Unlocking Boardrooms: 9 Corporate Governance Best Practices

If you’re on a quest to boost your company’s standing, you’ve likely learned that its not just about compliance or meeting the bare minimum; it involves designing and executing a strategic blueprint of corporate governance best practices for sustainable success.

In today’s world, where every business action matters, these practices are not just nice-to-haves; they’re essentials.

But what truly sets successful corporations apart?

Let’s peel back the layers and take a look at the top 9 corporate governance best practices we’ve collecting evaluating boards in Sweden and globally.

9 Corporate Governance Best Practices To Adopt

Corporate governance is at the heart of running a successful company. It’s not just about ticking boxes or pleasing shareholders. 

Good corporate governance practices create a solid foundation that benefits every business.

The thing is, effective corporate governance takes effort. But trust me, it’s worth it. Companies that embrace good governance practices are in it for the long haul.

So what exactly does good corporate governance look like? Here are the top 9 best practices that’ll set your company up for success.

1. Recruit effective and diverse board of directors

First things first, you need the right people at the helm. And by “right people,” I mean a diverse board of directors who bring different skills and perspectives to the table.

Let’s be clear, this goes way beyond just packing people into a space. It’s about finding board members who are competent, engaged, and ready to roll up their sleeves. 

Each board director should have a clear understanding of their role and be held accountable.

A well-rounded board sets the tone for the entire organization. So take your time, do your due diligence, and get the right board directors on board.

If you want to get insights into your board composition, I invite you to use our board evaluation software to gain insights into your board composition.

2. Establish clear Roles, responsibilities, and accountabilities

Once you have your dream team of board directors, it’s crucial to define roles and responsibilities. Everyone needs to know what’s expected of them and who’s accountable for what.

Let’s be clear, we’re not talking about breathing down someone’s neck here. We’re all about laying down a straightforward plan so that everyone can bring their A-game. The responsibilities of the board should be well-documented and communicated.

Keep in mind, managing things well isn’t a hit-and-run affair. This is something you’ve got to keep on top of, checking in and tweaking things as needed. But when everyone knows their part and plays it well, that’s when the magic happens.

3. Regularly evaluate and improve governance practices

Implementing corporate governance practices isn’t a one-and-done deal. It’s an ongoing process that requires regular evaluation and improvement.

The best companies are always looking for ways to level up their governance game. They know that what worked yesterday might not cut it tomorrow.

So, wondering how to make sure your governance practices are top-notch? Here are a few tips:

1. Conduct annual assessments of your board and committees. 
2. Take a hard look at what’s working and what’s not.
3. Stay on top of best practices and emerging trends.
4. Seek feedback from stakeholders.
5. Be open to change.
6. Listen to your customers.

Listening to the people who invest in you, work for you, and buy from you can shine a light on how well things are going.

Remember, good corporate governance isn’t just about checking boxes. This boils down to fostering a culture where everyone is held accountable, everything’s out in the open, and we’re always on the lookout for ways to get better.

When you make governance a priority, you’re not just protecting your company – you’re positioning it for long-term success. You’re building trust with your stakeholders and creating a foundation for sustainable growth.

But here’s the thing: implementing corporate governance practices isn’t easy. It takes time, effort, and a willingness to have tough conversations.

You might have to confront some uncomfortable truths about your company’s culture or decision-making processes. You might have to make some changes that not everyone agrees with.

It’s just the reality of things, and we’ve witnessed that here at Governance @ Work.

4. Emphasize ethics and integrity

Ethics and integrity are the heart of any successful business. Without them, companies crumble.

It’s not enough to just talk the talk. You have to walk the walk too. Cultivating a culture of honesty, integrity and ethical dealings has to be a top priority.

This starts with having clear, carefully written policies in place:

• A conflict of interest policy to ensure board directors declare any conflicts and abstain from voting on such matters
• A code of business conduct outlining expected behaviors and practices
• A whistleblower policy for safely reporting noncompliance or unethical actions

But policies alone aren’t enough. It’s about living and breathing those values every single day. Leading by example from the top down.

When the board and senior leadership embody ethics and integrity, it trickles down. It becomes ingrained in the company culture. Employees follow suit.

The result? A business that operates with the utmost good faith. One that inspires trust from shareholders, customers, and the public alike.

So don’t just give lip service to ethics. Make it the bedrock of your business conduct. Your company’s reputation and success depend on it.

5. Implement strong internal controls and risk management

Risk management isn’t a “nice to have.” It’s a must for any company that wants to thrive long-term.

The board needs to work hand-in-hand with management to identify, assess, and mitigate risks from all angles. Financial, operational, reputational – you name it.

This means putting strong internal controls in place. Ones that are regularly monitored and tested for effectiveness.

It’s about having systems to accurately track financial transactions. Segregating duties to prevent fraud. Implementing checks and balances at every turn.

But internal controls go beyond just financials. It’s also about safeguarding assets, ensuring compliance, and monitoring risks across the board.

