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Choosing the best corporate governance framework for a business is a matter of striking the right balance of serving stockholders, employees, customers and the broader society in which the business operates. Typically, the foundation of a sound corporate governance framework is an independent board of directors that oversees the implementation of a corporate vision. Directors are guided by a set of policies that govern the business’ practices in all areas of operation, including management, human resources, sales, manufacturing, customer service, corporate communications and investor relations.
Serving the best interests of those who own stock in the company is generally agreed to be the primary mission of the corporate governance framework. The independence of the board of directors from management becomes vital in this facet of corporate governance, as the board at times might be called on to disagree with or even remove management to serve shareholders. A good corporate governance framework ensures the board has this independence even though the selection of board members may be influenced by top managers.
A board of directors typically does not get involved in the details of the day-to-day operation of a business. The best corporate governance framework, however, clearly describes in writing that management serves at the pleasure of the board and that management is responsible for fully disclosing to the board all the board needs to evaluate management performance. These disclosures include all data on company performance required to make substantive evaluations. Often, board involvement in setting compensation of top managers is an important tool in effective board oversight.
Employees of a company have an interest in a good corporate governance framework as well. Day-to-day operations are usually not the concern of the board; a solid corporate governance framework, however, will give the board the ability to require that the company comply with all employee relations standard and practices. This oversight responsibility often includes a feedback system so employees have an alternate avenue to voice concerns if they are not addressed after exhausting all channels provided through management.
Businesses are increasingly called on not only to be good stewards of stockholder investments, but also good citizens of the communities in which they operate. The best corporate governance framework requires the board of directors to hold management accountable in this regard and gives the board the authority to evaluate management performance and require changes if necessary. The same is true for the ethical operation of the business by managers, which is an item of board authority in the best corporate governance structures.
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