Corporate governance is more than just a buzzword—it’s the blueprint that guides how a company is run, with the board of directors at the steering wheel. These leaders are tasked with a hefty challenge: to navigate through fierce competition and manage new risks, with constant pressure on costs and profits, all while keeping the company on a path to long-term success. Layer on the human dynamics that emerge within a board, and achieving good corporate governance gets even more complex.
Why is corporate governance important? It ensures that companies are managed effectively and ethically. Good governance practices promote accountability, transparency, and integrity, which help protect stakeholders’ interests, enhance the company’s reputation and facilitate sustainable growth.
How can a board manage all these moving parts and still excel? See the 10 elements of corporate governance as we share what it really takes to make it work.
What are the key elements of effective corporate governance?
Aprio was founded in 2003 with the aim of supporting good governance for all organizations, large and small with our board technology. Since then, we’ve had the opportunity to work with thousands of board members and corporate secretaries and observe patterns in ensuring good corporate governance practices. Here is our list of top 10 observations.
1. Recognize that good corporate governance is about balancing compliance with strategic oversight
While compliance with legislation, financial regulations, and codes of practice is fundamental to a board’s responsibilities, their duties extend far beyond mere adherence to rules.
Boards are pivotal in steering corporate strategy and fostering policies that drive financial performance and growth. They must strategically balance their time and focus to actively shape the company’s future, not just manage compliance.
Boards also need to clearly define their role and functions from the management team. The division of corporate governance responsibilities can vary from board to board, but a clear definition of accountability will go a long way to building an effective and productive relationship with executives and senior managers.
2. Clarify the board’s role in strategy and risk management
It’s generally accepted that the board has a significant role to play in strategy and risk management. Given the board’s responsibility for corporate long-term performance, it’s essential that the board plays an active role in setting the company’s strategic direction. This can range from being directly involved in defining the business strategy to simply providing approval to those developed by management.
Risk is one of the most important components of corporate governance and every board should develop a system for risk oversight and management. Remember to think beyond your board’s audit report and audit committee.
“Risk” incorporates all potential risks to the company – e.g. financial risks, cybersecurity, legal and regulatory policy changes, human, social and environmental responsibilities, competitor response, global economic conditions, and more.
While management typically champions the process of offering support in defining, quantifying and monitoring risk, the board is accountable for managing it. Effective risk management by the board leads to better decision making processes because boards develop a deeper, more accurate understanding of the cost-benefit or risk-rewards tradeoffs involved.
3. Monitor corporate performance
Tracking and overseeing corporate performance is an essential function of the board and an important ingredient for strategic corporate governance. This is achieved by identifying the company’s key performance drivers (KPIs) and establishing appropriate measures for success or failure. The board should then establish a clear and consistent reporting framework. This includes defining what should be reported, how often, and in what format to ensure that all matters that should be reported, are in fact reported.
Board portal software can support performance monitoring by securely storing board reports in one centralized place. Directors can easily search historic board agendas or motions over time to analyze trends and performance over time.
4. Build a skills-based, diverse board
Research shows that the make-up of a corporate board impacts a board’s culture and engagement. And while there is a greater emphasis towards diversity, the benefits of a diverse board extend beyond mere representation of different genders, ages or ethnic backgrounds.
Leveraging board diversity requires ensuring it encompasses a wide range of professional backgrounds and skill sets to increase the diversity of perspectives represented on the board.
While directors are required to have basic finance and accounting competencies to sit on a board and carry out their fiduciary duties, it’s critical to assess what other core skills are needed. Skill set inventories and assessments can be helpful to define what each board member provides and where gaps exist.
Behavioural competencies such as managing conflict, problem-solving, effective listening, and diplomacy should also be considered, as these qualities will influence the relationships around the board table – both between directors and with management.
By adopting a comprehensive approach to board composition, companies can improve their governance frameworks and drive better overall performance.
See related: What board diversity means for modern governance & why it’s important
5. Appoint an effective, competent chairperson
The board chairperson establishes the board culture and trust required to ensure good corporate governance. As the “leader” of the board, the chairperson should demonstrate strong leadership skills, sharp business acumen, and solid professional ethics.
The chair also needs to develop a strong working relationship with the CEO, have the technical skills to conduct meetings effectively and lead the board through the decision-making process and other core board activities, such as recruitment, succession planning, orientation, and board evaluation.
While a productive relationship with the CEO is key, the chair plays a critical role in helping the board act independently, keeping directors focused on the company’s mission, ensuring the board understands its responsibilities, and maintaining appropriate boundaries with staff.
While people in the board chair role are often former CEOs, effective board leaders understand the significant difference in their role as the board chair. Simply put, the board chair is not the CEO.
6. Support equal voices for all board members
Giving directors an equal voice is critical to keeping them engaged and maintaining a sense of belonging on the board for all board members. Many times, board meetings favour the director who is the loudest talker, which limits the perspectives needed for making sound decisions.
The board chairperson plays an important role in drawing in perspectives of all directors – ensuring all members are heard before decisions are finalized or one director is permitted to take the floor a second time. By carefully monitoring body language for signs of boredom, irritation or discontent, the chair can intervene quickly.
Collaborating with directors individually before board meetings can also help build trusted relationships, identify agenda items, and share the latest news. Boards that develop trust in knowing that they will be included in discussions and that all perspectives will be given equal consideration create a more collegial and productive team environment.
