details: Include the meeting date, time, location, and mandatory and optional attendees.
• Approval of Minutes: Signal a vote to formally accept and approve the minutes of the previous meeting.
• Objective and Agenda items: State the objectives of the meeting and those items on the agenda that will help the board to meet the objectives. Consider adding timeslots for every agenda item to ensure all items are discussed.
• Action items: Review all outstanding action items.
• Next Steps: Although next steps will be included in outstanding action items, there may be others that come up during the course of the discussion. 

Board Report Template 

Board reports will ensure that all board members are informed and can make correct decisions. Consider including the following: 

• Executive Summary: Provide a concise, high-level overview of the meeting that contains key points and actions taken. Highlight progress made on key issues.
• KPIs: Report on progress towards meeting and exceeding organizational goals with key performance indicators (KPIs). These should include financial metrics and indicators that show progress on key projects and initiatives.
• Accomplishments: Report on major milestones that have been met.
• Risk: Include a section that highlights risk to the organization and lists mitigation activities.
• Strategic Initiatives: Provide a listing of strategic initiatives, including a status update.
• Financial Performance: A key aspect of most board reports provide the financial status, including income, expenses and variances in the approved budget. 

Corporate Governance Best Practices 

The evolving role of the board of directors means critically examining each board member's qualities and characteristics and knowing how they approach corporate governance. To enable all board members to make their best contributions, consider the following best practices: 

Establish a competent and independent board. 

Modern corporate governance is focused on board diversity and independence. This is because they are being asked to make decisions on complex and technical issues. Having different perspectives will strengthen your board, making it more effective. Consider having all board members self-evaluate on an annual basis to identify new strengths or weaknesses. 

Align all initiatives with organizational goals. 

When determining goals at the highest level of the organization, it is important that these goals are then federated down to all employees, who match their goals with those of the organization. Effectively reviewing progress will be a key function of the board, ensuring that proper resources are put into place to achieve organizational goals. 

Plan for succession 

Board members do step down and retire. Document an effective plan to identify potential members and to provide training, ensuring they fully understand the expectations of being an active board member. 

Learn more about corporate governance by exploring these related resources on KnowledgeLeader: 

• Topic: Corporate Governance
• Topic Spotlight: Financial Reporting
• Corporate Website Policy