Corporate governance is the mechanism of processes, procedures and relationships through which companies are managed and operated. The purpose is to ensure that the interests of all stakeholders are taken into consideration such as shareholders, senior management executives customers, suppliers, financiers governments, and the community.

There are a variety of structures, and companies frequently change their governance as they grow. But regardless of the structure the importance of governance is in any business since it facilitates an effective communication with its owners which, in turn, aids in its performance. Governance is also key in ensuring that the business adheres to its legal duties and it is a vital aspect of risk management.

A well-organized, clear and formal board reporting procedure can improve the ability of the business to secure investment by providing transparency to investors. It will also reduce both the cost of capital as well as cost of equity. A committee structure that is effective will enable the board to address issues more efficiently and effectively. It will allow the board to pinpoint the most urgent issues and give them priority. It also offers a way to delegate authority to management and committees.

A board should consist of composed of executive and non-executive directors that have diverse experience. The members must be professional and business-minded with a strong allegiance to the company, and the ability to engage in debate and challenge. The board should be able to assess the CEO and take part in the evaluations of the senior managers when appropriate.