A board of governance is typically a group of outside individuals who provide a corporate entity with advising services. In many cases, the board will meet a few times a year and discuss the inner workings of the company. Common tasks for the board of governance include setting corporate policies, providing oversight to the executive management team, making major corporate decisions, and providing leadership to the company. Board members may receive no remuneration for their work.
Many institutions use a board of governance for their operations. Many educational institutions, publicly held companies, public service entities, or other organizations use external governance. In publicly held companies, the governance members may also be the board of directors, which provide shareholders with representation in the company. Rather than being bound to the company itself, the board members represents the interests of the shareholders. Most governance members have extensive education and experience in the companies they oversee.
Setting a mission statement and corporate constitution is often a starting point for the board of governance, and allows the board to guide the company by setting the operating guidelines for the organization. The mission statement is typically a few sentences that provide the directives of the company. The corporate constitution — also known as corporate policy — provides the details of how the company will operate. The constitution typically includes operating guidelines, a code of ethics, unapproved activities, and punishment for improper behavior.
The overall responsibility of the members of the board of governance is to protect the financial stability of the company. Board members review the decisions of the firm and decide if the company is looking to maximize profits. The board of governance will often review the performance of executives and make recommendations. Executive managers who consistently make poor decisions or operate outside the bounds of the company may face removal. This protects the interests of shareholders or those stakeholders outside of the company.
Organizations may only keep individual members on the board of governance for one to two years. This provides the company with the ability to change board members in order to avoid becoming too close with the members. Inappropriate relationships between board members and the company can result in the potential for fraud. Ultimately, this behavior will weaken the company and lower the company’s reputation in the business environment. Board members who remain with the company for long periods of time may also begin to provide advice that reflects personal opinion rather than shareholder interest.