Navigating Corporate Governance: A Beginner’s Guide

Solid corporate governance is essential for publicly held corporations to build trust between the companies and their shareholders. Corporate governance policies need to put the priority on the interests of the shareholders. Corporate governance is not one-size-fits-all. Companies need to tailor their compliance in governance programs to their unique circumstances, while realizing that regulations evolve on a continuing basis. The board is at the heart of the corporate governance process. 

Privately held corporations can also benefit from strong governance practices, particularly if they anticipate future investors. Whether your corporation is publicly held or privately held, you would want to work with a South Carolina business organization attorney. This blog will present an overview of navigating corporate governance: a beginner’s guide. 

An Overview of Corporate Governance

Your company will need both management and a governing body to deal with the challenges presented by current market conditions and challenges. The members of your board should keep in mind these primary topics:

  • Strategic planning
  • Compensation of executives
  • Effectiveness and composition of the board
  • Challenges for leadership
  • Risk management 

Periodically refreshing the board with new members can provide a fresh outlook on these issues, increased diversity, different viewpoints, and a lower risk of members becoming entrenched and inefficient. You might want to consider having a formal policy that sets a mandatory tenure or retirement age for board members.

In addition to creating a successful and dynamic board, you will want to engage in succession planning for the leadership of the corporation. Business can continue without interruption if there is a written succession plan for the CEO and other key senior management roles. Profitability and shareholder volume can suffer without these goals being met.

How to Build an Effective and Balanced Board

When you have a board that operates effectively and has the necessary skill sets to explore current and future challenges, your company can grow and prosper. Your board has many jobs, including shaping and guiding the company strategy over the long term. You will want your board to evaluate the company’s strategy on a regular basis, through the lens of competitive threats, developments in the market, and world events.

Additionally, you will want to build a board that addresses these considerations:

  • Tenure of directors. It can be problematic for a director to serve independently on behalf of the corporation if they have a long tenure. There is value to having institutional knowledge, experience, and an understanding of the company’s culture and strategy. The board should try to balance these concepts against the problems they can encounter with excessively long director tenure.
  • Diversity of backgrounds, experience, and age. When you have a board composed of a wide range of candidates across these categories, the board is more likely to engage in lively debate and consider fresh options. It can be tempting for a board to act with one mind, and simply “rubberstamp” measures put in front of it. The more diverse the board members, the less likely groupthink is to occur.
  • Covering necessary skill sets. Depending on the type of industry, your corporate board should include members with specific skill sets, like engineering, accounting, law, and human resources. 

You can talk to a South Carolina business attorney about governance practices that could be valuable to your corporation. Reach out to our office today for help with your case.