Corporate governance

According to the 2025 What Directors Think survey, 78% of directors are pursuing growth in 2025. However, even in growth, businesses thrive or collapse based on the rules they establish to meet the needs of everyone they serve, from shareholders and stakeholders to managers and customers. These policies and guidelines make up corporate governance. ‌

While corporate governance has evolved with new expectations and technologies, it remains a driving force for businesses. It dictates how a company’s board of directors helps cultivate success in meeting short and long-term goals. Board members with the right tools for communication and corporate monitoring have a profound impact on their organizations. Here, we’ll explain:

• What corporate governance is
• Types of corporate governance
• How poor governance affects a company
• The six corporate governance principles
• Pillars upholding the corporate governance structure
• A step-by-step corporate governance process
• Best practices for corporate governance guidelines
• Corporate governance in the U.S. and around the world
• Corporate governance examples
• The power of technology to streamline governance

What is corporate governance?

Whether publicly traded or not, a corporation is a complex enterprise: It’s an interconnected web that weaves together the business itself, its executive leadership, the customers who buy its offerings, and the investors and financiers who provide the capital to make it all happen.

Other key players include government bodies that impose guardrails and regulations, suppliers who provide the resources an organization needs to function, and communities affected by a company’s operations. Good corporate governance aims to balance all these interests in a practical, fair and transparent manner.

The details vary across companies, geographies and industries, but these traits typically define strong corporate governance:

• It’s responsive, participatory and consensus-oriented
• It’s efficient and effective
• It upholds the rule of law in applicable jurisdictions
• It advances equity and inclusiveness, along with the company’s strategic vision — ensuring that the corporation “does good while doing well” and vice versa
• It prioritizes transparency and accountability

As Marc Hodak, Partner at Farient Advisors, said at Diligent’s 2022 user conference, “Good governance is ultimately what is right for the long-term health of the company."

Types of corporate governance

Corporate governance models vary in how they prioritize interests, define oversight and approach accountability. While traditional models often center on shareholders, evolving approaches increasingly emphasize broader stakeholder value, environmental impact and ethical responsibility. Below are the most common types:

1. Shareholder-centric governance: Also known as the Anglo-American model, this approach prioritizes maximizing shareholder value. It is dominant in countries like the U.S. and the UK, focusing on short- to mid-term financial structures, unitary board structures where executive and non-executive directors sit together and strong investor protections and disclosure requirements. While efficient in capital markets, this model can underemphasize critical environmental, social and governance (ESG) risks and stakeholder concerns.
2. Stakeholder-centric governance: Common in continental Europe and parts of Asia, this model aims to balance the interests of shareholders, employees, customers, suppliers and communities. It draws heavily from civil law traditions, prioritizing dual board structures, worker representation on boards and a long-term strategic outlook on sustainability and equity.
3. ESG-focused governance: An increasingly popular model of international governance, ESG governance places environmental stewardship, social responsibility and ethical governance at the core of board oversight. Organizations leveraging this module tend to integrate ESG metrics into executive compensation, create board committees for sustainability or ethics and report transparently in alignment with frameworks like GRI or SASB. This model may also be layered on top of other models to bring an ESG lens to more traditional governance approaches.
4. Family-owned business governance: Many privately held or family-led firms develop customized governance structures to blend family values with business discipline. This model emphasizes informal but influential family councils, succession planning around intergenerational leadership and professionalizing governance as the business scales. Proper governance also becomes a tool to prevent conflict and build trust within the family and with external stakeholders.
5. State-owned enterprise (SOE) governance: In countries with significant public ownership, market performance and public policy goals together shape corporate governance. These models typically involve government-appointed board members, a balance between profitability and social or national objectives and heightened scrutiny around transparency and accountability.

Key aspects of corporate governance

No matter the model, corporate governance in business is built on a foundation of principles and practices shared across the organization. These are the aspects essential to good governance:

1. Accountability: Corporate governance should hold decision-makers accountable to shareholders and other stakeholders. This can include performance evaluations of executives and boards, shareholder voting, internal controls and external audits.
2. Transparency: Transparency fosters trust with investors, regulators and the public. As such, governance mandates that companies provide timely, accurate and accessible information about financial performance, governance practices and ESG goals and outcomes.
3. Fairness: Organizations must treat all stakeholders equitably, and no one should be favored or discriminated against. This protects the interests of all stakeholders.
4. Responsibility: Companies should commit to operating ethically in a way that is both socially responsible and environmentally sustainable. In essence, corporate governance should enable organizations to give back to people and the planet.
5. Risk management: A robust governance system identifies, assesses and mitigates strategic, financial, operational and reputational risks.
6. Shareholder rights: All shareholders have a right to information, to participate in decision-making processes and to be treated fairly. Corporate governance exists to uphold that right.

How does poor corporate governance affect a company?

The benefits of corporate governance are well documented, but truly understanding governance means understanding the implications when it fails. Poor corporate governance can have serious and far-reaching consequences for a company, impacting everything from financial performance to public trust. When governance structures are weak, unclear or misaligned, companies are more vulnerable to internal failures and external scrutiny.

