If you’re running a business, you’ve probably heard the term “corporate governance” thrown around in meetings, legal discussions, or investor pitches. But what does it actually mean in practice? And more importantly, what do you actually need to have in place?
Let’s cut through the jargon. Corporate governance isn’t some abstract concept for Fortune 500 companies. It’s the framework that keeps your business running smoothly, protects you from legal trouble, and builds trust with investors, employees, and customers.
Whether you’re a startup founder setting up your first board or a business owner trying to get your governance house in order, this guide breaks down the real requirements you need to know.
What Corporate Governance Actually Is (In Plain English)
Think of corporate governance as your company’s operating system. It’s a set of rules, practices, and processes that define how your company is governed. It determines who makes decisions, how those decisions get made, and who’s accountable when things go right or wrong.
Good corporate governance protects everyone involved in your business: shareholders, employees, customers, and even you as a business owner. Bad governance? That’s how companies end up in legal trouble, lose investor confidence, or implode from internal conflicts.
Key parties involved in corporate governance include stakeholders such as the board of directors, management and shareholders, but also external parties like auditors, regulators, and sometimes even customers and suppliers.
The Non-Negotiable Components of Corporate Governance
Let’s talk about what you actually need to have in place. These aren’t optional extras. They’re the foundation of any properly governed business.
1. A Properly Structured Board of Directors
Your board isn’t just a group of people with fancy titles. It’s your highest decision-making body, and getting its structure right matters.
What you need:
Board composition requirements: You need the right mix of people. A competent and diverse board with clear roles and responsibilities is essential. For public companies, most stock exchanges require a majority of independent directors (directors who don’t work for the company and have no financial ties to management).
Independent directors: These are people who can challenge management without worrying about their paycheck. They’re critical for unbiased oversight. If you’re serious about governance, aim for at least three independent directors, even if you’re not publicly traded.
Board size: There’s no magic number, but most effective boards have between five and nine members. Too small and you don’t have enough expertise. Too large and you can’t make decisions efficiently.
Clear roles and responsibilities: Every director needs to understand what they’re responsible for. Document this. Put it in writing. Make sure everyone knows who oversees what.
2. Essential Board Committees
Committees aren’t bureaucracy. They’re how your board handles specialized oversight without drowning in details during regular meetings.
Public company boards are required to have independent audit, nominating (and governance), and compensation committees. But even if you’re private, you should seriously consider having these three committees:
Audit Committee
This committee is your financial watchdog. The audit committee is responsible for helping independent auditors oversee the corporation’s financial reporting system in a process independent of management.
What they do:
- Oversee financial reporting and internal controls
- Hire and supervise external auditors
- Review financial statements before they’re released
- Monitor compliance with financial regulations
- Assess financial risk management
Minimum requirements: At least three members, all independent directors. At least one must be a financial expert who understands accounting principles and financial statements.
Compensation Committee
This committee determines how much executives get paid and makes sure compensation aligns with company performance.
What they do:
- Set CEO and executive compensation
- Design incentive programs and equity grants
- Review compensation policies
- Ensure pay packages are competitive but fair
- Work with compensation consultants
Minimum requirements: All members must be independent directors. No executive should have any say in their own compensation.
Nominating and Governance Committee
This committee finds new board members and makes sure your governance practices are actually working.
What they do:
- Identify and recruit qualified board candidates
- Assess board composition and skills gaps
- Oversee board evaluations
- Review and update corporate governance policies
- Plan for board succession
Minimum requirements: Majority of independent directors, though having all independent is better.
3. Corporate Governance Documents You Must Have
Governance documentation establishes the rules by which the business is governed, sets out the rights and obligations of the shareholders/owners, and provides evidence for regulators/stakeholders of the governance processes/procedures in place.
Here’s what you need:
Articles of Incorporation (or Certificate of Incorporation)
This is your company’s birth certificate. It legally establishes your business and includes basic information like company name, purpose, stock structure, and registered agent.
