Customize your governance.

• Author: Donaldson, William H.

In board structure and practices, there is no 'one size fits all.' Tailor your governance to fit your company's circumstances...but stay ahead of the curve.

Corporate strategies, structures, and shareownership are in a period of dynamic change. What about corporate governance? If your company's corporate governance policies and structure are not out in front, isn't it time to find out why and make some changes?

A good starting point is an assessment of how well your board is attuned to the many already visible trends and underlying tensions that will have an impact on how corporate governance issues are resolved in the next five to 10 years. The institutionalization and internationalization of shareownership; the possibly overlapping concerns about corporate performance among your board, management, and owners or shareholders; and the evolving roles of independent directors are but a few prominent examples. However, as your board of directors addresses the governance issues most important to your company, an overarching consideration will be whether you are shaping policies that are best for your company -- or simply trying to fit your company into a politically correct mold prepared by others.

Corporate governance should be dynamic, innovative, and responsive. As one who places a high value on entrepreneurial spirit, I feel it is imperative that each board of directors focus on its own company's particular circumstances in matters of governance just as companies differentiate themselves in creating and marketing their products and services. The regulatory organizations and officials at the top of the governance hierarchy contribute their own perspectives, but they are not omniscient. An overall governance structure works best when your thoughtfully examined experiences and those of other individual corporations are combined with the views of legislative and regulatory overseers in producing policy decisions affecting many or all corporations.

The New York Stock Exchange is one of those regulatory overseers, and it has a history of taking independent initiatives to safeguard investors' interests that have set precedents for broader national policies. In 1869, the Exchange created the function of registrar by requiring that all listed securities be registered at a bank or other appropriate agency, and later formally separated the largely administrative function of transfer agent from that of registrar. Annual meetings and proxy voting became necessary as shareholding became more widespread, but neither was yet required by law at the time the NYSE made them listing requirements. In 1895, the Exchange took the initiative in recommending that listed companies provide annual financial statements to all shareholders.

Voting rights standards -- the "one share, one vote" rule -- came in 1926, followed by the requirements for audited financial statements in 1934, at least two outside directors on every board in 1956, and audit committees comprised entirely of independent directors in 1978.

Anticipate Trends

Today and in the foreseeable future, in my view, boards can help immeasurably by taking similar initiatives in anticipating or...