Here are some of the most common effects:

1. Loss of investor confidence: When investors perceive a lack of transparency, accountability or ethical oversight, they may withdraw support or avoid the company altogether. Share prices often decline as confidence erodes.
2. Increased risk of fraud and mismanagement: Without strong internal controls and independent oversight, companies face a higher likelihood of unethical behavior, financial misstatements or misuse of assets — often leading to scandals or legal consequences.
3. Regulatory penalties and legal action: Regulators may impose fines, sanctions, or pursue legal action if a company fails to meet governance, compliance or disclosure standards. These actions can be costly and damage long-term viability.
4. Reputational damage: Governance failures can quickly become public, especially in the age of social media and stakeholder activism. Once trust is broken with customers, employees and the public, it’s difficult and expensive to repair.
5. Leadership instability: Poor governance often leads to unclear roles, lack of succession planning or unchecked executive power, all of which can contribute to leadership crises and board dysfunction.
6. Decline in operational performance: Misaligned incentives, lack of risk oversight and short-term decision-making can lead to inefficiencies, strategic drift or failed investments, undermining the company’s ability to compete and grow.

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Future of corporate governance

Discover nearly 20 trends shaping the future of governance worldwide.

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Discover nearly 20 trends shaping the future of governance worldwide.

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6 principles of corporate governance

The business landscape is constantly evolving, which means the principles of corporate governance are constantly changing. How can organizations maintain the core tenets of good governance while keeping up with the times?

In 2023, the G20 and the Organisation for Economic Co-operation and Development (OECD) issued six principles of corporate governance to help. These principles assist policymakers in evaluating and improving legal, regulatory and institutional frameworks. They also serve as a guide to help corporations innovate and adapt their practices to stay competitive in a changing world. So, what are these revised principles of corporate governance?

1. An effective corporate governance framework

Just like a house needs framing to determine its structure and “good bones” to remain standing over time, effective corporate governance requires a strong foundation.

According to the OECD, a corporate governance framework “should support transparent and fair markets and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement.”

Each of these is essential to strong corporate governance guidelines. Consider consistency with the rule of law, which encompasses legislation in the jurisdictions where a company does business, rules for listing on various exchanges, and regulations that impact worker rights and the environment. These guardrails protect the rights of communities, customers, employees, shareholders and other parties. The first corporate governance principle helps ensure that a company is accountable and operates in a way that upholds these rights.

2. The rights and equitable treatment of shareholders and key ownership functions

As the owners of a publicly traded corporation, shareholders do more than reap the company’s profits. They’re also essential elements of corporate governance for many reasons, including:

• Participating and voting in general meetings
• Electing and removing members of the board, as well as an external auditor
• Approving or participating in fundamental corporate decisions, like the authorization of additional shares or amendments to governing documents

The second principle behind good corporate governance helps these rights play out equally for all shareholders, regardless of class. Take a shareholder’s right to obtain relevant and material information about the corporation on a timely, regular basis, for example. Insider trading laws in the United States make it illegal to share information with one set of stockholders — like a prominent pension fund or majority investor — unless that information is simultaneously available to the entire market.

3. Institutional investors, stock markets and other intermediaries

The immediate relationship between a company that issues shares and the investors who buy them is just one aspect of capital markets. Several intermediaries keep the gears turning. For example, stock exchanges and brokers connect buyers and sellers, while institutional investors buy, sell and manage stocks for other parties. Credit rating agencies, analysts, and proxy advisors deliver guidance throughout the process.

All these parties need oversight for fair and effective functioning. Enter corporate governance guidelines to maintain fairness, accountability and trust.

Imagine if a conflict of interest went unchecked in any of these areas. Say a personal connection among top leadership leads to the favorable treatment of one company over others: Brokers might promote one company’s stock over others, and the clients of institutional investors might not get the best mix of companies in their own portfolios. Meanwhile, investors wouldn’t be able to trust the objectivity of an analyst report or credit rating.

For that reason, considering those with an interest in the company is a foundational element of corporate governance — it’s the oil that keeps the engine’s parts running smoothly.

4. Disclosure and transparency

If a decision affects the material health of a publicly traded company, boards must promptly inform investors. The fourth principle of corporate governance requires clear and transparent communication with all shareholders and stakeholders.

Take the appointment of a new CEO, for example. A publicly traded company can’t just slip a new CEO into such an important and fiduciarily responsible leadership position without solid explanation, rationale and context.

When choosing new leadership, companies should follow a structured process that addresses the recruitment-related elements of corporate governance: succession planning, conducting the appropriate due diligence, considering diversity and representation in the recruitment process, and choosing leaders who fit the skills needs of the board, marketplace and corporate strategy — while providing visibility into the entire process.

Such thoughtfulness and transparency engender confidence, showing shareholders the company has nothing to hide. They also demonstrate the company’s commitment to protecting shareholder interests and a willingness to be held accountable.

5. The responsibilities of the board

The fifth principle of corporate governance ensures the board structure supports effective oversight and accountability so directors can exercise objective and independent judgment, oversee risk, and monitor managerial performance — in effect, perform their fiduciary duties.

