The Core Elements of a Governance Plan for Boards of Directors
The Cadbury Report, which most succinctly described corporate governance as “the system by which businesses are directed and controlled,” was released in the United Kingdom in 1991. Good governance is an ideal that is difficult to wholly achieve; yet, it remains something for which to strive. The elements of a governance plan combine to encompass all the considerations necessary to ensure that companies address stakeholders’ interests and that companies reflect those elements in their policies and practices. Integrity and efficiency are the byproducts of companies that embed good corporate governance practices into their infrastructure.
Among the core elements of a governance plan, good governance requires well-intentioned people, innovative ideas, seasoned experience and some help from technology.
The following nine categories conjoin to form the core elements of a governance plan for boards of directors.
Best practices for corporate governance encourage boards to be participatory. An effective board chair is able to draw out the quieter board directors so that all perspectives come to the board table for deliberation. To be participatory means that boards should be informed and organized. Board members should feel confident in offering dissenting opinions freely and without fearing discrimination by their peers. Full participation by the board leads to the best outcomes for organizations and societies in general.
Rule of Law
The rule of law refers to the principle that all people and institutions are mandated to law that is fairly applied and enforced by an impartial regulatory body. The law holds everyone accountable for the full protection of stakeholders and society.
The principle of transparency speaks to providing assurance to stakeholders that the information companies provide is accurate, timely and complete. Reports need to be easily understandable in format and media. Stakeholders should be able to access information freely, so they can have confidence in how the company manages its operations. Transparency includes offering stakeholders various reports on business strategy-related risks and future planning.
Board decision-making requires collaboration, the benefit of many perspectives and diligent deliberations to help them reach a broad consensus on issues that are in the best interests of the entire stakeholder group. Being consensus-oriented also means that dissenting board members will support all board decisions regardless of their individual opinions. Boards are expected to reach a consensus prudently and efficiently.
Accountability is an important element of a governance plan that requires organizations to be accountable to the rule of law and to those who may be affected by the board’s actions and decisions.
The board is fully accountable for deciding on the nature and extent of significant risks they’re willing to take to offset opportunities for growth. Stakeholders expect boards to maintain reasonable risk management practices and to have firm internal control practices in place at all times. Responsible boards write accountability standards into their policy statements.
Good accountability practices require boards to present an accurate, transparent and balanced view of the organization’s position and prospects to their stakeholders at regular intervals.
The principle of being responsive applies to the notion that organizations need to respond to their current needs, but also to their future needs. Boards are responsible for strong oversight and monitoring of management and operations. The fiduciary duties of board directors legally require them to act in the best interests of the company at all times. Responsiveness and accountability go hand-in-hand, as board directors are accountable to stakeholders for the way companies carry out their responsibilities.
Effective and Efficient
The core elements of a governance plan are equally important for all types of organizations, including public companies, private companies and nonprofits. Shareholders and stakeholders are the primary beneficiaries of an organization’s efforts. Thus, boards must establish their policies carefully and thoughtfully. Shareholders and stakeholders have much at stake, and they rely on boards of directors to practice efficiency of their resources, human talent, finances and natural resources while meeting the needs of the organization.
Fairness and Inclusiveness
The ideas of fairness and inclusiveness take the best interests of all stakeholders into account. Fairness and inclusivity take into account maintaining or improving stakeholders’ well-being. These principles often include effective and extensive protections for minorities. In addition, fairness and inclusiveness extend to employees, communities and public officials. Organizations that practice fairness and inclusiveness are more likely to enjoy strong support from their stakeholders.
In the United Kingdom, all shareholders receive protection for equal consideration for whatever shareholding they own under the Companies Act of 2006.
In essence, fairness and inclusiveness are elements of a governance plan that supports the reason for the existence of organizations and their value to society.
Strategic vision focuses on the ends rather than the means. A critical element of a governance plan is strategic planning for the near future and for the distant future. Sound strategic planning ensures that organizations have a clear sense of purpose and that they continually make decisions based on their mission. Strategic plans ensure that organizations are sustainable for the foreseeable future and for the long term.
The Final Wrap-up on the Core Elements of a Governance Plan
While it’s challenging for organizations to fully comply with all elements of a governance plan, technology, such as a BoardEffect board portal is a good first step in enhancing all core elements of good governance. Board portal software supports all nine core elements of good corporate governance, as listed here. Companies that make every effort to follow the core elements of good governance are more likely to attract investors and to outperform their competitors, which also leads to stakeholder satisfaction and future growth.
Poor attention to good governance principles often weakens organizations and leads to other problems, such as financial woes and long-term reputational damage.
In summary, boards of directors should be aware of all the elements of a governance plan and encourage them in themselves, in their fellow board directors, in management and in their staff for the benefit of the organization and those it serves.