Terry DavidCorporate Governance That Works: Practical Steps for Stronger Boards and Better Outcomes
Why corporate governance matters
Strong corporate governance creates resilient companies, protects shareholder value, and builds trust with customers, employees, and regulators. Boards that focus on clear oversight, effective risk management, and meaningful stakeholder engagement are better positioned to navigate disruption and capitalize on opportunities.
Key priorities for modern boards
– Board composition and diversity: A well-rounded board brings financial, industry, operational, and technology expertise. Diversity of gender, ethnicity, age, background, and thought improves decision-making and reduces groupthink.
– Risk oversight and cyber resilience: Boards must treat cyber risk, supply-chain disruption, and geopolitical exposure as strategic issues. Regular briefings from the CISO, scenario planning, and tabletop exercises help close oversight gaps.
– ESG integration: Environmental, social, and governance factors influence long-term value. Boards should ensure ESG is integrated into strategy, capital allocation, and executive performance metrics without letting reporting become merely performative.
– Executive compensation alignment: Pay structures should reward sustainable performance and discourage excessive short-term risk-taking.
Link compensation to multi-year outcomes and non-financial KPIs where appropriate.
– Shareholder and stakeholder engagement: Proactive engagement with investors, employees, customers, and regulators reduces surprises and aligns expectations.
Transparent disclosure and consistent messaging build credibility.
Practical governance practices to implement
– Clear board mandates and role definitions: Document responsibilities for strategy, risk, audit, nomination, and compensation. Avoid overlaps that create confusion during high-stakes decisions.
– Regular board evaluations: Use external or confidential internal assessments to identify capability gaps and governance weaknesses.
Follow up with targeted training and recruitment.
– Robust information flow: Provide timely, concise, and forward-looking materials to directors. Prioritize executive summaries, scenario analyses, and decision-focused materials rather than dense historical reports.
– Crisis readiness and escalation protocols: Define thresholds for rapid escalation to the board and practiced playbooks for cyber incidents, regulatory inquiries, and reputational events.
– Compliance and culture monitoring: Oversight should extend beyond policies to the lived culture. Use pulse surveys, whistleblower systems, and third-party audits to surface issues early.
Measuring success
Governance effectiveness is seen through stronger risk-adjusted returns, lower capital costs, fewer regulatory surprises, and higher trust from stakeholders. Use a mix of qualitative and quantitative indicators: board attendance and engagement metrics, time to remediation for audit findings, employee survey trends, and progress on strategic initiatives.
Common pitfalls to avoid
– Treating governance as a compliance checklist rather than a strategic enabler
– Neglecting digital and cyber expertise at the board level
– Overloading directors with minute operational detail instead of decision-centric insights
– Failing to refresh the board when skill needs shift due to strategic change
Actionable next steps for boards
1. Conduct a skills matrix review and map gaps against strategy.
2. Institute regular cyber and ESG briefings as standing agenda items.
3. Update executive pay frameworks to emphasize multi-year value creation.
4. Run a crisis simulation that includes legal, communications, and IT teams.
5. Schedule an independent board effectiveness review and follow-through plan.
Good governance is a continuous program, not a one-time project. Boards that adopt disciplined oversight, clear roles, and ongoing stakeholder dialogue create more durable organizations and sustained value for all stakeholders.