The “G” in ESG stands for “governance.” ESG is of course of one of the most au courant topics in the corporate and securities world, and the inclusion of governance as one of the three ESG pillars inferentially suggests that governance is a new – or at least newly relevant – topic. The reality is, however, that governance is a perennial topic. Its relevance has never diminished, and it remains as important as ever. However, principles of corporate governance do evolve with changing times. It is this evolution of corporate governance that is at the heart of a new book on the topic.

The book, which is entitled “Corporate Governance: Understanding the Board-Management Relationship,” and was written by H. Stephen Grace, Jr., Ph.D, Founder and President of H.S. Grace & Company, Inc.; Suzanne Gilbert, Member Board of Advisors of Grace & Co. Consultancy, Inc.; Joseph P. Monteleone, Esq, Principal Catamount Services, LLC; and S. Lawrence Prendergast, Chairman of the Board of Trustees, Turrell Fund, explores the values-based origin of governance principles; examines the recent progression of governance concepts and considers several recent circumstances that explain the changing concepts; and reviews some of the practical implications of these changing concepts and principles. The book, more information about which can be found here, is a useful and readable summary of current understandings and best practices in corporate governance.

Governance is of course an indispensable topic for the leaders of any organization. The organization’s governance structures and practices reflect both the organization’s purposes and well as the principles under which it intends to operate. In their book, the authors emphasize the ways in which an organization’s governance principles and practices reflect the personal governance values of the organization’s founders and managers – that is, the individuals who comprise the organization. As the authors put it, there is a “direct connection” between “the forces at work in personal governance and the responsibilities of management, boards, and board committees.” The more effective management, boards, and board committees are in addressing their responsibilities, “the greater the financial and non-financial return to shareholders.”

While the principles of personal governance are long-standing, principles of corporate governance have been undergoing a change in recent times – as the authors put it, “an evolution is occurring regarding the roles and responsibilities of boards and board committees.” This change is ongoing because “there is a framework for change in place that is explicit and unequivocal in both its demand for an increased level of responsibility from board committees, boards and senior management, and in its requirement that the board and management positions be understood to be positions of service and not entitlement or privilege.”

The authors explore a number of the causes of these evolutionary changes in governance principles and practices. Among other things, several recent high-profile corporate crises reflect what can go wrong for organizations when corporate governance principles and practices are poorly matched to the actual circumstances an organization faces. These consequences, and the resulting lessons, are, as the authors put it “epitomized by the well-known mismanagement of events at Wells Fargo, Boeing, and others.”

In addition to exploring these corporate crises, the authors also review recent case law developments that underscore the evolving understanding of the responsibilities of boards of directors. In particular, the authors review the recent developments in Delaware corporate case law concerning boards’ duties of oversight and emphasizing the responsibilities of boards to monitor their organization’s critical functions and exposures.

As the authors note, in response to the increased scrutiny these developments and case decisions represent, boards are “evolving an approach of focusing primarily tone at the top and shifting to implementation of substantive checks and balances,” under which boards not only must “oversee checks and balances being put in place but also may assume direct responsibility regarding the design of the checks and balances.” Improving board and organizational oversight and governance “will not only lower the risk of failures and problems in the organization, but also can bring sustainable operating benefits to a company and its shareholders.”

In support of these governance approaches, the authors identify a number of steps that well-advised companies may take to try to address the growing expectations and to implement effective governance structures and practices. Among other practical suggestions the authors discuss is the possible need for boards to institute an executive committee, to provide board functions between board meetings and to support management on a more contemporaneous basis. The authors also suggest ways to address information gaps between management and boards. In what I think may be one of the authors’ most important points, the authors discuss the critical importance for boards to monitor cash flows. The authors also discuss the critical importance for corporate boards to monitor intellectual capital, particularly in the form of the knowledge and experience of their organization’s personnel.

The authors sound a number of other critical themes about corporate governance. First and foremost, and point that the authors make at the very outset, is that none of their recommendations can entirely eliminate the risk for boards of directors of litigation. However, well-advised boards adopting and implementing governance best practices can mitigate the risk of litigation and put the boards in a better position to defend themselves if they are sued.

Another of the authors’ themes, and one that I think is worth highlighting, is the authors’ emphasis on the importance of both outside and inside counsel in an organization’s adoption and implementation of governance best practices. In particular, corporate counsel can have an important role to play in helping to design and to monitor the checks and balances that are a critical part of an effective governance program.

In the end, the authors have provided a readable overview of the current corporate governance environment, one that takes a practical approach to governance generally and one that emphasizes the steps that boards can take to try to ensure that they have appropriate checks and balances in place to facilitate the level of oversight that courts, investors, and other constituencies increasingly expect from corporate boards. This book provides a useful introduction to the topic of corporate governance and also provides a thoughtful context for seasoned professional to consider possible improvements to existing corporate governance practices.

Readers interested in obtaining a copy of the book should refer here.