Governance is the set of policies, practices, and processes that you use to ensure your business is heading in the right direction. It covers everything from checking your finances to planning your risk management strategy and keeping abreast of industry trends. Governance is essential for all companies whether they have shareholders, or not. However, it is more important as a business expands.
Good governance is an essential element of any business which aims to be accountable to all stakeholders, which includes shareholders, employees and customers. It helps build trust and promotes ethical business practices that result in higher productivity and more profit. Good governance helps your business adhere with accepted regulations, minimizing legal problems and reputational damage.
Shareholders rely on good governance to protect investments, to ensure that the interests of shareholders are considered in business operations and for the long-term success of the company. Employees are entitled to a safe work environment with fair wages, while customers expect products and services rooted in integrity.
Boards are responsible to ensure that the Management and the CEO are held accountable for their performance and that risks are properly managed. In order to do this, they must exercise vigorous and observant oversight of the business and its activities. They should not micromanage the daily activities of the business.
In order to ensure that they are effective in their oversight, directors should possess an array of abilities and experiences. Diversity, particularly gender and racial diversity, enhances the effectiveness of boards. In addition, directors who have a variety of tenures offer fresh perspectives, while directors who have been in office for a longer period of time provide continuity as well as institutional knowledge and insight.