How Strong Corporate Governance Considerations Provide Long-Term Value For Your Business

Strong corporate governance is critical to adding organizational value and preparing the company for long-term opportunities. 

When entrepreneurs initially focus on building and growing a company around a new product, service, or technology, they often do not pay much attention to how their businesses will be governed. Yet, as experienced executives have come to recognize, good corporate governance is critical to adding value and preparing the company for short-term challenges and long-term opportunities. 

A common misconception about corporate governance is that it is only about the board of directors. In practice, corporate governance encompasses policies, procedures, and principles that guide how the company sets strategy, manages risk, monitors its assets and resources, ensures management accountability and financial transparency, satisfies legal and regulatory obligations, and communicates with internal and external stakeholders. Most importantly, corporate governance sets the organization's tone and culture. 

While there is much talk about "good corporate governance," there is no single formula that is ideal for every company. Factors that determine the level and complexity of corporate governance include the size and scale of the company, the need to access capital markets, the regulatory environment, and the development stage of the business. 

From the perspective of an individual seeking to build a successful company, what are the most critical or effective governance practices? How do these practices evolve as a business matures? Given stakeholder demands for good corporate governance at all companies, we see lenders, insurers, venture capital, and private equity investors increasingly focusing on the governance practices of private companies. 

It is helpful to consider governance practices mandated for public companies that are increasingly being adopted voluntarily by many private companies today. 

Board composition 

For small companies where directors, shareholders, and management may essentially be the same-board composition may not be an issue. As a business begins to grow, however, independent directors can play a critical role in management debates, setting strategy, and supporting and monitoring the CEO. 

Independent directors can offer substantial benefits: 

• Providing broader perspectives on business and financial issues 
• Offering expertise in areas such as financing, M&A, emerging technologies, new or expanded markets, and risk management 
• Providing board leadership to help instill the right tone and culture. 

Independent directors can also play an important role in defining the company's path as it matures and migrates to a more robust governance structure. 

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