Corporate Bylaws
These are your internal operating rules. They cover:
- How directors are elected and removed
- How often the board meets
- Voting procedures
- Officer roles and responsibilities
- Shareholder meeting requirements
- Amendment procedures
Board Charter
This document defines the board’s purpose, structure, and responsibilities. It should include:
- Board composition requirements
- Director qualifications
- Meeting frequency
- Decision-making authority
- Board evaluation process
Committee Charters
Each board committee needs its own charter outlining:
- Committee purpose and authority
- Membership requirements
- Responsibilities and duties
- Meeting frequency
- Reporting requirements
Code of Ethics and Conduct
This sets behavioral expectations for everyone in your company. It should address:
- Conflicts of interest
- Confidentiality
- Fair dealing
- Compliance with laws
- Reporting violations
Public companies must have a code of ethics that applies to senior financial officers, and it must be publicly available.
Conflict of Interest Policy
You need clear rules about what happens when someone’s personal interests might conflict with company interests. This includes:
- Disclosure requirements
- Recusal procedures
- Related party transactions
- Outside business activities
Insider Trading Policy
If you have any securities (even if you’re private), you need rules about who can trade and when. This includes:
- Trading windows
- Pre-clearance requirements
- Blackout periods
- Disclosure obligations
Document Retention Policy
Legal requirements dictate how long you must keep certain documents. Your policy should cover:
- Financial records (usually 7 years)
- Board minutes (permanently)
- Employment records
- Contracts and agreements
- Email and communication policies
4. Proper Board Meeting Procedures
How your board meets matters just as much as who’s on it.
Meeting frequency: Most boards meet quarterly at minimum. High-growth companies or those facing challenges often meet monthly or even more frequently.
Meeting agendas: The board deals with the most pressing/important strategic matters at meetings by grouping items together under headings and putting routine items together for simultaneous approval.
Your agenda should include:
- Strategic discussions (the bulk of meeting time)
- Financial performance review
- Risk assessment updates
- Committee reports
- Management presentations
- Executive sessions (without management present)
Board materials: Directors need information before meetings, not during them. Send board packets at least five to seven days in advance. Include:
- Financial statements and analysis
- Performance dashboards
- Strategic updates
- Risk reports
- Previous meeting minutes
- Action items and decisions needed
Meeting minutes: These are your legal record. They must be accurate and comprehensive.
At a minimum, minutes should include:
- Date, time, and location
- Attendees and absences
- All motions and resolutions
- Voting results
- Key discussion points
- Decisions made
- Action items assigned
- Next meeting date
Keep minutes factual and avoid recording everything that was said. Focus on decisions and rationale, not play-by-play debate.
5. Financial Reporting and Internal Controls
You need systems that ensure your financial information is accurate and reliable.
Financial statements: At minimum, you need:
- Balance sheet
- Income statement
- Cash flow statement
- Notes to financial statements
Public companies must file these quarterly and annually with the SEC. Private companies should still prepare them quarterly for board review.
Internal controls: These are processes that prevent fraud and errors. They include:
- Segregation of duties (one person shouldn’t control all aspects of a financial transaction)
- Authorization procedures
- Regular reconciliations
- Physical security over assets
- Documentation requirements
For public companies, Sarbanes-Oxley (SOX) requires management to assess and report on internal controls annually.
External audits: Most companies need annual audits by independent accounting firms. Public companies must have audits. Private companies benefit from them too because they:
- Verify financial accuracy
- Identify control weaknesses
- Increase credibility with lenders and investors
- Provide assurance to stakeholders
6. Risk Management Framework
You can’t eliminate risk, but you can manage it systematically.
Risk identification: Regularly identify risks across categories:
- Financial risks (market volatility, credit risk, liquidity)
- Operational risks (supply chain, technology failures)
- Compliance risks (regulatory changes, legal violations)
- Strategic risks (competition, market shifts)
- Reputational risks (PR crises, customer complaints)
- Cybersecurity risks (data breaches, ransomware)
Risk assessment: For each identified risk, evaluate:
- Likelihood of occurrence
- Potential impact
- Current mitigation measures
- Residual risk level
Risk mitigation: Develop specific plans to reduce high-priority risks through:
- Preventive controls
- Detection mechanisms
- Response procedures
- Insurance coverage
- Contingency planning
Risk monitoring: Your board should review risk dashboards regularly. Don’t wait for quarterly meetings. Set up systems for continuous risk monitoring with immediate escalation for critical issues.
