What should boards of directors focus on to improve companies’ corporate governance? There are seven essential points, listed in an article by Suzana Sierra, CEO of BH Compliance. The North American company uses blockchain to measure the effectiveness of corporate governance in organizations. Next, see the areas and why they need to be a priority, according to the text “Seven areas for boards to focus on to improve corporate governance”, published in Forbes:
1. Independence
Independence helps prevent possible conflicts of interest, improve objectivity and impartiality in decision-making, and find new perspectives for making strategic decisions – which helps to ensure the organization's short- and long-term interests. To achieve this, a significant number of independent senior executives and term limits for management positions must be guaranteed. Periodic assessments of the independence model are also important.
2. Diversity, equity and inclusion
Diversity, to be understood based on the most different criteria, such as age, gender and race, allows for a multiplicity of experiences, contributing to innovation and flexibility in the organization.
3. Performance evaluation
It improves effectiveness and strengthens governance because it helps to identify the board's strengths and weaknesses, in addition to demonstrating a commitment to continuous improvement. It also encourages leaders to review the board's structure, dynamics and decision-making processes, as well as fostering stakeholder trust. The process can be done through self-assessment or external assessment.
4. Executive compensation
In addition to the salaries and benefits of CEOs and C-Levels being under the spotlight as they are considered excessive in light of the global economic crisis, the definition of objectives itself is also undergoing a moment of greater scrutiny, which can no longer be assessed solely by achievement in the short term, but still in the way they are achieved. Therefore, companies must implement a fair and comprehensive means of remuneration, which encourages both productivity (short term) and ethics (long term).
5. Stakeholder governance
The interests of the parties involved – customers, employees, suppliers, communities, shareholders, among others – must be considered when the board and C-Level determine the company's values, strategy and general direction. Why? Good relationships with stakeholders are essential to determine the success of the business. This must be done with oversight and active involvement of the board of directors, who always have to consider the impact that their short- and long-term strategic actions may have on these groups.
6. Cybersecurity
Cyber attacks bring significant financial losses, damage to reputation, exposure of strategic information, among other serious consequences, not only for the company and its employees, but also for customers and suppliers. Therefore, the board must ensure that the company has security plans and encourages a culture of prevention to avoid risks related to cybercrime.
7. Sustainability
The growing demands from regulators, investors and consumers impact the results of companies that do not commit to ESG criteria. Companies must consider practices as a strategic issue in order to position themselves and mitigate risks. And it is up to boards of directors to emphasize clear agendas and measure the effectiveness of the results of these actions.
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