What is public company governance?

Overview

How are your board of directors and governance competitively differentiated?

Compliance governance focuses on the documents and processes to meet legal and regulatory requirements, and other standards.

Value growth and preservation governance focuses on having the right people making decisions with a high impact on value growth and preservation.

The board should discuss the degree to which they are compliance-driven vs value growth and preservation-driven.

How are your board of directors and governance competitively differentiated?

 The for-profit public company is operating in a competitive environment.  Long-term success requires winning against the competition.

Do you need a board of directors and governance that are competitively differentiated?  Can you succeed with a poor board and poor governance?

How do you measure the competitive performance of your board and its governance?  Long-term financial performance of the corporation?  Reputation of the corporation?  How successfully the corporation deals with unexpected events and crises? Employee perception of the corporation, relative to others in the industry?

What are the required people, processes, and technology for the board of directors and governance, based on external perceptions, benchmarks, and targets for competitive differentiation?

Is your board and governance compliance driven?

Compliance is necessary but is insufficient to grow value in a competitive profit-making environment.

Legislation, regulations, and standards define much of what needs to be in formal governance documents e.g. by-laws, mandates and board approved policies.  Accounting standards define financial reporting.  Proxy advisory firms and institutional investors have points-of-view regarding board of directors and governance. Law firms and consultants all have their points-of-view as to what is best-practices governance.

If you are 100% compliant, does this mean you will increase your market share and be more profitable than your competition?

Is your board and governance value growth and preservation-driven?

Each board of directors should discuss and agree upon should be the board of directors and governance role (if any) in driving long-term value growth and preservation?

  • What is the board responsible for? g. ultimate responsibility for long term success of the corporation.
  • What is the definition of governance? g. the OECD definition, which is basically decision-making.
  • What is the purpose of governance? g. grow and preserve the value of the corporation?
  • Which board of directors’ values, ethics, behaviours, actions and decisions will have the greatest impact on the purpose of governance? e.g. appoint or terminate the CEO.

One easy test to determine what the board sees as its role in value growth is to read the mandate of the board of directors.  What does the mandate say about value growth and the board’s role in that? You may have decided to make your formal, published governance document reflect standard industry “boiler plate”.  If so, are there informal documents which describe the directors’ role and governance role in value growth?

Should you examine each director to assess their competitive differentiation relative to other directors in the industry?  What have been their individual accomplishments in terms of: long-term value growth, building and maintaining corporate reputations, dealing with unexpected events and crises, building strong reputations with employees, innovation, etc.

Your next steps

Two core questions remain:  do you need a competitively differentiated board; and what role, if any, does the board and governance have in long term-value growth?

To enable discussion with your board of directors, CEO, and advisory board, download the following one-page slide:

What is public company governance?