Common Mistakes Boards Make in Corporate Governance & How to Avoid Them

By Rayna Sparkes, Partner at Momentus Legal

Corporate governance is an important requirement in any company; efficient and effective corporate governance especially will lead to a more successful company. A well-functioning board is vital for decision-making, accountability, and strategic direction. When mistakes are made in governance, the repercussions can ripple through an organization, affecting everything from investor confidence to operational efficiency.

Here, we’ll discuss some of the most common organizational mistakes boards make and actionable steps to avoid them.

1. Undefined Responsibilities

When board members aren’t sure where their duties end and the executive team’s duties begin, decisions stagnate. Boards need to implement clear roles between themselves and the executive team to ensure efficient outcomes.

How to Avoid This Mistake:

• Clearly define roles in the board charter, bylaws and other governing documents and policies.
• Regularly review and update these policies and procedures as the organization grows or pivots. Creating a specific committee or committees would be a great way to ensure efficiency.
• Foster open communication between the board and executive leadership to ensure everyone is aligned.

2. Policy Gaps

Without clear guidelines and policies, boards can fall into reactive decision-making. This approach increases risks and leaves the company vulnerable to gaps in procedures resulting in failure to complete necessary tasks for the company.

How to Avoid This Mistake:

• Develop a robust set of governance policies, covering areas like conflict resolution, crisis management, and decision-making protocols.
• Conduct regular policy audits to ensure they remain relevant.
• Provide training or workshops for board members on how to apply these policies effectively.

3. Ambiguous Accountability

When accountability clearly defined, tasks fall through the cracks. This can lead to critical issues being neglected and disputes over who is responsible for specific actions.

How to Avoid This Mistake:

• Assign clear accountability for every significant decision or task.
• Utilize tools like organizational charts or task-tracking systems to ensure visibility.
• Include accountability checks in board meeting agendas to regularly track progress.

4. The Approval Blackhole

One of the most common governance errors is failing to formalize approvals for corporate actions. This mistake will likely lead to unnecessary risks for the company because necessary approvals are required to legally take certain actions.

This mistake becomes particularly critical during high-stakes events like mergers and acquisitions (M&A), where unclear governance can lead to delays, legal disputes, or even failed transactions. When boards fail to define the approval process for key decisions, it increases the company’s exposure to unnecessary risks and erodes investor confidence.

How to Avoid This Mistake:

• Create a clear framework for approvals, specifying what requires board authorization versus executive-level sign-off.
• Use a centralized platform to track and document approvals.
• Implement routine governance reviews to identify and address any procedural gaps.

Related Reading: For a deeper look at how governance can impact the M&A process, read A Typical M&A Process: What to Expect When Your Company is Being Acquired. The blog offers practical insights into how clarity in decision-making and approvals ensures smoother transactions and stronger outcomes.

A Typical M&A Process: What to Expect When Your Company is Being Acquired

Why Clarity in Corporate Governance Matters

Clarity and organization are the foundation of effective corporate governance. Boards that prioritize these principles:

• Drive Growth: By streamlining decision-making and aligning on goals, boards can focus on scaling the business.
• Attract Investors: Investors look for companies with transparent, efficient governance structures, as they signal reduced risk and long-term potential.
• Navigate Crises: In challenging times, a well-organized board can respond decisively and mitigate damages more effectively.

Moving Forward

Good governance is about fostering trust, efficiency and accountability at every level. By addressing these common mistakes, boards can position themselves and their organizations for success. like undefined responsibilities, policy gaps, and ambiguous accountability, boards can create a strong foundation for success.  With a little foresight and structure, your board can not only avoid these common mistakes but also set your organization up for sustainable growth.

For more insights on corporate governance and legal support tailored to your business needs, connect with me:

Rayna Sparkes, Partner at Momentus Legal

Contact Rayna Sparkes for more information:

Email: rayna.sparkes@momentuslegal.com

Phone: 541.221.8580

LinkedIn: @RaynaSparkes

Website: momentuslegal.com