This principle gets into the nitty-gritty of board operations:

• Are processes like meetings and minutes in place to keep directors fully informed?
• What about conflict-of-interest measures and a balance of independent vs. executive directors to ensure they act in good faith?
• Do committees and the full board regularly delve into important areas like audit and cybersecurity to exercise due diligence and care? And does this due diligence extend to their own ranks when choosing new directors?
• Finally, do appropriate disclosure, engagement and accountability measures exist to ensure the board is operating in the best interests of ‌shareholders?

6. Sustainability and resilience

Ensuring that a company can withstand the winds of change and thrive well into the future involves a great deal of decision-making and risk management. Sustainability frameworks, practices, policies and incentives are integral elements of corporate governance that yield long-term success.

One example is climate change and the transition to net zero operations. What are the potential risks of moving from fossil-fueled operations to renewable energy sources? What are the risks of not doing so, like non-compliance with evolving regulations or a poor reputation among environmentally-minded future workers? What are the potential opportunities, like cost savings and increased goodwill?

Within a company, good corporate governance enables sound risk management. Within the greater capital market ecosystem, disclosing material data in a consistent, comparable and reliable way ensures that investors, exchanges and advisors have the information they need for smart, timely decisions.

In essence, the six principles of corporate governance, recently outlined by the G20 and OECD, stand as indispensable guidelines for fostering resilience, transparency, and ethical practices in an ever-changing business landscape.

Pillars upholding the corporate governance structure

Corporate governance is often synonymous with boards of directors. But the reality is that boards are merely at the top of an extensive chain of command, each level of which must collaborate to enact effective governance practices.

While these structures may vary between organizations, a typical corporate governance structure includes:

• Board of directors: Elected by shareholders, the board sets the corporate strategy, approves policies, oversees executives and makes major decisions according to the governance structure.
• Shareholders: Those who own company shares can influence board decisions and vote on issues like board and executive appointments.
• Executive leadership: Led by the Chief Executive Officer, company leaders manage day-to-day operations according to the board’s strategy. They’re also accountable to both the board and shareholders.
• Internal control systems: The corporate governance structure trickles down to internal controls. These controls are policies and practices that ensure the accuracy of financial statements, protect assets and comply with laws and regulations.

Common corporate governance structure examples

An organization’s unique corporate governance structure depends on how it combines the individual pieces, a few of which we listed above. A company’s size, industry and legal jurisdiction can also shape its governance formula. Some common examples of corporate governance structures are:

• Unitary board structure: Corporations with a unitary structure will have a single board that includes executives and non-executives, and the CEO typically chairs the board. This structure is much more common in small and medium-sized entities.
• Two-tier board structure: Larger corporations may begin to separate the management board (which oversees daily activities) and the supervisory board (which oversees and appoints the management board). This structure tends to be more prevalent in European countries.
• Board committees: Many boards will enact committees as part of the corporate governance structure. Committees can include an audit committee to oversee financial reporting and internal controls or a compensation committee to determine executive remuneration.
• Stakeholder governance: Enterprises are increasingly orienting themselves around the needs of their stakeholders, which can include shareholders, employees and the communities in which they operate.

Corporate governance process

The corporate governance process refers to the step-by-step approach organizations take to build and maintain responsible, ethical and effective leadership and oversight. While the structure may vary by company size or jurisdiction, the core process generally follows these five key steps:

1. Define governance structure and roles: Begin by establishing who is responsible for what. Form a board of directors and clearly define its powers and duties. Then, build out board committees, such as a nominating and governance, audit, compensation and more. It’s critical to also define the relationship between shareholders, the board and executive leadership. This foundational step ensures clarity, accountability and alignment across leadership levels.
2. Develop governance policies and codes: Once the structure is in place, the organization must create formal policies that guide behavior and decision-making. Develop corporate bylaws, ethics codes, conflict-of-interest policies, risk management and compliance frameworks and board charters and meeting procedures. These policies set expectations to help standardize conduct and oversight.
3. Implement and operationalize governance: This step brings governance to life across the organization. Doing so requires training staff and leadership on governance expectations. They can then be the stewards of integrating governance policies into their day-to-day operations. Take care to establish internal controls, reporting systems and compliance checks. Good governance is a culture, making this step vital to effective practices.
4. Communicate with stakeholders: Transparency is central to good governance. You must provide regular financial and non-financial disclosures, facilitate shareholder voting and engagement and share ESG performance through annual or sustainability reports.
5. Monitor, evaluate and improve: Governance is an ongoing process. Organizations should conduct periodic audits and external assessments. This includes evaluating the board and executives as key pillars of your governance approach. Review and update governance policies based on any findings and in response to new risks, regulations or shareholder expectations. Continuous improvement keeps governance responsive.

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Demystify AI governance

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11 best practices for crafting corporate governance guidelines

Corporate governance guidelines are the principles that define how a corporation will direct and control itself. While not rules or policies themselves, guidelines become the lines inside which all employees must color to implement governance successfully.

