Basically, corporate governance practices provide the underlying structure to how a company operates and how employees conduct themselves. Think of the definition of governance—“the act or process of governing or overseeing the control or direction of something”—and consider the rules, procedures and processes your company has developed or adopted over time. These should evolve as the company matures.
An early-stage startup, for example, tends to have looser protocols than a public company that is subject to U.S. Securities and Exchange Commission regulations and the Sarbanes-Oxley Act. As a young company expands its operations and takes on more employees, it needs to keep a tight rein on its financial integrity and, with the help of its internal audit function, will need to assess its ongoing risks and opportunities. With growth comes an increasing need to fold in more consistent practices and understanding among employees and leadership about how everyone is expected to behave.
With defined business governance practices, new employees quickly catch on to acceptable behaviors within the company. This development becomes especially important for the finance organization. Without consistency in how the work gets done or without unclear directives, the company risks having weak internal controls over financial reporting, making a material misstatement of its financial statements, enabling fraud, and eroding investor confidence.