7. Compliance Program
Policies and guidelines ensure compliance with laws and regulations, reflect the culture of the organisation, and give guidance for decision-making and risk appetite.
What you need:
Compliance policies covering:
- Anti-corruption and bribery
- Anti-money laundering
- Data privacy and protection (GDPR, CCPA, etc.)
- Employment law compliance
- Industry-specific regulations
- Securities law compliance
- Tax compliance
A compliance officer or function: Someone needs to own compliance. For smaller companies, this might be your CFO or general counsel. Larger companies need dedicated compliance teams.
Training programs: Everyone in your organization needs to understand relevant compliance requirements. This includes:
- New employee orientation
- Annual refresher training
- Specialized training for high-risk roles
- Board-level compliance updates
Monitoring and reporting: You need systems to:
- Track compliance metrics
- Identify potential violations
- Report issues to the board
- Document corrective actions
Whistleblower hotline: Employees need a confidential way to report concerns without fear of retaliation. This can be a third-party hotline, secure online portal, or designated email.
8. Board and Director Evaluation Process
Regular self-evaluations are essential for continuous improvement.
Annual board evaluations: At least once a year, assess:
- Overall board effectiveness
- Meeting quality and efficiency
- Information flow and materials
- Board dynamics and culture
- Committee performance
- Strategic oversight
Individual director evaluations: Each director should be evaluated on:
- Meeting attendance and preparation
- Quality of contributions
- Independence and objectivity
- Expertise and skills
- Commitment to the role
Evaluation methods:
- Self-assessments
- Peer evaluations
- Confidential surveys
- One-on-one interviews with the board chair
- Third-party facilitated evaluations (every 3 years)
Action plans: Evaluations are worthless unless you act on findings. Document improvement areas and assign accountability for addressing them.
9. Director Onboarding and Continuing Education
Formal onboarding for directors ensures they can contribute from day one.
New director onboarding should include:
- Company history and strategy
- Financial overview
- Organizational structure
- Key products/services
- Competitive landscape
- Current challenges and opportunities
- Legal and fiduciary duties
- Board and committee responsibilities
- Meeting schedules and procedures
Continuing education: Business environments change. Directors need ongoing education about:
- Industry trends
- Regulatory developments
- Emerging risks
- New technologies
- Governance best practices
Budget for directors to attend conferences, take courses, and engage with governance experts.
10. Shareholder Rights and Communication
Good governance means respecting shareholder rights and maintaining open communication.
Shareholder rights include:
- Voting on major decisions (mergers, board elections, bylaw amendments)
- Access to financial information
- Ability to propose resolutions
- Right to dividends when declared
- Preemptive rights (in some cases)
Annual shareholder meetings: Required for most corporations, these meetings allow shareholders to:
- Elect directors
- Vote on major proposals
- Hear from management
- Ask questions
Investor relations: Maintain regular communication with shareholders through:
- Quarterly earnings calls
- Annual reports
- Investor presentations
- One-on-one meetings
- Proxy statements
Transparency: Share information about:
- Financial performance
- Strategic direction
- Risk factors
- Executive compensation
- Related party transactions
- Board composition and governance practices
Corporate Governance Requirements by Company Type
Requirements vary depending on your company structure.
Public Companies (Listed on Stock Exchanges)
You face the most stringent requirements:
- SEC reporting obligations (10-K, 10-Q, 8-K filings)
- Sarbanes-Oxley compliance
- Stock exchange listing standards
- Majority independent board
- All-independent audit, compensation, and nominating committees
- Annual say-on-pay votes
- Proxy statement disclosures
- Public code of ethics
- CEO and CFO certifications
Private Companies
You have more flexibility but still need:
- Basic corporate governance documents
- Regular board meetings
- Financial statement preparation
- Board oversight of management
- Risk management processes
- Compliance programs
Strong governance helps you attract investors, get better financing terms, and prepares you for eventual sale or IPO.
