WL Business Law Blog

Effective Corporate Governance: The Roles and Responsibilities of a Board of Directors

By James Woods
Managing Partner

In business, corporate governance is a system of rules and practices that help guide how a company is directed, managed, and controlled. 

Effective corporate governance is essential for the long-term success of any company as it ensures that a company is run responsibly and ethically, achieves its objectives, and builds trust with its stakeholders.

Diversifying the Board of Directors

According to the Harvard Law School Forum of Corporate Governance, research shows that companies with diverse boards of directors have 33% greater financial returns than less-diverse peers. As the corporate world becomes far more integrated across global markets, diversity can improve a company’s outlook.

A diverse board of directors can bring a range of perspectives, experiences, and skills to the table, which can help the board make better decisions and mitigate risks. Diversity in the boardroom can also enhance the company’s reputation, increase innovation, and improve corporate social responsibility.

Ensuring Director Independence

Effective boards are made up of directors with a wide range of skills, experiences, and backgrounds who can challenge management when necessary. They also regularly evaluate their performance and that of individual directors to ensure that the board is functioning effectively.

Whenever a company includes internal management within the board, this can skew results and make for biased or unfair decision-making, proving detrimental down the road.

Executive Compensation Review 

Boards should review executive compensation regularly and ensure that it is not incentivizing excessive risk-taking or short-term results.

Moreover, executive compensation should be transparent to stakeholders. To achieve this, many boards tie compensation with performance metrics aligned with the company’s long-term objectives. 

Research shows there are more balanced objectives when executive compensation is linked to financial returns.

Director Training and Board Evaluations

In many cases, management can benefit from learning about relevant topics such as corporate governance, risk management, and financial reporting. Regular board evaluations are also essential to ensure that the board functions effectively and individual directors perform their duties competently.

Checks and balances are essential for company leadership and can help hold leaders accountable as needed.

Shareholder Rights and Takeover Provisions

In corporate business, shareholders are fundamental to a company’s health, performance, and longevity. Consequently, the rights of shareholders are critical elements in effective governance.

Shareholders can elect directors and vote on crucial issues such as executive compensation, mergers and acquisitions, and other transactions. Boards should be transparent and ensure shareholders can access information about the company and its operations. 

Well-drafted takeover provisions are also important, as these protect the interests of shareholders. Takeover provisions can include measures to prevent hostile takeovers, such as:

  • Poison pills
  • Macaroni Defense
  • Stock repurchase guidelines
  • Shark repellents
  • Standstill agreements
  • Pac-Man defense

With these provisions, shareholders can exercise greater control over the company and prevent actions that may not align with their interests.

General Policies and Guidelines

Policies and guidelines are essential elements of effective corporate governance. The board should establish policies and guidelines that guide how the company is run and how decisions are made. 

These policies may cover topics such as: 

  • Risk management
  • Social responsibility
  • Financial reporting
  • Environmental sustainability

Furthermore, the board should ensure that these policies and guidelines are communicated effectively to all stakeholders, including employees, customers, and shareholders. This can build trust with stakeholders and enhance the company’s reputation.

The Woods Lonergan Difference

Effective corporate governance is essential for any company’s success. Well-balanced policies can establish a framework for decision-making, risk management, and accountability, building trust with stakeholders to ensure a company can operate responsibly and ethically.

At every scale of operation, Woods Lonergan’s business attorneys are experienced in providing guidance to corporate entities on how to conduct themselves effectively by offering assistance with:

  • Facilitating shareholder or unit owner voting processes
  • Conducting reviews of corporate records
  • Establishing and enforcing board authority
  • Structuring boards and committees for optimal performance
  • Defending against or challenging improper corporate actions
  • Improving communication between shareholders and management. 

We believe that Boards are most effective when is an alignment between their mission, collaborative processes, and structure. Our purpose is to deliver trusted legal counsel to boards, empowering them to evolve into strategic assets for their organizations.

Woods Lonergan represents business law clients across New York City. If you’re dealing with a corporate governance matter, book a consultation with us today to learn more.

About the Author

James Woods, Managing Partner of Woods Lonergan, holds more than 25 years of experience in corporate, real estate, and business legal matters. His expertise in handling negotiations, litigation, jury trials, and all forms of alternative dispute resolution spans multiple areas, including corporate, real estate, and commercial litigation. James actively represents dozens of Cooperative and Condominium Boards and serves as counsel to many Corporate Boards. Prior to founding the firm, James proudly served as an Assistant District Attorney for Nassau County and handled both jury and bench trials. With experience that also covers sophisticated transactions and complex acquisitions, James also serves as counsel to several domestic companies in a range of industries and commercial arenas, including real estate, insurance, banking, transportation, and construction. If you have any questions about this article you can contact attorney James Woods through his biography page.

Disclaimer: The information in this article and blog post (“post”) is provided for informational purposes only, and may not reflect the current law(s) in every jurisdiction. No information contained in this post should be construed as legal advice from Woods Lonergan PLLC or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. Nothing herein shall be construed to create an attorney-client relationship with Woods Lonergan PLLC. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s jurisdiction. This post is attorney advertising.
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