No business is too small to bother with proper corporate governance. Likewise, it’s never too early for growth-minded startups to think about the obligations they’ll need to meet as they scale.
Fortunately, examples of sound corporate governance abound in every sector, industry and specialty. While every business should be free to set its own rules and meet its unique compliance obligations as it sees fit, leaders can and should learn from peers who’ve put in the work and committed to “get it right.”
With that in mind, let’s review six basic corporate governance guidelines — or “to do’s,” if you prefer — for businesses to focus on as they grow.
1. Build a Capable, Assertive and Conflict-Free Board
Effective organizational management is not possible without a competent and assertive board of directors free from even the appearance of conflicts of interest.
Board members should hail from diverse personal and business backgrounds, bring complementary skills and knowledge to the table, and operate cohesively as a group. How they work together is nearly as important as the scope of their responsibilities, experts say.
“We need to consider not only how we structure the work of a board but also how we manage the social system a board actually is,” says corporate governance expert Jeffrey Sonnenfeld.
Board members should be willing to push back against one another (while still operating collegially) and also against the executives they oversee. At the same time, they should not lose sight of their fiduciary responsibility to corporate stakeholders.
2. Clarify Risk Management Objectives and Priorities
Few business leaders are energized by the thought of implementing best practices for corporate risk management. Yet it must be done. Regular risk analyses — quarterly or semiannually — help keep leadership abreast of emerging threats and set board expectations for executive performance.
3. Encourage Transparency Throughout the Organization
Like most things related to corporate governance, transparency begins at the top and filters down to the rank and file. But to be clear, the legitimate need for employees to know what’s happening above them must be balanced by the equally legitimate need for “need-to-know” information-sharing around sensitive initiatives — line employees shouldn’t expect to get blow-by-blow updates on merger negotiations, for example.
4. Create Channels for Anonymous Feedback
This is downstream of transparency, but crucial nonetheless. Employees of any well-run organization must feel as if they have avenues to ask questions and express concerns about their day-to-day work as well as the overall direction of the company — or the organization simply isn’t well-run.
5. Understand Board and Executive Obligations Around Regulatory Compliance
To lead effectively, company executives must understand the roles and responsibilities of the board of directors. Board members themselves must understand their roles and responsibilities as well. This is of particular importance for issues related to regulatory compliance, where mistakes and omissions can be incredibly costly.
6. Preserve Congenial, Responsive Relationships With Internal and External Stakeholders
Lastly, all individuals involved in corporate governance — from midlevel managers to C-level executives and especially corporate directors — are obligated to maintain congenial and responsive relationships with one another (internal stakeholders) and investors, vendors, regulators, and other external stakeholders.
This can be achieved through clearly-defined rules and regulations for all internal stakeholders, clear chains of command and lines of communication within and outside the organization, and close monitoring and coordination of compliance-related workflows.
No Longer a “Nice to Have”
In today’s highly regulated business environment, sound corporate governance is no longer a “nice to have.” It is an imperative. No matter how large or small your business is or at what stage of life it finds itself, it’s not too early — nor too late — to invest in operational excellence.
