Corporate governance is the system by which a corporation operates and balances the interests of its various stakeholders. Corporate governance seeks to ensure the corporation is operating in a compliant and ethical manner. Because of the competing interests of the stakeholders, corporate governance challenges arise in the ordinary course of business. If you are looking to proactively mitigate corporate governance concerns, such as with your code of ethics, conflicts of interest, or shareholder demands, contact our Wellington corporate governance attorney at Gueronniere, P.A. today.
Grace De La Gueronniere is a highly regarded corporate governance attorney who will work with your board of directors and senior management to find a customized solution to mitigate risks. Contact Gueronniere, P.A. today for a consultation.
The Basics of Corporate Governance
Corporate governance is how companies make decisions and operate. Corporate governance seeks to balance the interests of the stakeholders, who include:
- Customers
- Shareholders
- Suppliers
- Employees
- The surrounding community
- The environment
Several principles guide an effective corporate governance system:
- Transparency. Information must be readily available to stakeholders, such as shareholders, employees, and directors, so that they can make decisions.
- Accountability. The company must remain accountable for its actions, including accountability to the surrounding community and the government.
- Compliance. The organization must comply with applicable laws and rules, as well as its policies and procedures.
- Ethical Decisionmaking. Leadership must make and carry out decisions in an ethical manner that takes the stakeholders into account.
Effective corporate governance also provides legal protection for senior leaders and members of the board of directors. If the leaders and board members make proper decisions, they may have a defense against legal liability if a shareholder challenges a decision.
Challenges of Corporate Governance
Many challenges may arise within corporate governance. Four common challenges are:
- Regulatory compliance
- Conflicts of interest
- The focus on short-term results
- Transparency with reporting financials
Regulatory Compliance
There are numerous rules and regulations surrounding businesses. If you operate in multiple states, you are subject to laws in those states too. Federal regulations apply to companies, including the Sarbanes Oxley Act and the Dodd-Frank Act, which apply to public companies. Thus, one of the challenges of corporate governance is ensuring the company complies with all applicable laws and regulations. Corporate governance relies on internal control mechanisms and oversight to mitigate the challenge of regulatory compliance.
Conflicts of Interest
Challenges may arise with conflicts of interest with senior leaders, the board of directors, and company employees. Conflicts of interest exist when an individual’s personal or other business interests conflict with the company’s interests. Sometimes individuals may be unaware of the conflicts of interest. However, these conflicts still diminish trust in the organization. Thus, effective corporate governance requires individuals to disclose these conflicts to avoid the appearance of impropriety.
The Focus on Short-Term Results
With the challenges of quarterly reporting, companies may focus more on the short-term results versus the company’s long-term success. Shareholders may want to see results through the quarterly reporting and may not always see or value the long-term strategies made by the company. Shareholder pressure can leave company leaders questioning how to provide the results shareholders value while focusing on the company’s long-term goals. And it also leaves leaders trying to grasp how to quantify the effects of long-term gains. Effective corporate governance will work to balance those competing interests.
Transparency with Reporting Financials
The shareholders and other stakeholders rely on the company to accurately report their financial information. Failing to report profits and losses accurately can lead to regulatory fines and a loss of confidence by shareholders. Avoiding ambiguity while reporting financials as simply as possible can help combat this challenge.
The Importance of a Corporate Governance Attorney
A corporate governance attorney can help you set up effective corporate governance in your company. A corporate governance attorney will work with your board of directors or senior management to mitigate risks and advise on processes to deal with the challenges of corporate governance. And when an issue arises, the corporate governance lawyer will help you respond to the problem and help defend the company.
The benefits of hiring a corporate governance attorney include the following:
- Reviewing and drafting corporate governance documents
- Maintaining knowledge of corporate laws
- Assisting with board and shareholder meetings
- Advising leadership about compliance with applicable laws and regulations
- Providing risk management regarding, for example, conflicts of interest and transactions
- Ensuring proper documentation of decisions
- Ensuring leaders and board members receive the information needed for making a decision
- Representing clients when disputes arise
Contact a Corporate Governance Attorney from Gueronniere, P.A. Today
Gueronniere, P.A. has experience representing businesses across various industries in Florida. A corporate governance attorney will take the time to learn about your business and work for its best interests. Mitigate risks and promote ethical standards in your company with the help of an experienced corporate governance attorney. Contact Gueronniere, P.A. today for a consultation.