Question

Is interest in corporate governance regulation and legislation inevitably associated with recession, market failure and corporate collapse, or is it possible to maintain attention on improving standards of corporate governance at times of market expansion and business growth? Formulate your answer.

Answer 1

To improve, governance, here are five basic steps:

1. Increase Diversity

Corporate boards suffer from a serious lack of diversity. In 2008, the board composition of Fortune 100 companies was approximately 71 percent white men and 29 percent women and minorities. Women make up only 16 percent of the directors of the Fortune 500 companies. This lack of diversity has been pervasive even though there are many studies which show that diversity in the boardroom improves company performance.

A recent study issued by Credit-Suisse which examined companies around the globe concluded that greater gender diversity results in improved financial performance. Companies with one or more women on the board outperformed companies with no women by 4 percent in net income growth. United States companies lead the world in having one or two women or minority board members. European companies lead the world in having three or more women or minority members.

Diversity is a bottom line issue. The SEC requires companies to disclose their diversity policies and such disclosures should lead to increased emphasis on diversity.

2.  Appoint Competent Board Members

The Nominating Committee should devote adequate time to identify board members who have the skills and industry knowledge to assist the board. That does not mean that there is only one type of board member who would qualify. There should be a balance between those board members who know the organization, those board members who have a helpful expertise and those that offer a fresh perspective. What is important for a board is that it has a good understanding of what skills it has and those skills it requires. A board candidate should also be evaluated on his or her interpersonal skills since board interactions and relationships will be important to overall board performance.

3.  Ensure Timely Information

Timely information results in better decision-making. Senior management has to provide timely information to ensure proper board supervision and direction. Board members, however, should not be overwhelmed with information. There is a balance which needs to be achieved between necessary information and irrelevant information. Interactions between senior managers and the board are critical to ensuring that adequate information is provided to the board. If a board member requests information, senior managers must respond promptly to the request.

4.  Prioritize Risk Management

Every board should establish an effective system for risk oversight and management. “Risk” is not confined to compliance risks. It is a broader term which incorporates all of the risks to the company – e.g. financial risks, global warming, cyber-security, and other risks outside the compliance with law and policy requirements. Effective risk management leads to better decision-making and accurate cost-benefit or risk-reward decisions.

5.  Evaluate Board Performance

Boards must be willing to examine their own strengths and weaknesses. On a regular basis, the board should conduct a self-evaluation process, including the performance of individual directors. The evaluation process should be used to identify weaknesses in board performance, and adopt reforms needed to improve board performance. The evaluation should be broad, cut across all issues and personnel and include senior management interactions with board members.

Benefits of good corporate governance and examples

With the support of a solid compliance culture, boards of directors can benefit in a multitude of ways from best-practice corporate governance. Below are some good corporate governance practices and examples.

1. Encouraging positive behaviour. “Having clearly delineated policies and processes and a board of directors and executive managers who maintain the compliance culture directly supports improved results,” writes chartered secretary Monique Legair. It is imperative that all board members themselves participate in that culture, ensure clear lines of communication with management and the rest of the organisation, and are immediately responsive to any evidence that part of the organisation is not participating.
2. Reducing the cost of capital. In today’s volatile environment, the implementation of good governance practices can lead to a reduction in a company’s cost of capital. An organisation that is seen to be stable, reliable and able to mitigate potential risks will be able to borrow funds at a lower rate than those with weak corporate governance. Companies with debt or equity investors may find that their investors pay a premium to work with a company that has a sound governance framework.
3. Improving top-level decision-making. There is a strong and demonstrable link between an organisation’s governance and rapid decision-making associated with improved performance, explains the Corporate Governance Institute in a recent report. Moreover, a number of performance failures have been directly linked to poor governance. There is no doubt that good governance assures rapid access to information and the good communication among stakeholders that leads to better results. Good governance also enables rapid and accurate prioritising of actions. This can prove invaluable in enabling the organisation to weather tough economic storms and supports the organisation’s sustainability.
4. Assuring internal controls. By implementing corporate governance correctly across the organisation, the board may be certain that an adequate and effective control environment is in effect, with the level of assurance associated with each important component of governance. What’s more, the board or the board committee is better positioned to take action when the controls signal non-compliance.
5. Enabling better strategic planning. With more rapid access to information and good communication with management, boards are able to formulate more successful strategies. This includes more efficient allocation of resources and capital. The strong governance framework will further assist the board in some of the following ways – understanding the regulatory environment governing the business; leveraging technology from a production, distribution and communications point of view; and identifying and managing the reasonable interests of all stakeholders in the business. All these components are essential elements of a robust strategic plan.
6. Attracting talented directors. Bringing in talented non-executive directors with complementary skillsets helps to make an overall and comprehensive assessment of the overall sustainability of the organisation, including its level of compliance with relevant legislation. This kind of new talent is vital to the sustainability of the organisation which has to adapt to the ever-evolving conditions of the market. For the candidate to the non-executive post, providing this kind of environment is equally important.

Diligent Governance Cloud provides the complete solution

The Governance Cloud, the only integrated board management software that enables organisations to achieve best-in-class governance. The board software digitises the various activities and tasks for the board of directors. As organisations grow more complex and regulations more stringent, the scope of governance responsibilities evolves. The Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need that help them perform at their best and work within their allotted budgets.

It’s clear that maintaining a high level of corporate governance is demanding and requires regular reviews of changing regulations and standards. Governance Cloud is Diligent’s ecosystem of cloud-based governance tools that provides a complete solution to enable leading bodies of organisations to mitigate risk and govern collectively at the highest level.

Seasoned in the governance space, Diligent has been in the leading position in the market for more than 15 years, offering the industry’s leading, most secure and most intuitive board management technology. Our deep customer insights and heavy investment in R&D have allowed us to expand our offering to support the full governance journey. Whether you choose to start with only Diligent Boards™ or multiple, integrated tools, we are the only partner in the market you can grow with as your governance needs evolve.

Board directors are obligated to perform a host of varied duties and responsibilities. Diligent developed a suite of governance tools to help them fulfil their responsibilities accurately and efficiently. The Governance Cloud ecosystem of products includes:

• Diligent Boards
• Conflict of Interest forms (pre-filled forms)
• Board Assessment Tools
• Resolutions and voting
• Diligent Messenger
• Diligent Minutes
• Insights (curated content and videos)
• Entity Management

Governance leaders, executives and board directors rely on the industry-leading Diligent platform for the most secure and intuitive solution to board material management and collaboration. Diligent Boards™ electronically stores a board’s agendas, documents, annotations and discussions within a secure board portal.

Company secretaries and board members can use the board portal to put together board meeting documents in minutes. The board portal also has designated virtual rooms for committee work. Administrators of the board portal can designate permissions for users to access various areas of the portal to avoid unnecessary problems with confidentiality. The “Manage Meetings” feature consolidates board directors’ contacts, calendars and the logistics of meetings. The program is a secure and intuitive solution for managing board collaboration.