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Keys to good governance for entrepreneurs and their boards

Every public company has a board of directors, and it is the board of directors that governs the organization. The directors owe a fiduciary duty to the venture. The board must act honestly, in good faith and in the best interests of the venture.

But good governance by a board of directors is much more than governance. Often-stated references to good governance include the following:

  • Vision: Envisioning the future and developing the mission
  • Direction: Setting goals and policies
  • Transparency: Maintaining open processes, shared information, effective communication standards, and regular and meaningful reports
  • Guidance: Providing advice and direction
  • Due diligence: Getting inside the metrics and judging the risks involved
  • Commitment: Being engaged emotionally and intellectually to the venture’s course of action

Much has been written on the subject of good governance. Essentially, a board provides good governance when it is able and willing to ask the right questions at the right time and to provide good advice while demonstrating confidence in the venture.

What is the role of due diligence in good governance?

The exercise of due diligence is one of the keys to good governance. The exercise of due diligence requires that directors understand and be familiar with:

  • The company’s governing documents
  • The company’s current and expected financial situation
  • The guiding legislation and appropriate regulations surrounding the activity of the venture

Due diligence also involves risk assessment and risk management. The company’s actions and decisions need to be judged with regards to the possible risks involved. As part of their planning role, directors have the responsibility to “raise a red flag” if in their judgment the organization is taking action that might lead to trouble—or worse, financial or legal problems.

Good governance begins with good management

As the business leader in a venture, an entrepreneur often stands alone. He or she has no peers within the organization. So the smart entrepreneurs, as soon as it is feasible, create an advisory group or board of directors to provide guidance and knowledge to oversee growth of the new venture and to judge its performance against its plan and goals.

The board of directors becomes a management group and a team of peers; they share expertise, their relevant background of experience, and their insights, support, criticism and energy.

As long as boards stay out of the day-to-day running of the venture, they can see the bigger picture and better sort out priorities. A board provides a confidential forum for dealing with key issues of leadership and the management of the business. It offers the venture’s leader the opportunity to go to a supportive group for confidential advice and consultation.