Effective corporate governance requires the creation of clear and standardized roles, responsibilities, accountability and transparency for all participants. It also helps promote an environment for work that is inclusive and promotes fairness. These frameworks can be applied to a diverse spectrum of organizations, from large corporations to professional societies and families.
The board formulates and approves corporate strategies that are designed to create long-term sustainability; chooses the chief executive officer (CEO) and supervises the management in operating the business. The board also invests capital and evaluates and manages risks and sets the “tone at the top” for ethical behavior. The board usually consists of members from insiders including major shareholders, founders and executives. There are also independent directors who have experience managing or directing other large corporations. Independent directors are viewed as beneficial in the area of governance since they do not have the same ties to insiders that can create conflicts of conflict of interests.
The composition of the board is crucial because board members often have to deal with complex technical issues, which require a variety of viewpoints. This is why experts in governance generally recommend that boards comprise at least the majority of independent directors. The diversity and duration of tenure are essential to ensure that the board is able to effectively function, particularly in cases where discussions are long and filled with opinions. The board’s new members can provide fresh perspectives and those with a longer tenure can provide continuity and institutional expertise.
The board is also responsible for understanding, evaluating and coordinating the annual operating budgets as well as plans of management. The board through its corporate governance and nominating committee, should also engage in regular contact with major shareholders to identify their views http://scoreboardroom.com/steps-to-create-a-nonprofit-social-media-policy/ and inform them frequently on important questions that affect the business.