Corporations can have many different structures, but the most typical structure consists of the shareholders, board of directors, officers and the employees.
The structure of corporate governance determines the distribution of rights and responsibilities between the different parties in the organization and sets the decision-making rules and procedures. It is usually up to the management board to decide how the company will develop. But what does truly influence the structure of a board of directors?
What makes the structure of the Board of Directors?
Boards – and directors – are not all the same. In fact, they face different challenges and their structure is shaped by different factors. A KMPG report synthesized some of the variables that can affect the foundations of a board:
- The legal and regulatory obligations of the relevant geography – which may range from a highly regulated environment that dictates board composition and responsibilities to no applicable laws at all, depending on the country in which the business is based.
- The company’s ownership structure – which may range from a business closely held by a few family members who see each other on a daily basis, to one with numerous, geographically dispersed distant family members, to the inclusion of other investors, either through private equity investment or publicly traded stock.
- The expectations and interests of key stakeholders including owners, other interested family members (such as the owners’ likely heirs), customers, and insurers.
- The company’s attributes – size, resources, maturity, culture, and level of complexity.
In the end, companies with a good corporate governance system, together with an experienced board that has a growth-mindset and sustainability concerns, will be better positioned to prosper both in the short term and on the long run.
Corporate Governance & Sustainable Development
First of all, it is important to clarify what sustainable development is. And according to the Brundtland Commission report, sustainable development is “the one that satisfies the needs of the present without jeopardizing the ability of future generations to meet their needs.” In order to achieve this long-term corporate sustainability goal, the sustainable development concept is built on top of three important “pillars” that must be fulfilled by companies: economic development, social equity, and environmental protection (check our complete sustainable development definition for more information).
Although companies have been working on developing the economic “pillar” that has to do with production, sales, and profit, it hasn’t always been like this for the environmental protection and social responsibility pillars that are nowadays getting inside the companies’ agendas.
The environmental pillar has to do with managing pollution, waste or energy consumption issues and therefore re-optimizing value-chains. The social pillar has an external dimension that means companies making up for the communities where their activities caused some kind of damage or inconvenience. Inside the company’s workplace, it also means taking good care of the employees with fair wages and benefits, ensuring diversity and inclusion and respecting basic human needs and ethics.
Despite the ongoing debate about the meaning and application of sustainable development in a business context, it is common to assume that if a company is able to fulfill these 3 pillars, then it is a socially responsible corporation.
It is usual for these kinds of organizations to voluntarily information concerning their triple bottom line (another expression for the 3 pillars mentioned above) not only to prove they do the talk but also to gain a competitive advantage. By its turn, this information that is provided is often called sustainability reporting and it can be done using standard frameworks like the Global Reporting Initiative (GRI) or ™, or simply by following methods and impact indicators chosen by an organization.
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