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The Importance of Good Corporate Governance

Good corporate governance provides transparent rules and controls, provides guidance to leadership and aligns the interests of shareholders and the business. It establishes trust between investors and the public, and can make it less costly to raise capital.

To establish a sound corporate governance, you need a solid team of employees and an effective board of directors. The most effective teams and boards are diverse, containing individuals with diverse backgrounds, talents and experience. This diversity is essential to creating innovative solutions and efficient decision-making. Transparency in business processes and transactions is equally important, as is a code of ethical conduct that encourages ethical business practices.

Despite its importance, implementing effective corporate governance has proven difficult to achieve. A multitude of laws and regulations has stopped the progress of a thorough discussions. Shrill voices, apparent insurmountable divides between shareholders activists and management, conflicts and previously staked out positions have all thwarted it. It’s the time to rethink our approach.

The key to achieving effective corporate governance is ensuring that everyone on your board understands their duties and responsibilities. This requires detailed job descriptions as well as organizational charts and clearly written governance policies. In addition, you must have a process for regular review and evaluation of the board’s performance.

A solid corporate governance framework should have three fundamental guidelines that promote ethics and integrity: an anti-conflict of interest policy, a whistleblower policy and a code of conduct for directors. In addition, most governance experts agree that your board should be composed of both insiders (major shareholders and founders) and independent members. Independents help in reducing the concentration of power and offer an outside view to your board.