Boards and corporate executives will collaborate to define them, and the general counsel (GC) and legal advisors will weigh in on possible legal and regulatory implications. These become the structure that influences every other aspect of governance within the company. While different corporations may adopt different guidelines, it’s best practice to craft governance principles that emphasize:

1. Values alignment: Governance should reflect your company’s mission, values and long-term goals. Consider your guidelines through the lens of ethics, strategic planning and value creation. Any governance model you adopt should support those aims, ultimately prioritizing long-term value over short-term gain.
2. Stakeholder engagement: Stakeholders of all kinds — shareholders, employees, customers and the community — have expectations and concerns about how corporations conduct themselves. While the GC and legal advisors should serve as experts in disclosure regulations and other legally mandated engagements, boards and executive teams should work to foster a sense of cooperation and inclusion. This can not only root out any dissent ahead of the proxy season but also strengthen the company’s competitiveness because it will have buy-in from many stakeholders. Regular feedback mechanisms and open communication lines should be integral to your corporate governance guidelines.
3. Transparency and accountability: Robust corporate governance guidelines should also build stakeholder trust. While some corporate activities are confidential by nature, boards must be able to clearly explain company policies, decisions and performance to executives in a manner that executives can then disseminate. GCs and legal advisors are also vital in establishing compliant accountability mechanisms that ensure any actions the board and leadership take to align with the company’s objectives and stakeholder interests.
4. Risk management: Corporate governance has a distinct role in proactive risk management. Establishing comprehensive practices and protocols reduces the chances of costly mistakes or missteps. GCs and legal advisors should recommend to the board how best to comply with laws and regulations related to company assets and financial reporting. Using that guidance, boards should craft guidelines that leaders can enforce company-wide. This includes implementing regular risk assessments and audits to validate the efficacy of policies and identify and mitigate emerging risks.
5. Ethical standards: Modern corporations must have a strong ethical foundation. According to Ernst & Young, “The consequences of poor business ethics and conduct can be significant, from financial penalties, reputational damage, and falling share prices to personal impact on board members and the senior executive team.” Moreover, “Regulators, investors and activists are using increasingly sophisticated methods to detect misconduct and hold businesses to account.” Given the scrutiny businesses now face, boards must set clear ethical standards and a code of conduct and hold themselves and executives to account. GCs and legal advisors should inform the compliance mechanisms that enforce the code of conduct and any conflicts of interest that arise.
6. Board structure and composition: Establishing the right board structure with the right mix of members is essential. Though we previously explained common board structures, perhaps the most critical ingredient is composition. Corporate governance guidelines should encourage a diverse mix of backgrounds, years of experience, and areas of expertise to increase the board’s effectiveness. GCs and legal advisors should then help craft strategic succession plans to ensure a strong composition for the long term.
7. Board independence: How the board functions matters as much as who serves on the board. Having a sufficient number of independent board members ensures your company will have impartial counsel. Include standards like the minimum number of independent directors and term limits and age caps to promote refreshment. This ultimately strengthens oversight and reduces groupthink.
8. Executive compensation: CEO pay is an increasingly controversial topic. 78% of Americans believe CEOs are overpaid, and blanket statistics don’t dispel that perspective; the Economic Policy Institute reported that CEO pay has increased by 1,460% since 1978, while the Deloitte CEO Pay Study found that CEOs were paid 27% more in 2023 than in 2022. Yet, boards and executives know that the C-suite is massively influential in positive company performance. Corporate governance guidelines must help boards thread the needle between offering competitive yet defensible compensation. GS and legal advisors can also guide compensation packages from a legal and regulatory perspective.
9. Performance expectations: Make clear to the board and executives how they are expected to perform, and establish regular assessment milestones. Include board performance evaluations, executive compensation, and goal alignment, and policy reviews in response to evolving risks or regulations.
10. Regular reviews and updates: Effective corporate governance policies one year might not hold up the next. Laws and regulations change, as do the pressures stakeholders put on boards and executives. Integrating mechanisms for review and revision ensures all governance guidelines remain current. GCs can take the lead from a legal and regulatory perspective, but executives and boards should be prepared to adapt governance policies to respond to the needs of stakeholders.
11. Flexibility and compliance: Your guidelines should comply with legal requirements from the SEC and other regulators but also allow room for growth and adaptation. Build in provisions for amending the guidelines, flexibility to add new committees or procedures as needed and alignment with local and international governance frameworks.

Ensuring stability and growth: What is the purpose of corporate governance in the United States?

The role of corporate governance in the United States is to maximize long-term shareholder value while ensuring transparency, accountability, and fairness for all stakeholders involved. This includes shareholders, employees, creditors, customers, and the broader community. By establishing a clear framework for decision-making and oversight, effective corporate governance fosters stability and growth for modern organizations, ultimately contributing to a healthy and sustainable business environment.

International corporate governance

Around the world, governance frameworks differ based on legal traditions, cultural norms and regulatory environments. While globalization and ESG trends are driving greater alignment, major distinctions remain in company structure, distribution of power and accountability.

Below is a regional breakdown of key international governance models and practices.

The Americas

Corporate governance in the Americas, particularly the U.S. and Canada, is grounded in a shareholder-centric model with strong regulatory oversight and a focus on financial performance and board accountability.

