Board Governance: Challenges and Best Practices

A company’s success is determined by the board members’ capability to govern. It is important that each member has unique qualities to contribute to the business’ success.

However, failure will always be a part of any business. No matter how great and talented the boards are, sometimes there are risks that enterprises need to deal with. And it is the board member’s responsibility to mitigate risks and help the company achieve maximum efficiency.

Explore in this article the best practices and challenges that businesses encounter to have effective board governance.

Pillars of Board Effectiveness

An effective board governance demands competent leadership, an efficient management process, and effective strategies to help the ultimate goal of bringing success and sustainability into the company. Understanding the pillars of board effectiveness is one key to achieving board governance.
According to the International Institute for Management Development (IMD), there are four pillars that board directors must observe in order to have effective board governance.

Information Architecture

Information architecture is when companies have adequate processes for information from top management to media. Boards must pay attention to two types of information. External information is information that comes from sources other than the company. These include social media reviews, media news reports, and industry reports. The second type is internal information that is derived from various reports, including CEO reports, forecasts, and financial performance reports.

Everyone involved in a business activity must understand everything that is going on and the challenges that it presents.

Structure and Process

A good structure is when all the board members understand their functions and roles in the company. This will allow them to have a good understanding of the hierarchy and can help them delegate tasks, especially on complex projects.

In terms of process, having a well-managed process is necessary because it improves the company’s communication internally and externally. This allows companies to assess strategic risks and opportunities.

People

A diverse group of board of directors with specialties in specific skills is extremely beneficial to effective governance. It will provide the company with new perspectives and may even help develop strategies to help you achieve your company’s goals and objectives.

Apart from knowledge, a truly effective board of directors is well-focused and dedicated to fulfilling their roles. With the right people, you’ll be able to come up with productive decisions.

Group Dynamics

No matter how talented your people are, mismanagement can lead to failure. Functional group dynamics involve the interaction between the board and the senior management. The key to effective group dynamics is building a governance culture that encompasses successful discussion styles, decision styles, and an emphasis on accountability.

Now that you have a brief understanding of the 4 pillars of board effectiveness, read about the primary challenges board directors may face throughout their service.

Challenges of Board Governance

Whether a startup or an established company, businesses always experience several challenges. Dealing with such hurdles requires deliberate and intensive critical thinking. Below are some examples of the challenges that both nonprofit and profit organizations face.

Conflict of interest

When an employee prioritizes their personal interests over the interests of the company, this is referred to as a conflict of interest. It has a negative impact on the company and may even lead to the company’s demise. Endorsing someone who is not qualified for a position, for example, may result in poor decision-making. It will have a negative impact on the company’s performance in the long run.

To avoid this from happening, it is essential that the boards and all members of the organization must be oriented from time to time about the corporate policy.

Various stakeholder demands

A stakeholder is a group or individual that has an interest in the organization — customers, employees, investors, or anyone who is actually part of the business. And of course, different stakeholders mean they need different things. For instance, a customer wants a result of the value that the business promised them. Or an employee who asks for a competitive salary. These are just some demands that the boards must prioritize in order to achieve effective governance.

Companies must understand the needs and wants of their stakeholders to deal with such situations. Then they must plan objectives and implement strategies that will answer these demands. One example is aligning your KPIs to what the customer wants.

Increased ESG pressure from stakeholders

As the demand for ESG transparency and compliance continues to increase, stakeholders may compel companies to disclose their sustainability performance and efforts. Such efforts consist of reducing carbon emissions and the goal of achieving net-zero.

To help them cope with the pressure, boards must come up with new strategies that will help improve the sustainability of the company. Implementing ESG projects, such as going paperless for board processes and resolving workforce issues, are ways to kick-start ESG.

Increased cybersecurity risk

A common myth about cybersecurity is when all the resources are online and that processes are digitized, risks may compromise business security. However, that is not always the case. Not prioritizing cybersecurity on a board level may be the cause.

To avoid cyber crimes and threats from happening, may it be on a profit or nonprofit organization, directors must invest in secure board software that can keep all confidential data protected and allow guarded and hassle-free collaboration. One example of such software is Convene.

Board Governance Best Practices

By understanding the pillars of good governance and being aware of the major board challenges, companies must be able to determine practices that would empower board governance. How should they do it? Explore below some tips to get you started.

Review the governance framework

Reviewing the current framework of a corporation is beneficial to the company. It allows you to determine if the framework your board follows is still updated. Reviewing this regularly means keeping up with the changes and corporate governance trends.

Oversee corporate strategy

The role of the board directors is to develop leadership that will lead the company toward success. It is also their job to formulate strategies that will help the corporation use its resources. The management, who implements these strategies, must be able to communicate to the board their struggles and wins, to let the board assess the best possible strategies to implement.

Director and management training

Training is vital to a company’s success. New information means board members will have the additional knowledge to create decisions that will help your business achieve its goals and objectives. Having governance training regularly helps the board have a thorough understanding of their roles and puts board members on the same page.

Create policies around regulations

With the increasing number of regulations, companies must be able to keep up with the new rules that will shape corporate governance. To ensure compliance, boards must be able to develop policies and drip them to the management and employees. Upholding compliance is one of the key ingredients in achieving board governance.

Collaborate and document meetings

Regular board meetings are critical for improving board dynamics. It enables board members to clearly monitor the company’s performance and collaborate effectively. For example, having at least one meeting per month allows board members to devise a strategy if their expected numbers do not materialize.

Meetings on a regular basis improve transparency and accountability. Board members would have access to all business activities that have occurred at the company.

Following these practices would help your company deal with challenges that might happen in the future. It is inevitable but equipping your business with these best practices would definitely help in empowering board governance and achieving your business objectives.

Establish better board governance with Convene

Convene is a board governance software designed to boost compliance, board collaboration, and accountability. Convene’s features such as easy delivery of meeting packs, video conferencing and presentation features, and post-meeting tools, will surely help your company conduct efficient meetings and secure document management.

Start your Convene journey today and help equip your company with the best practices in implementing effective board governance.