The board must set the company’s risk tolerance and ensure it’s adhered to. They need to ask tough questions and demand transparency from management.

Sweeping risks under the rug? Not an option. Proactively identifying and tackling them head-on? That’s the mark of a well-governed company.

Remember, managing the company’s risks isn’t a one-and-done deal. It’s an ongoing process that requires constant vigilance and adaptation.

But the payoff is worth it. Strong internal controls and robust risk management are key to long-term sustainability and success.

6. Engage with shareholders and address their concerns

Gone are the days of companies turning a deaf ear to shareholders. In today’s climate, shareholder engagement is non-negotiable.

With shareholder activism on the rise, boards can’t afford to brush off investor concerns. They need to proactively seek out and address them head-on.

This means opening up clear lines of communication. Regularly soliciting feedback through surveys, forums, and one-on-one meetings. Actually listening with the intent to understand and act.

But engagement isn’t just about paying lip service. It’s about truly valuing shareholder input and using it to inform decision-making.

When shareholder concerns arise, boards must take them seriously. Investigate the issue thoroughly. Communicate findings and action plans transparently.

Sweeping problems under the rug or giving canned responses will only breed mistrust and discontent. Shareholders can smell inauthenticity from a mile away.

So, the trick here is to stay one step ahead rather than just reacting as things happen. Monitoring activist investors, anticipating potential issues, and having response strategies at the ready.

Boards should view shareholders as partners, not adversaries. Engaging with them openly and addressing their concerns earnestly builds trust and goodwill.

In the end, a company’s fate lies in the hands of its shareholders. Treating them with respect, transparency, and responsiveness is just good business sense.

7. Ensure compliance with legal and regulatory requirements

Corporate governance is generally a matter of law based on corporate legislation, securities laws and policies, and decisions of the courts and securities regulators.

Effective compliance programs enhance the positive outcomes of corporate governance, including mitigating legal and reputational risks and upholding the principles of corporate governance.

Compliance professionals, while not directly responsible for corporate governance, do play a critical role in assisting the board of directors.

These professionals develop and implement compliance frameworks, monitor regulatory changes, provide guidance to management and employees, conduct training programs, and establish mechanisms for reporting and addressing compliance concerns.

Navigating through governance and compliance, these steps make a big difference in ensuring that companies stay on the right track and well-organized.

8. Promote transparency and accurate financial reporting

Overall, good corporate governance is built upon transparent and data-driven policies, business practices and internal processes (informed by the four core principles) that demonstrate the aligned incentives and interests of shareholders, directors, senior managers, clients and consumers, suppliers, government and the wider community alike.

Accurate and transparent financial reporting is vital for maintaining investor confidence.

Implementing robust accounting practices, adhering to relevant accounting standards, and conducting regular audits enhance the reliability of financial information, ensuring transparency and accountability.

It’s a corporate governance best practice to provide the board with monthly financial statements and for those reports to offer visibility into how the organization’s finances have changed — and some reasons why.

The financial reports should be clear and easy to read so even those new to the board can glean actionable information.

In many cases, monthly financial reports are brief overviews. Accounting teams should be ready to deliver deeper, more specific data as requested by the board.

9. Align executive compensation with long-term performance

Relevant Factors. The objective of corporate governance is to promote strong, viable competitive companies accountable to stakeholders.

But one size doesn’t fit every company, and there’s no uniform, comprehensive set of policies or practices; the “right” ones depend on several factors, including:

• Compensation committee
• Compensation plans
• Equity compensation

Boards almost always need to delegate some of their responsibilities to committees, such as the nominating or governance committee, audit committee, compensation committee and other special committees, as needed.

This makes collaboration especially important.

5-Step Blueprint to Achieve Corporate Governance Excellence

Unlocking the full potential of your corporation begins with a comprehensive analysis of your board’s composition. Here’s a five-step process to guide you:

• Assess Board Dynamics: Examine the mix of skills, experiences, and diversity within your board.
• Identify Gaps and Opportunities: Pinpoint areas for improvement and strengths to leverage.
• Strategize Action Plans: Formulate specific actions to address identified gaps.
• Implement Changes: Act on the strategies devised to enhance board effectiveness.
• Monitor and Refine: Continuously evaluate the impact of changes and adjust as necessary.

Following the above steps paves the way for robust governance that is not only compliant but also strategically aligned with best practices, ensuring your organization’s long-term success and sustainability.

Lastly, best practices of good corporate governance includes and starts with evaluation.

Conclusion

Adopting these 9 key corporate governance best practices is not just a step towards compliance, but a leap towards sustainable success and ethical leadership in today’s dynamic business environment. 

By integrating these principles, organizations can not only enhance their operational efficiency and stakeholder trust but also pave the way for innovative growth and resilience against unforeseen challenges.

 Should you have any concerns or need further clarification, feel free to reach out for a complimentary call with us, we’re always ready to assist.