• United States: Companies in the U.S. follow a unitary board structure that puts shareholders first. The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are influential regulatory bodies, enforcing legislation like the Sarbanes-Oxley Act and the Dodd-Frank Act. In the U.S., there is a greater emphasis on independent directors, audit committees and CEO-chair separation.
• Canada: Canada follows a similar structure to the U.S. but adopts a more principles-based approach through provincial securities regulators. While shareholder value remains central, there’s a growing recognition of broader stakeholder considerations, particularly when it comes to environmental stewardship and Indigenous rights. Canadian companies are encouraged to report on board diversity and ESG performance under a “comply or explain” model.

Asia-Pacific (APAC)

The APAC region has a diverse governance landscape shaped by both Anglo-style practices and long-standing stakeholder traditions.

• Australia: The corporate governance system in Australia closely mirrors that of the UK and the U.S., with a unitary board structure and an emphasis on transparency, independence and shareholder protection. The Australian Securities Exchange (ASX) sets out voluntary governance principles, with companies expected to explain any deviations “if not, why not.” Australian companies are also under increasing pressure to disclose climate risks and adopt ESG reporting aligned with global frameworks.
• Japan: Japan’s governance model is rooted in stakeholder priorities and long-standing corporate group networks, known as keiretsu, which have traditionally led to insider-dominated boards and cross-shareholdings. However, reforms over the past decade, including Japan’s Corporate Governance and Stewardship Code, have pushed for more independent directors, stronger disclosure practices and greater accountability to outside investors. While Japan has evolved slowly, it has taken measurable steps to align with global governance norms without abandoning its unique cultural foundations.

Europe, the Middle East and Africa (EMEA)

EMEA is a diverse region with varying perspectives on corporate governance. Europe’s corporate governance models are among the most stakeholder-centric in the world, with strong regulatory oversight and a growing focus on sustainability and social responsibility.

• United Kingdom: High-profile corporate failures devastated stakeholder confidence in large UK businesses. The government launched a plan to reform governance and restore public trust by creating a strong, independent regulator and enhancing the audit profession. While those plans were derailed, the UK Corporate Governance Code, overseen by the Financial Reporting Council, still maintains a robust “comply or explain” policy and emphasizes director accountability, diversity and long-term value creation. ESG has become fully embedded in governance expectations, with mandatory climate risk disclosures and increasing attention to workforce engagement.
• Germany: In contrast to the UK, Germany’s dual-board system consists of a management board for day-to-day operations and a supervisory board for independent oversight. German law mandates work representation on supervisory boards, reinforcing a deeply stakeholder-driven model. ESG regulations, especially around climate disclosure, are rigorous and shaped by the European Union’s broader sustainability agenda.
• France: France blends stakeholder and shareholder approaches. Companies can opt for either a unitary or dual-board structure, and the government often plays a more visible role in corporate oversight. France has imposed broad gender quotas and robust ESG requirements, including mandatory sustainability reporting for larger firms.
• Spain: Like many of its European counterparts, Spain is quickly aligning with EU governance directives. Spanish companies are expected to maintain transparent governance practices, with increasing scrutiny on board independence, audit quality and ESG performance. Recent reforms have strengthened diversity policies and disclosure standards, signaling a deeper commitment to responsible governance.

How can small and mid-sized businesses implement corporate governance?

Corporate governance may sound like it’s for large, publicly traded companies subject to SEC oversight. However, strong governance can also help small and mid-sized businesses (SMBs) build trust, improve decision-making, and prepare for growth or investment. While SMBs may not have the same regulatory requirements as public companies, adopting core governance principles can lead to better performance, greater resilience and long-term value creation.

1. Start with the basics

For SMBs, the first step toward good governance is defining clear roles, processes and accountability. That doesn’t require a boardroom full of directors. Even a small team can benefit from defining who makes decisions, how those decisions are made and how the business holds itself accountable to stakeholders.

Key starting points include:

• Establishing a governance framework: This might include a simple written charter, policies or even a code of conduct outlining responsibilities and expectations.
• Clarifying leadership roles: Define the authority and duties of owners, managers and advisors to reduce confusion and prevent power imbalances.
• Separating ownership and management when possible: Even in family businesses, creating boundaries between personal and business decisions supports objectivity and professionalism.

2. Build an advisory or fiduciary board

SMBs can benefit greatly from an outside perspective. If a formal board of directors isn’t feasible, consider forming an advisory board composed of experienced professionals who can offer guidance, challenge assumptions and support strategic planning.

As the company grows or seeks outside investment, transitioning to a fiduciary board (with legal oversight responsibilities) may be necessary. Either way, structured board conversations can help prioritize long-term goals over short-term pressure.

3. Focus on financial transparency

Reliable, transparent financial reporting builds trust with banks, investors and internal teams. SMBs should:

• Implement basic controls, like separation of duties and expense tracking
• Use cloud-based governance platforms to standardize reporting
• Establish regular review cycles — monthly or quarterly — to monitor financial health

Governance requires both oversight and foresight. Well-maintained financial records support smarter forecasting, budgeting and risk planning.

