Terry DavidStrengthening Corporate Governance: Practical Steps for Boards and Executives
Why corporate governance matters
Strong corporate governance builds trust, reduces risk and improves long-term value creation. Companies with clear governance frameworks are better positioned to navigate regulatory change, stakeholder expectations and rapid technological disruption.
Boards and executives who prioritize governance create a durable foundation for strategic decisions, investor confidence and operational resilience.
Pillars of modern corporate governance
– Board composition and independence: A diverse, skilled board with independent directors brings varied perspectives and better oversight.
Focus on relevant industry expertise, financial literacy, and independent committee leadership to reduce conflicts of interest and enhance accountability.
– Risk management and compliance: Governance must integrate enterprise risk management with compliance programs.
This includes scenario planning, stress testing, and a strong internal audit function that reports independently to the board audit committee.
– Stakeholder engagement and ESG integration: Investors, employees, customers and communities expect companies to address environmental, social and governance (ESG) issues. Effective governance embeds ESG into strategy, links metrics to performance, and ensures credible disclosure to stakeholders.
– Transparency and reporting: Quality disclosure builds credibility. Boards should prioritize clear reporting on governance practices, risk exposures, executive compensation and sustainability outcomes, using consistent frameworks to enable comparability.
– Cybersecurity and digital governance: As digital risks rise, governance must extend to data protection, third-party risk and technology strategy.
Boards should oversee cybersecurity posture, incident response readiness and resilience planning.
Addressing shareholder activism and executive pay
Shareholder engagement is a two-way process.
Proactive outreach reduces surprises and helps align expectations. On executive compensation, linking pay to measurable, multi-year performance metrics — including ESG and risk-adjusted outcomes — promotes sustainable decision-making while mitigating short-term risk-taking incentives.
Operationalizing governance: practical steps for boards
– Conduct regular board skills assessments to identify gaps and shape recruitment priorities.
– Strengthen committee charters and ensure committees have the expertise and resources to perform robust oversight.
– Adopt a risk-aware culture by integrating risk dashboards into board reporting and reviewing scenario-based plans for major exposures.
– Establish clear escalation protocols so material issues reach the board promptly, with pre-defined thresholds for action.
– Mandate periodic reviews of governance policies, including conflict-of-interest rules, whistleblower protections and related-party transaction processes.
– Require management to present cybersecurity and third-party risk updates at least quarterly, with independent external validation when appropriate.
– Make stakeholder communication strategic: publish accessible summaries of governance practices, host investor roundtables and incorporate employee voice into strategy discussions.
Measuring effectiveness
Governance should be measurable.
Use a balanced set of indicators such as board meeting attendance, diversity metrics, time-to-resolution for material findings, audit results, and progress on strategic ESG goals. Regular external assessments — for example, independent board evaluations or third-party audits of controls — provide objective validation and clear improvement pathways.
Final considerations
Governance is an ongoing discipline, not a one-time checklist. Boards that emphasize diversity, transparency, risk integration and stakeholder engagement create organizations that are better prepared for disruption and more attractive to long-term investors. Practical, measurable governance improvements deliver both resilience and value, supporting sustainable success across market cycles.