Startups
Early-stage companies should focus on:
- Setting up proper legal structure
- Creating board with at least one independent director
- Establishing clear decision rights
- Documenting key policies
- Financial reporting systems
- Cap table management
Good governance from the start prevents problems later.
Nonprofits
Nonprofits have unique governance requirements:
- Mission-driven decision-making
- Conflict-free board (no compensation for most board members)
- Transparent financial reporting
- Donor stewardship
- IRS Form 990 filing
- State charity registration
- Adherence to mission and bylaws
Common Corporate Governance Mistakes to Avoid
Treating governance as paperwork: Having the documents isn’t enough. You need to actually follow them.
Rubber-stamp boards: Directors who just approve everything management proposes aren’t doing their job. Healthy tension between board and management is good.
Ignoring conflicts of interest: When they arise (and they will), handle them properly. Disclose, recuse, and document.
Poor documentation: If it’s not documented, it didn’t happen. Keep thorough records of board deliberations and decisions.
Skipping board evaluations: You can’t improve what you don’t measure.
Inadequate director preparation: Directors who show up unprepared waste everyone’s time and can’t make informed decisions.
No succession planning: Plan for CEO and board transitions before they’re urgent.
Weak internal controls: This is how fraud happens. Invest in proper controls.
Inconsistent enforcement: Policies mean nothing if you don’t enforce them consistently.
How to Build Your Corporate Governance Framework
Start with where you are and build incrementally.
Step 1: Assess your current state
- What governance documents do you already have?
- What’s missing or outdated?
- How effective is your current board?
- What are your biggest governance gaps?
Step 2: Prioritize based on risk and requirements
- What’s legally required for your company type?
- What governance issues pose the biggest risk?
- What would investors or stakeholders expect?
Step 3: Create or update essential documents Start with the basics: bylaws, board charter, committee charters, code of ethics, and key policies.
Step 4: Build your board If you don’t have a proper board, form one. If you have a board, assess whether it has the right composition and expertise.
Step 5: Establish committees At minimum, get an audit committee in place. Add compensation and nominating committees as you grow.
Step 6: Implement processes Set up regular meeting schedules, reporting systems, and evaluation processes.
Step 7: Train and educate Make sure directors, management, and employees understand their responsibilities.
Step 8: Monitor and improve Regularly assess what’s working and what’s not. Adjust your approach based on feedback and results.
Corporate Governance Tools and Resources
You don’t have to build everything from scratch.
Board management software: Tools like Diligent, BoardEffect, or OnBoard help you:
- Distribute board materials securely
- Manage meeting schedules
- Track action items
- Store documents
- Facilitate voting
- Ensure compliance
Legal templates: Organizations like the American Bar Association, your law firm, or online legal services provide governance document templates.
Governance standards: Reference frameworks like:
- OECD Principles of Corporate Governance
- NYSE and NASDAQ listing standards
- SEC governance guidance
- Industry-specific governance codes
Professional advisors: You’ll need:
- Corporate attorney
- External auditor
- Compensation consultant
- Governance consultant (for more complex situations)
The Bottom Line on Corporate Governance
Corporate governance isn’t about creating bureaucracy. It’s about building a sustainable business that makes good decisions, manages risk effectively, and earns stakeholder trust.
You don’t need to implement everything at once. Start with the fundamentals: proper legal structure, a functional board, essential policies, and basic oversight processes. Build from there as your company grows and your governance needs evolve.
The companies that get governance right don’t treat it as a compliance exercise. They use it as a competitive advantage. Good governance attracts better investors, top talent, and loyal customers. It prevents costly mistakes and helps you navigate challenges more effectively.
The time you invest in building a strong governance framework now will pay dividends many times over. Don’t wait until you have a crisis or a regulatory problem to get serious about governance.
Start today. Your future self (and your stakeholders) will thank you. Contact My Legal Pal to get assitance in setting up your Corporate Governance
Frequently Asked Questions About Corporate Governance
What are the essential corporate governance documents every company needs?
Every company needs articles of incorporation, corporate bylaws, board charter, committee charters, code of ethics, conflict of interest policy, and document retention policy. Public companies also need additional policies including insider trading policies and SOX-related documentation. These documents establish the legal framework and operational rules for how your company is governed.