4. Embed ethical and ESG principles early

As sustainability and ethics become central to consumer and investor expectations, embedding governance that reflects values like fairness, environmental responsibility and community engagement is a competitive advantage. SMBs can:

• Develop a basic ethics policy or employee code of conduct
• Begin tracking simple ESG metrics, like energy use, diversity and local impact
• Communicate values transparently with customers, employees and suppliers

5. Prepare for growth and future transitions

Good governance helps SMBs scale with confidence. Whether planning for a capital raise, a merger or leadership succession, having foundational policies and practices in place can ease transitions and enhance valuation.

Key long-term steps include:

• Documenting policies for risk, compliance and data privacy
• Planning for leadership succession or ownership changes
• Keeping governance practices agile to evolve with the business
• Adopting right-sized AI solutions

Corporate governance examples

Modern corporate governance, in practice, is becoming indistinguishable from technology. Here are some corporate governance examples illustrating how corporate governance tools enhance transparency, accountability and stakeholder engagement.

• Board assessment tools help evaluate the performance of individual directors and the board as a whole. These features often include customizable surveys, automated reporting and benchmarking to identify skill gaps and guide board development.
• Secure digital voting systems allow board members and shareholders to cast votes remotely during meetings. These tools engage stakeholders who can’t attend in person in governance processes while following policies like quorum, vote tallying and participation.
• Virtual meeting platforms with governance-specific features, such as real-time polling, agenda building and digital minute-taking, make it easier to conduct efficient and well-documented meetings across time zones.
• Dashboards that track board composition and diversity metrics provide insight into representation across gender, race, skills and tenure. These features support transparency and help align board makeup with organizational values and stakeholder expectations.
• Centralized document repositories with permission controls enable secure access to board materials, meeting minutes and compliance documentation. This promotes information sharing while protecting sensitive data.
• Automated compliance tracking helps organizations stay on top of changing regulations and internal policies, reducing risk and ensuring alignment with governance standards.
• AI-powered risk and scenario analysis can assist boards in identifying emerging risks, modeling potential impacts of strategic decisions and detecting anomalies in financial or operational data. These tools enhance oversight and help boards make more informed, forward-looking decisions.

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Real-world corporate governance

Corporate governance isn’t always obvious. Though a corporate governance scandal like Enron can go down in the history books, effective and ethical governance more easily flies under the radar. Yet, many of the most beloved corporations today are examples of corporate governance at work. That includes:

Johnson & Johnson

The company’s mission is to help “people around the world live better, healthier lives.” Corporate governance is one of the many ways Johnson & Johnson works toward this aim. It’s transparent about the organization’s guiding principles, including its decentralized structure, diverse board and ethical business practices. It’s also won the favor of fellow corporations and consumers alike by quickly responding to crises, including product recalls.

Unilever

Like Johnson & Johnson, Unilever walks the walk of good corporate governance. It’s especially committed to sustainability and social responsibility, having outlined its goals for reducing environmental impact in its Sustainable Living Plan. The Unilever corporate governance structure prioritizes long-term value creation over short-term profit, which helps the enterprise live out its commitment to ethical business practices.

Microsoft

“Long-term thinking guides everything we do,” according to Microsoft’s corporate governance overview. Its ubiquity in the ever-evolving tech space makes Microsoft one of the most compelling corporate governance stories. It’s thrived for decades thanks to its commitment to value creation and focus on ESG.

Adidas

Adidas recently revamped its governance by separating the CEO and Chair roles. This enhanced the independence of its supervisory board. The company also tied executive compensation to sustainability targets. This shift strengthens oversight and aligns leadership incentives with long-term ESG outcomes.

Vale

In 2019, a Vale-owned tailings dam in Brazil collapsed, killing 270 people. In the years since, Vale undertook significant corporate governance reforms. The company established a majority independent board, specifically seeking out industry experts and engineers for the board refreshment.

Vale also linked executive compensation to specific ESG goals, such as sustainability, safety and risk management targets. It’s also made significant progress in decommissioning hazardous dams, completing 16 of 30 planned de-characterizations to enhance environmental safety and compliance.

Hong Kong Stock Exchange

The Hong Kong Stock Exchange (HKEX) published conclusions on enhancements to its Corporate Governance Code, effective July 1, 2025. The updates enhance measures to address “overboarding” and the tenure of independent, non-executive directors, aiming to strengthen board independence and effectiveness.

The consequences of bad corporate governance

Understanding effective governance is essential, but many organizations equally wonder: “What is bad corporate governance?”

Failing to follow the six principles of corporate governance adversely impacts any business. Time and again, corporations have shown how damaging bad corporate governance is. Any misstep or unethical practice can ruin a business in a heartbeat in a world of fast-paced news and instant information. Take these notorious examples of bad corporate governance:

The 2008 financial crisis

The 2008 financial crisis is an example of a complete failure of corporate governance. Greed permeated every level of multiple industries, creating unnecessary and uncontrolled risk, even as foreclosure data raised alarms. Banks were prime examples of companies with bad corporate governance, issuing risky loans to numerous individuals and companies despite the lessons of the past.

