Corporate governance is not reserved for large corporations

Corporate governance is not the merely reserved for large corporations. Any company, regardless of size or whether it is public or private, must have corporate governance in place, as it would impact the longevity of the organization. In a nutshell, corporate governance refers to the structures, processes, and practices by which the company adheres to in managing the business and other affairs to meet the objectives and be sustainable.

Corporate governance is particularly useful when raising capital, securing loans, maintaining talents, meeting expectations of shareholders, and preparing for acquisition or the next phase of growth. These issues require strict corporate legislation as the board of directors must act upon good faith with fiduciary duty. Moreover, since it is about legislation, corporate governance is related to business laws and regulations, stock exchanges, and various interest groups.

Considering the importance of the issue, setting the board of directors and ensuring that corporate governance works as planned are not something to be taken lightly. Here are five of the best practices.

First, develop a strong and qualified board of directors.

The board should comprise of qualified directors with strong track record. It should include individuals of diverse backgrounds whose skills and knowledge are needed and relevant to the business. They should have time to commit to the board and independent in decision making. They should also commit to being continuously updated regarding the business, the business environment, and the new regulations.

Second, define clear roles and responsibilities.

Include clear definitions of roles, accountabilities, and responsibilities of the Board, Chair, CEO, Executive Officers, and management. The roles should be clearly defined and positions should be independent of each other to eliminate overlaps and conflicts of interest.

Third, integrity, ethical handling, and free from conflict of interest.

Directors and other officers must make a declaration of free from conflicts of interest and utmost good faith in dealing with business and law and policy compliance. A code of conduct must be in place to set the tone of requirements and processes for reporting and dealing with whistleblowers. Appoint an independent person to oversee the management of these policies and procedures.

Fourth, performance-based compensation structure.

Directors and executive officers should be compensated based on a structure that is performance based. Through periodic evaluation and assessment, their performance would determine the compensation plans, including salaries, bonuses, and stock option plans.

Fifth, risk management handling.

Every company deals with various risks related to finances, operation, reputation, environment, industry, and legal. Thus, an effective and strategic system is needed to establish clear framework and accountabilities. This way, short and long-term risks can be mitigated properly without risking the company’s future.

In conclusion, a comprehensive corporate governance structure is often overlooked in startups and small companies as they assume that only publicly-trade and large corporations would need it. The truth is, every business, regardless of size, will find good corporate governance extremely useful in ensuring the longevity of the business and taking it to the next level, especially when dealing with financial opportunities.