ONCE companies start to grow, they need more leadership to oversee all the moving parts. Too often, corporate governance and its benefits are overlooked or misunderstood by stakeholders, including the board of directors.

A board of directors can offer needed stability, oversight and a fresh perspective to a business. Each board member brings experience and a unique perspective, helping management make wise decisions.

There are many factors to consider when choosing a board of directors, including ethical and bias concerns. An organisation can learn how to recruit a diverse board of directors to create and implement policies, establish needed subcommittees, and provide other useful oversight.

In Embracing Corporate Governance – An Effective Board of Directors, author Geary Reid shares theoretical knowledge and practical wisdom from years of experience working in leadership roles within organisations. Your organisation can start reaping the benefits of corporate governance today with the knowledge and tips he provides.

Section 1. Theories and Scope of Corporate Governance

Corporate governance has evolved over the years. There have been many challenges with organisations and agents who have misused their authority. Many shareholders have been disappointed by the actions of some of their agents, but it was often too late for them to take corrective action.

Corporate governance is not intended to prevent organisations from operating. Instead, it allows them to operate within their scope by implementing policies and strategies and holding individuals accountable for their actions.

Some individuals may resist corporate governance. Still, there needs to be a louder call for more organisations to embrace it, as many fail precisely because they do not.

When organisations are trading on the stock market, they are required to follow corporate governance recommendations. Institutional investors want to know that their investments will be protected and deliver regular, substantial returns.

The laws and taxation systems in many countries must be understood by management and independent non-executive directors. These laws affect how an organisation treats employees, the environment and other stakeholders. While organisations may gain tax exemptions in their initial stages, they may later be required to remit funds and pay those amounts to the relevant government agencies.

Agency and stewardship theories are important concepts to understand. Agents must remember that they are not the owners of the organisation but work under the supervision of the board of directors to ensure the organisation is successful and compliant.

Most organisations have numerous stakeholders, some of whom are highly influential. Each stakeholder’s interest must be carefully managed.

There are various benefits to implementing and enforcing corporate governance within organisations. While resistance exists, the benefits outweigh many of the criticisms. Organisations that do not have a board of directors ought to consider establishing this important oversight body to gain recognition and avoid the pitfalls that have caused many organisations to close suddenly when managers fail to act in the organisation’s best interests.

Corporate governance must become everyone’s ally, and more organisations must practise it.

Section 2. Appointments of Boards

Most individuals do not appear on a board without being nominated. Therefore, those responsible for appointing board members must carefully consider whom they would like to serve. While some board members enjoy the prestige associated with being known as a “director”, they must also recognise that the role carries significant responsibility.

There are several types of directors, and the term itself is often overused. Every kind of director has different functions. It is important to understand the criteria a person should possess before being appointed to a board.

The duration of board memberships must also be considered. Some individuals are appointed for short periods, while others serve for several years. This section discusses the advantages and disadvantages of both short and long board tenures.

Board members must act ethically at all times. Their behaviour is often viewed as a reflection of the organisation itself. Poor ethical conduct by a single board member can negatively affect the entire board and the organisation.

Shareholders have rights and must be aware of them, exercising those rights when necessary. With the appointment of independent non-executive directors, shareholders may accept or reject nominated individuals for board roles.

In many government agencies and ministries, politicians appoint board members. Some appointees may prioritise political mandates rather than acting as independent professionals who execute their duties impartially.

In family-run organisations, individuals are often appointed to boards due to lineage or family recommendations. Conflicts can arise in such situations when board members lack the necessary skills or expertise for their roles.

Diversity is essential for many boards. Boards require individuals with a wide cross-section of skills, knowledge and experience. The inclusion of women on boards is critical, as they bring professional expertise alongside unique personal perspectives and insights.

Section 3. Critical Board Members and Their Functions

Every board consists of multiple members, each of whom plays an important role. However, certain key members often take on leadership responsibilities. The absence of these individuals can delay or postpone meetings.

Each board has only one chair. The traditional term “chairman” in this context also refers to chairwoman or chairperson and is not gender-specific. Historically, most chairs were men, but over the years more women have assumed leadership roles on boards.

The chair’s responsibilities are clearly defined. The individual in this position can have a significant impact on the organisation. The chair must be assertive in guiding board members and ensuring adherence to the agenda so that documents presented can be properly ratified and approved. The chair also reviews and approves the agenda for each board meeting.

The Chief Executive Officer (CEO) is another key figure who represents management. The CEO serves as the link between the board of directors and the organisation’s staff, executing board directives, managing employees, and motivating them to achieve organisational goals.

Many reports submitted to the board are reviewed and discussed by the CEO. Once approved, they are forwarded to the company secretary for inclusion in board packages. At some meetings, other senior managers may be invited to attend and represent their respective operational areas.

The company secretary records board discussions and prepares the minutes of meetings. After meetings conclude, much of the company secretary’s work begins. The quality of board minutes often reflects the effectiveness of the company secretary’s department. Company secretaries also perform other routine organisational duties and, where legally trained, may represent the organisation in legal matters.

For more information about Geary Reid and his books, please use the following contact information:
Amazon: http://www.amazon.com/author/gearyreid
Website: www.reidnlearn.com
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Email: info@reidnlearn.com
Mobile: 592-645-2240