The result was a debt trap comparable to the credit crisis of the 1920s and one of the worst recessions in world history. Neither regulators nor corporations implemented proper risk analysis and accountability. Shareholders and companies fell to bad governance.

The Enron corporate governance scandal

Some of the worst outcomes occur when there’s no governance. The Enron scandal represents cases of bad corporate governance at nearly every level.

‌Cooking the books, suspending the code of ethics, deceptive business practices, and outright lying all brought down Enron, a corporation Fortune deemed “America’s Most Innovative Company” — not once, but six years in a row. It turns out that their profits were nothing more than a figment of the imagination.

Enron may have started as a legitimate venture. However, mixing the board of directors with bad actors and self-interested parties soon saw a disaster in the making. A lack of oversight allowed former CEO and COO Jeffrey Skilling and former chairman and CEO Kenneth Lay to take advantage of their positions in a highly unethical and illegal way.

The company eventually collapsed under the weight of its own deceit, leaving damage to the California power grid that continues to resonate today. Shares tumbled from $90.75 to a meager $0.26, and Congress enacted the Sarbanes-Oxley Act to prevent similar fraudulent financial reporting and manipulation of economic laws.

Assessing corporate governance

Monitoring governance standards is a crucial task alongside environmental and social criteria. This is the essence of ESG, which stands for environmental, social and governance.

These three factors play an essential role in the choices investors make. Many mutual funds and brokers use them to help their clients pick stocks. They also directly impact your bottom line. ESG criteria are interrelated. They all affect your company’s risk management and business strategies.

Social criteria relate directly to your business relationships. Critical choices in how the company treats surrounding communities and acts on social issues reflect its quality and revenue. Shown to increase the available talent pool by 25% and even drive profits, social responsibility and transparency are now firmly entrenched in the corporate landscape.

Every decision a company makes should reflect ESG criteria. They reveal just how open, accountable, and responsible your organization is.

Using technology to achieve solid corporate governance

Successful corporate governance often uses a data-driven approach to setting the rules and policies that guide an organization. The board of directors must act, following the six principles of governance for the best interest of stakeholders, shareholders and the business.

Board features to look out for in a corporate governance solution

When evaluating a corporate governance solution, it’s important to look for features that support secure communication, efficient workflows and strong oversight. The following capabilities are especially important:

• Secure collaboration: Look for tools that offer encrypted messaging, permission-based file sharing and built-in communication channels to reduce reliance on insecure email and boost confidentiality.
• Agendas: A governance platform should allow for easy creation, distribution and real-time updating of meeting agendas, keeping every stakeholder prepared and aligned.
• Meeting minutes: Tools that support digital minute-taking and version control help maintain accurate, compliant records and reduce administrative burden.
• Voting: Electronic voting features enable secure, transparent decision-making before, during or after meetings, improving participation and accountability.
• Questionnaires: Streamlined survey and assessment tools make it easy to conduct board evaluations, gather disclosures or collect feedback from directors and stakeholders.
• Analytics, dashboards and reporting: Real-time dashboards and customizable reports provide visibility into key governance metrics, supporting data-informed oversight and compliance tracking.
• Unified board management and GRC activities: An integrated platform that connects board operations, governance, risk and compliance workflows and AI-powered risk analytics allows for a more holistic, strategic approach to oversight. Boards can make better decisions when they have a unified view of cyber risk, ESG, audit, investor engagement and ERM — visibility that can be difficult to create without a governance platform.

An AI-powered solution backed by 30+ years of corporate governance expertise

Modern corporate governance challenges call for modern tools that free up time, boost productivity and equip leaders with decision-ready insights. Once considered a nice-to-have, tools like these have become the engine propelling governance forward.

Consider a 75-year-old company like ELCO Mutual Life and Annuity. While its governance structure was steady and familiar, it wasn’t dynamic enough to keep up with ELCO’s ambitious growth goals.

“We were using one file-sharing product, which just didn’t work well. I would get calls and emails from directors saying they couldn’t access or open the files,” says Eric Myers, ELCO’s Corporate Secretary and General Counsel.

Tasked with transforming their governance for the increasingly fast-paced business landscape, Myers executed a series of reforms, restructured the board and opened the door to a governance evolution with Diligent Boards.

“I used to spend a day or two preparing for board meetings with the old system. Now, with Diligent, it’s maybe an hour or two,” says Myers.

Companies like ELCO are relying on Diligent Boards and the new Diligent GovernAI to:

• Effortlessly create board books with Smart Book Builder, which automates the first draft and synthesizes key information
• Review risky language with the Smart Legal Scanner
• Prepare for meeting discussions quickly and efficiently with Smart Prep
• Organize pointed questions for every meeting categorized by subject and cited for easy reference

Equipping your organization with the right tools, like Diligent Boards, part of the Diligent One Platform, enables you to implement strong governance practices for effective decision-making and a thriving company.

FAQs

Which are the elements of corporate governance that are tied to ethics?

Key elements of corporate governance tied to ethics include board accountability, transparent decision-making, codes of conduct, conflict of interest policies and whistleblower protections. Ethical governance ensures that company leadership upholds integrity, fairness and compliance with legal and societal expectations.

