Basic principles of good corporate governance

By Natalia Morales-Echeverría.

Corporate governance is the framework of rules, practices and processes that determine corporate direction and performance.  Good corporate governance facilitates the effective management of a corporation, ensuring its long-term success.

Under Puerto Rico law, the board of directors is responsible for the governance of the corporations.  The shareholders appoint the directors, and the directors appoint the executives who are responsible for the daily operations of the corporation.  The relationship between these participants, as defined by the corporate charter, bylaws and rule of law, is at the core of efficient corporate governance.

The following basic corporate governance principles are intended to provide both an introduction to the topic as well as a blueprint for building a successful corporation:

  • an appropriate mix of skills, perspectives, experiences and independence in the members of the board;
  • clear designation of the obligations and authority of the board of directors;
  • protect and facilitate the exercise of shareholders’ rights, and ensure the equitable and fair treatment of all shareholders;
  • timely and accurate disclosure of all matters regarding the corporation, including its financial situation and performance; and
  • effective monitoring of the executives by the board of directors.

This list is not exhaustive. It will vary according to the model of corporate governance adopted, and the financial and strategic objectives of the company.  Good corporate governance starts at incorporation, but can be fine-tuned as needs develop.

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