Effective corporate governance requires that all stakeholders have clear and defined roles and responsibilities. It also assists in promoting an environment of work which values diversity and encourages fairness. These frameworks are applicable to a variety of organizations that range from large corporations to professional associations and families.
The board is responsible for developing and approving corporate plans that produce sustainable long-term values including selecting the CEO and directing management in the operations of the company and distributing capital for investment and assessing and managing risk; and setting the «tone at top» for ethical conduct. The board typically comprises composed of insiders like the founders, shareholders, and executives. They are additionally joined by independent directors who have expertise in directing or managing large corporations. Independent directors are considered to be helpful in governance because they do not have the same ties to insiders that can create conflicts of conflicts of interest.
The composition of the board is critical since board members are often faced with technical issues which require a variety of viewpoints. For this reason, experts in governance generally recommend that boards include at a minimum a majority of independent directors. The diversity and duration of tenure are crucial to ensure that the board can effectively function, particularly in cases where discussions are long and filled with opinions. New members of the board can bring fresh perspectives and those with a long tenure may provide continuity and knowledge of the institution.
The board is also responsible for understanding, reviewing and coordinating the annual operating budgets and plans of management. The board, through its corporate governance and nominating committee, must also regularly reach out to the largest shareholders to understand their views and communicate with them frequently on important issues relevant to the business.