Does ESG fall under corporate governance?

Yes, ESG includes governance as a core pillar. The “G” in ESG focuses on how a company is led, its board structure, executive compensation, shareholder rights, risk management and ethical practices. Strong corporate governance is foundational to meeting ESG standards.

What is corporate governance law?

Corporate governance law refers to the legal framework that defines the roles, responsibilities, and accountability of a company’s board of directors, executives and shareholders. It includes statutes, regulations and case law covering fiduciary duties, disclosures, shareholder rights and governance standards.

How did the Sarbanes-Oxley Act impact corporate governance?

The Sarbanes-Oxley Act (SOX) transformed corporate governance by strengthening financial disclosures, internal controls and board accountability. It introduced stricter audit requirements, CEO/CFO certification of financial statements, whistleblower protections and penalties for misconduct, raising governance standards across public companies.

How to measure corporate governance?

Corporate governance is measured through indicators like board independence, diversity, executive compensation alignment, shareholder engagement, audit quality, risk oversight and compliance. Governance scores from agencies (e.g., ISS, MSCI), internal audits and ESG ratings can also assess governance performance.

How can we streamline our board communication and collaboration processes?

To streamline board communication and collaboration, use secure board management software with features like centralized document access, real-time messaging, digital agendas, e-signatures and integrated voting tools. Automating these tasks improves efficiency, transparency and compliance across governance workflows.

How does sustainability affect corporate governance?

Sustainability reshapes corporate governance by requiring boards to oversee long-term environmental and social risks. Boards must integrate sustainability into strategic planning, reporting and risk management while aligning corporate actions with stakeholder expectations and regulatory ESG frameworks.

What are the corporate governance mechanisms?

Corporate governance mechanisms include internal mechanisms (board structure, internal controls, executive compensation, audit and nom/gov committees) and external mechanisms (market competition, regulatory oversight, shareholder activism and audits). Together, they ensure accountability, transparency and performance alignment.

How can senior leadership ensure that corporate governance is integrated into the company's strategic planning?

Senior leadership can integrate corporate governance into strategic planning by aligning governance policies with business objectives, involving the board in risk and ESG strategy, embedding compliance into KPIs and ensuring transparency in decision-making across all levels of the organization.

How can legal teams ensure that corporate governance practices are aligned with current laws and regulations?

Legal teams ensure compliance by regularly reviewing governance practices against evolving laws, such as SEC requirements, Sarbanes-Oxley and international frameworks. They also support board education, policy updates, contract reviews and documentation to ensure defensible, up-to-date governance processes.

What metrics and KPIs should stakeholders and investors look for to assess a company's corporate governance?

Investors and stakeholders should assess KPIs like board independence, audit integrity, executive pay alignment, ESG integration, shareholder rights, diversity metrics and incident reporting. Transparent disclosures and third-party governance scores can also indicate strong governance practices.

What are the key features to look for in a corporate governance software?

Look for features like secure document sharing, role-based access, real-time messaging, meeting agendas and minutes, voting tools, policy management, compliance tracking and integrations with GRC platforms. Strong encryption and audit trails are critical for governance software security.

What are the best corporate governance solutions for secure board collaboration?

The best corporate governance solutions for secure board collaboration offer encrypted communication, digital board books, e-voting and tools for meeting management, compliance tracking, and real-time collaboration. However, the right solution depends on your organization’s size, budget, industry and other unique needs related to governance.

Download our buyer’s guide to board management software to simplify your search, with a complete list of criteria you can use to evaluate solutions effectively.

Corporate governance resources

Topic: Best practices for corporate governance

Who is it for: Board members, General Counsel, Governance professionals

Resource type: Blog

Summary: Corporate governance is essential, yet getting it right isn’t easy. Explore 14 best practices that can improve your organization’s approach.

Link: Corporate governance best practices

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Topic: AI governance: What it is & how to implement it

Who is it for: Board members, Chief Technology Officers, Chief Risk Officer, governance professionals

Resource type: Blog

Summary: The race is on to take advantage of AI, yet AI also comes with its own risks. Learn about how to develop an AI governance approach that fosters innovation while mitigating risk.

Link: AI governance

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Topic: What Directors Think 2025

Who is it for: Board members, General Counsel, Governance professionals

Resource type: Report

Summary: What Directors Think is an annual survey of more than 200 U.S. public company directors. Discover what the directors said about their priorities in the year ahead, including the biggest challenges they face.

Link: What Directors Think

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Topic: Uncertainty and the board

Who is it for: Board members, General Counsel, Governance professionals

Resource type: Podcast

Summary: Political uncertainty. Tariff disruptions. Executive turnover. Here ,FTI Consulting Senior Managing Director Brian Kushner discusses these challenges and more on the Corporate Director Podcast.

Link: Strategies for turbulent times

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Topic: Diligent Board Education & Certification

Who is it for: Board members, General Counsel, Governance professionals

Resource type: Certification

Summary: Get easy accss to leading education and certification programs for urgent and emergent challenges, like AI, board oversight, climate leadership, cyber risk and more.

Link: Board certifications