Technology like board management software can further democratize the board environment. Board portal technology ensures that every member has the same access to updates or alerts, no matter their relationship with executives or the chair.
Not only do directors have the same access to information, key votes, and progress on issues, a board portal allows directors to ask questions, annotate documents, and raise their concerns online. An introverted director may not feel comfortable standing up to the loudest member in the room, but they can easily share their questions or concerns online for the chair to ensure they are addressed in the meeting.
7. Build and maintain a strong corporate governance infrastructure
Typically, corporations have specific policies and a code of conduct in place to guide organizational behaviour, which helps shape its actions and decisions. To ensure that the accountability between board and management is clearly delineated, it’s important for the board to develop policies regarding delegations – and ensure every new board member is oriented to these policies and has continuous access to them.
However, even well-defined policies can falter without efficient internal processes. Inadequate procedures can lead to poor access to information, weak communication, and uninformed decision making, leaving directors frustrated and compromising board performance.
Enhancing board meeting processes, pre-meeting communications, setting meeting agendas and the structuring of board packets and committees can dramatically improve board functionality. To support these enhancements, many modern boards are turning to board meeting software to support its corporate governance structure.
This technology offers directors secure, round-the-clock access to essential board information and governance documents. This ensures that every member is equipped with the necessary tools and information to make informed decisions, driving the success and integrity of the board’s governance efforts.
8. Ensure the directors have the information they need, when they need it
We all know the mantra that “better information leads to better decisions”, but it’s really about ensuring high-quality information. Access to the right information at the right time is not just a benefit—it’s a necessity for effective decision-making on corporate boards. And the quality of information—its clarity, relevance, timeliness, and completeness—can significantly influence the board’s decisions.
Ideally, board briefings should be clear, relevant, timely and complete. They should present all of the available options, with a balanced view of their advantages and disadvantages and then provide a recommendation based on the context of the company – its values, available resources, and its accountability to shareholders.
When preparing information for the board, it’s essential to ensure that it meets these criteria: is it clear, succinct, timely, transparent, comprehensive, relevant, and evaluated within the context of the organization? These qualities define “informative” information and enable directors to make well-informed decisions.
Research on board engagement also shows that efficient board communication is a major influencer on board engagement and the effectiveness of board meetings. Beyond board meeting packages, also consider site visits, and individual director development programs to provide directors the information they need to contribute constructively.
See related: How does a board of directors portal impact board governance?
9. Encourage a culture of collaboration and accountability
Effective board meetings focus on discussing pressing issues, seeking meaningful input from directors and informed strategic planning. To elevate meetings beyond mere informational briefings or revisitation of an old topic, it’s important to cultivate a culture where collaboration and preparation are the norm. Directors should be encouraged to engage in discussions between meetings and arrive well-prepared to contribute meaningfully for strong corporate governance.
Beyond that, the board chair needs to govern time usage with a firm hand. Ensure appropriate time in the board meeting is allotted for questions, discussion, and decisions.
If you’re using board portal software, you can see within the software which directors have reviewed materials in advance. A phone call before the meeting to directors who seem disengaged may provoke their meeting preparation.
10. Routinely evaluate the board’s performance
Finally, boards need to be aware of their own strengths and weaknesses in order to govern effectively and encourage high standards of performance. Each director should be contributing towards clear performance expectations and, at least annually, measuring their own contribution. Some boards do peer assessments and overall board performance reviews as well. Routinely evaluating the composition of the board, not just the performance of the directors, is also important to ensure the skills and experiences of the directors meets the shifting needs of the organization.
Board portal software can support CEO or board performance assessments or evaluations for individual directors and for boards as a whole through confidential surveys where data is easily collected and summarized for interpretation. Given that board information is archived in a board portal, the technology also supports a macro assessment of board performance over time.
Want more insights into board best practices? Subscribe to receive monthly news from Aprio.
By providing your email, you consent to receive communications from Aprio. You can unsubscribe at any time. See our Privacy Policy.
Ensure good corporate governance with a board portal
While there are many best practices for upholding strong governance, how to improve corporate governance practics is made easier with the help of purpose-built board portal software.
The right board portal software helps a board maintain good corporate governance by making board policies, company strategic plans, risk guidance, and other core governance documents easy to search and access securely, plus making it easier to prepare for board meetings and engage everyone in board decisions.
Aprio board portal software makes it efficient to ensure good corporate governance by:
- Making board information equally accessible to all board members including secure and continuous access to board packages, corporate and board policies
- Providing a convenient way for board members to review board materials, ask questions, and annotate documents – and on any device
- Supporting efficient onboarding of new directors, where they can easily review historical discussions and important background documents and can contribute faster
- Supporting annual board performance and CEO evaluations with survey tools
- Providing an automatic archive and audit trail, with meeting minutes, motions, and reports stored in the library
- Get a clear view of board activities and decisions with essential board reports
See related: 5 benefits of corporate governance software
See Aprio’s board portal for strong governance in action
Ready to learn more about how Aprio board portal software can help your company’s board ensure strong corporate governance? Whether you’re looking to make a switch in board portal software or are considering adopting it for the first time in your organization, assess the fit with Aprio.
Get in touch with us. We’d love to learn more about your business and how we can help support your corporate governance goals.
