The term corporate governance in law refers to the system of processes, practices and rules through which a company is controlled and directed. Corporate governance involves finding the right balance between the interests of the company’s shareholders, customers, management, financiers, suppliers and the government as well as the community. Corporate governance also supplies a framework via which the business can achieve its objectives and therefore encompasses virtually every element of company management, from its action plan and internal system of control to corporate disclosure and performance management.
Corporate Governance – A Breakdown
Governance specifically refers to the resolutions, policies and controls which are employed to dictate the way in which a company behaves. Key to governance is the company’s board of directors, as this has major ramifications when it comes to equity valuation. A major component of investors and community relations is communicating the corporate governance of an organisation. The firm must publicly outline its governance and leadership, including the board of directors, committee charters, governance documents, guidelines as to stock ownership, articles of incorporation and executive team.
The Role of The Board Of Directors
The board of directors holds the role of primary direct stakeholder in a company, with the ability to strongly influence corporate governance. Shareholders or board members elect the directors who then represent the company’s shareholders, and the board must then make other key decisions like the appointment of corporate officers, and deciding on the dividend and executive compensation policies. There are usually both independent and internal members of the board of directors, with executives, major shareholders and founders usually being among their number. Independent directors are selected due to their experience and are there to dilute the power concentration while aligning shareholder interests with the interests of the insiders.
Governance – Both Good & Bad
Poor quality corporate governance can have a major impact on an organisation, casting doubt on its integrity, reliability and its obligations to its shareholders. All of this impacts on the financial health of the company. Any support or tolerance of an illegal activity can result in a scandal which negatively affects sales, while if the company fails to sufficiently co-operator with auditors can end up publishing non-compliant or spurious financial results. A poor compensation package for executives will fail to offer sufficient incentive for the corporate officers while a poorly structured board will make it hard for the shareholders to get rid of any ineffective incumbents.
Conversely, good governance will create a set of controls and rules which are highly transparent and in which directors, officers and shareholders alike have a set of aligned incentives. The majority of organisations work hard to achieve excellence in corporate governance, and for most shareholders, a company should not solely be profitable, it must also demonstrate effective corporate citizenship via ethical behaviour, environmental awareness and robust practices with regard to corporate governance.
How Does Corporate Governance Affect My Business?
Unfortunately, corporate governance is a complex concept, and many business owners and shareholders are unclear as to how it relates to their company. Yet directors, owners and stakeholders alike must pay close attention to their role in running the business and the obligations and duties which the law has imposed on them. It is simply impossible to ignore the rules and remain successful in business, and therefore using a skilled and specialist corporate governance solicitor will ensure that your business is run in compliance with legislation and also that you are fully aware of your rights and obligations.
As specialists in the field, our corporate governance solicitors can instruct you in the best ways to conduct and run shareholders and directors meetings, and ensure that your business goals and transactions pass legal scrutiny. Whether informally or formally run, a business owner ignores legalities at its peril as the result could be non-compliance and expensive consequences.
How We Can Help
Our team of specialist corporate governance solicitors are able to advise business owners, shareholders and company directors on a host of matters including:
- The duties of the company’s directors
- The rights of the shareholders
- How to conduct meetings appropriately
- Minority shareholder disputes
As well as any other issues regarding governance of companies. You can depend on our skilled team to offer you the advice you need.