How to measure good corporate governance

A board’s composition heavily influences its performance. Metrics that paint a picture of the board’s size, shape, and suitability (directors’ knowledge, background, and expertise) provide helpful information for assessing good governance.

Some markets also require reporting on board diversity. For example, the UK Corporate Governance Code states that board appointments should “promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.”

Example KPIs for board composition and diversity include:

• Percentage of board members who are independent
• Percentage of board members who are from diverse groups

It’s important that the board is focused and aligned on its roles and responsibilities so that directors can engage with the right issues in the right way, at the right time.

Technology tools like a board portal can be used to facilitate this — streamlining board management processes and providing a dedicated space where members can engage, comment, and collaborate on board documents. These tools can also generate reports on meeting attendance and engagement to support reporting.

Example KPIs for board meeting attendance and engagement include:

• Board meeting attendance rate (percentage of directors attending all scheduled meetings)
• Proportion of agreed actions where directors or committees report back with progress at subsequent meetings

By law, in the UK, boards must consider the impact of a company’s decisions on its stakeholders. To do this effectively, you need to look at more than the occasional board paper and make stakeholders an integral part of the decision-making process.

Shareholder engagement metrics are also a vital to measuring good governance. They help measure how effectively a company's board communicates with and responds to shareholders.

Stakeholder engagement is often guided by principles like The Companies (Directors’ Report) and (Strategic Report) Regulations in the UK. Here are some key areas boards measure and include in their stakeholder reporting:

• Annual General Meeting (AGM) attendance rates
• Voting participation rates
• Shareholder proposal submissions
• Investor relations interactions
• Shareholder satisfaction surveys
• Media/social media sentiment analysis

Top tip: The Board Intelligence Agenda Planner allows you to tag board meeting agenda items by type of conversation and relevant stakeholder. This allows you to extract statistics on, for example, how much time you spent on decision-making versus monitoring, and how much time you spent discussing topics impacting consumers, employees, suppliers, and the environment, for example. It’s an easy way to help you understand how to measure good corporate governance in terms of stakeholder engagement.

Transparency and disclosure quality are non-negotiables. The Companies Act mandates companies to prepare full financial statements, which provide shareholders with a clear understanding of their financial performance and position. Then there’s the Economic Crime and Corporate Transparency Act 2023, which goes a step further in improving transparency by requiring companies to record the full names of shareholders in their registers.

Example KPIs for transparency and disclosure quality include:

• Average time taken to publish annual and sustainability reports after year-end
• Number of restatements or corrections issued after initial publication

To simplify these measurements, use board management software that provides secure, centralised access to governance documents. It helps ensure transparent, well-documented board meetings by creating detailed meeting minutes and recording disclosures of key discussions on, for example, financial, cybersecurity, and corporate strategies.

You can also implement AI-driven compliance monitoring software to flag potential governance risks.

UK companies are required to maintain robust systems for managing internal and external risks. They are also responsible for complying with laws and financial services regulations set by governing bodies, including the Companies Act. Together, these systems ensure companies operate transparently and responsibly while safeguarding against potential legal, financial, and operational risks.

Example KPIs for risk management and compliance include:

• Number of regulatory breaches or fines in a reporting period
• Percentage of identified key risks with active mitigation plans in place

You can track these KPIs by:

• Enabling compliance tracking using compliance management software, staff training, and dedicated compliance officers.
• Generating reports and documentation, including regular compliance audits and sending reports to relevant authorities.
• Reviewing adherence to regulations to avoid fines, reputational damage, or legal action.

The UK Corporate Governance Code encourages companies to assess and disclose their internal control systems in annual financial reports. You may also choose to conduct internal audits or engage external auditors to provide independent assessments. This includes evaluating the separation of duties, approval processes, data security measures, and financial reporting accuracy.

Long-term value creation is your company’s ability to deliver sustainable financial returns.

Achieving this requires companies to consider environmental, social, and governance (ESG) factors. Whatever the prevailing market view on the environment and social responsibilities of companies, good governance is integral to this.

Measuring long-term value creation requires robust performance indicators that go beyond measuring short-term financial results. Key metrics include growth in market share, customer satisfaction, employee engagement, and progress toward sustainability goals.

Top tip: Read the Board Intelligence Think Tank’s latest research to find out which ESG causes leaders care most about and to explore the role of business leaders in building a fairer future.

Strategic alignment is about ensuring that your company meets its long-term objectives, and that all decisions align with its vision, mission, and values while creating value for shareholders and stakeholders.

Sustainable governance practices reflect a company’s dedication to long-term value creation. These are:

• A commitment to environmental sustainability such as carbon footprints, managing waste, and using resources efficiently.
• Social impact as reflected by the ethical treatment of employees, fair wages, diversity and inclusion, and positive community engagement.
• Ethical governance that is outlined via clear policies on ethical leadership, transparency, and accountability, as well as anti-corruption and anti-bribery practices.