Boards and companies often feel weighed down when handling and reporting on corporate governance
It can seem like a heavy burden to comply with the recommendations / code and is sometimes seen as a “tick the box” exercise. A few boards even try to handle assessment of compliance in one meeting, as if that will give a clear picture of how well the company is meeting the recommendations.
Our experience is that instead of seeing corporate governance as a burden, the most effective boards recognize its importance in securing the company’s long-term sustainable success, and dedicate time and resources to continuously improve their processes accordingly.
Transparency is critical for investors and other stakeholders. They want to be involved in dialogue with the company, and know what is working, where the risks are, and what the plans are for mitigating the risks. Investors and other stakeholders are more comfortable about the company if they see a company culture with strong, effective corporate governance and the integrity to be open about their aim for continuous improvement.
Additionally, when board members spend time to read and discuss the corporate governance guidelines, the results usually lead to clearer, better, and more aligned processes. Moreover, what might have seemed to be difficult questions for board members to ask, become less so.
Boards should remember that the guidelines are usually based on a “comply or explain” approach. This means that companies can choose NOT to follow the code / recommendations exactly with each part of the guideline, but instead explain WHY they have decided to do something different, and which approach they have chosen instead. By providing a thorough, reasonable explanation, the board and the company will create transparency and trust, and still comply.
Therefore, be sure your board is dedicating enough time in the annual wheel of board agenda topics to address good corporate governance and avoid the temptation to view it as an unnecessary workload. In doing this, your board will strengthen its ability to safeguard and improve the long-term value of the company.
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