What is the difference between board of directors and board committees?
The board of directors is your company’s highest governing body responsible for overall strategy, oversight, and major decisions. Board committees are smaller groups of directors that focus on specific governance areas like audit, compensation, or nominating functions. Committees do detailed work and make recommendations to the full board, which makes final decisions.
How many board members should a company have?
Most effective boards have between five and nine members, though there’s no universal requirement. The optimal size depends on your company’s complexity, industry, and stage of growth. Public companies typically need larger boards with more independent directors. Startups often begin with three to five board members and expand over time.
What qualifications should board members have?
Board members should bring relevant expertise in areas like finance, industry knowledge, technology, legal matters, or operational management. Public companies require most directors to be independent with no financial ties to management. Directors need time to fulfill their responsibilities, strong judgment, integrity, and willingness to challenge management when necessary.
What is the role of the audit committee in corporate governance?
The audit committee oversees financial reporting, internal controls, and external auditors. It reviews financial statements before publication, assesses financial risks, ensures compliance with accounting standards, and provides independent oversight of the company’s financial reporting system. All audit committee members must be independent directors, with at least one financial expert.
What is the difference between corporate governance for public versus private companies?
Public companies face extensive SEC reporting requirements, stock exchange listing standards, Sarbanes-Oxley compliance, and mandatory independent board committees. Private companies have more flexibility but still need basic governance structures including boards, policies, financial reporting, and oversight processes. Both benefit from strong governance, but public companies have more prescriptive legal requirements.
How often should the board of directors meet?
Most boards meet quarterly at minimum, though many meet more frequently. High-growth companies, those facing significant challenges, or companies in rapidly changing industries often hold monthly board meetings. Between formal meetings, boards may hold committee meetings or special sessions to address urgent matters.
What are the fiduciary duties of board directors?
Directors have two primary fiduciary duties: duty of care (making informed, prudent decisions in the company’s best interest) and duty of loyalty (putting company interests ahead of personal interests and avoiding conflicts). Directors must act in good faith, stay informed about company affairs, and exercise appropriate oversight of management.
What internal controls are required for corporate governance?
Companies need internal controls including segregation of duties, authorization procedures, regular reconciliations, physical security over assets, and comprehensive documentation. Public companies must comply with Sarbanes-Oxley Section 404, which requires management assessment and external auditor attestation of internal control effectiveness over financial reporting.
How do you implement an effective compliance program?
An effective compliance program includes written policies covering relevant regulations, designated compliance officer or team, regular employee training, monitoring and reporting systems, whistleblower hotline, periodic risk assessments, and documented corrective actions. The board should receive regular compliance reports and oversee the overall compliance function.
What is the role of the compensation committee?
The compensation committee determines executive compensation, designs incentive programs, reviews compensation policies, and ensures pay packages align with company performance and are competitive with the market. All members must be independent directors to prevent conflicts of interest in setting executive pay.
How do you conduct effective board evaluations?
Effective board evaluations include annual assessments of overall board performance, committee effectiveness, and individual director contributions. Use multiple methods including self-assessments, peer evaluations, confidential surveys, and periodic third-party facilitated evaluations. Most importantly, act on findings with specific improvement plans and accountability for implementation.
What risk management practices should boards oversee?
Boards should oversee comprehensive risk management including risk identification across all categories (financial, operational, compliance, strategic, reputational, cybersecurity), risk assessment and prioritization, mitigation strategies, continuous monitoring, and regular risk reporting. Create risk dashboards that provide real-time visibility into critical risks.
What are the requirements for board independence?
Independent directors must have no material relationship with the company beyond their board role. This means no employment relationship (current or recent), no substantial business dealings, no immediate family members in executive positions, and no compensation beyond director fees. Stock exchanges and regulatory bodies set specific independence standards that vary by company type and board role.
How should companies handle conflicts of interest?
Companies need written conflict of interest policies requiring directors and executives to disclose potential conflicts, recuse themselves from related decisions, and abstain from voting on matters where they have personal interests. Document all conflict disclosures and recusals. Review related party transactions carefully and ensure they’re on fair market terms.