The Role of the Board in Corporate Governance

Corporate governance is the set of guidelines, practices and procedures that businesses use to manage themselves. This governance framework provides checks and balances that make companies accountable to their shareholders, employees and other stakeholders.

The models of corporate governance are diverse in the current business environment, and all have distinct effects on the effectiveness of a business. Some governance systems are more focused on the stock market, whereas others have a stronger focus on the company’s clients or its employees.

The primary responsibility of the board is setting the company’s strategy for the long-term and making sure that it is in that the company is in compliance with ethical and legal standards. The board should also provide oversight of management, including the CEO. This requires active participation by all directors, as well as the preparation of board meetings.

A structure of committees that is effective lets the board examine and discuss topics in greater depth than is possible to do during full-board meetings. The board should decide which committees will fulfill which functions and who will be on each committee.

The corporate governance structure must be fair to all shareholders. This includes avoiding decisions that favor one group of shareholders over one group. This also includes treating suppliers, vendors and communities with respect.

The role of the board differs in accordance with the industry and the country. In the United States, for example, the Securities and Exchange Commission (SEC) has developed a set of best practices for boards in areas such as ESG reporting, cybersecurity and governance structures. The SEC’s requirements are supported by guidance from top global university centers for excellence in leadership and management.

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