September 16, 2014
Many believe that only public companies or large, established companies with many shareholders need to be concerned about, or can benefit from, implementing corporate governance practices. The reality is that all companies – big and small, private and public, early stage or established – compete in an environment where good governance is a business imperative. One size doesn’t fit all, but right-sized governance practices will positively impact the performance and long-term viability of every company.
This belief that corporate governance “doesn’t apply” comes from a view that it’s only theoretical and doesn’t impact the bottom line or performance, is costly to implement, is “bureaucratic” (and slows decision-making), it can’t be tailored to a company’s size and stage of development – or all of these. But in reality, all companies compete in an environment where good governance is a business imperative in relation to things like:
CORPORATE GOVERNANCE BASICS
“Corporate governance” doesn’t have a single accepted definition. Broadly, the term describes the processes, practices and structures through which a company manages its business and affairs and works to meet its financial, operational and strategic objectives and achieve long-term sustainability.
Law. Corporate governance is generally a matter of law based on corporate legislation, securities laws and policies, and decisions of the courts and securities regulators. Generally, directors owe a duty of loyalty to the companies they serve, and have a fiduciary duty to act honestly, in good faith and in the company’s best interests. Corporate governance is also shaped by other sources, like stock exchanges, the media, shareholders and interest groups. Corporate governance practices help directors meet their duties and the expectations of them.
Relevant Factors. The objective of corporate governance is to promote strong, viable competitive corporations accountable to stakeholders. But one size doesn’t fit every company, and there’s no uniform, comprehensive set of policies or practices: the “right” ones depend on several factors, including:
Benefits. Proponents of corporate governance say there’s a direct correlation between good corporate governance practices and long-term shareholder value. Some of the key benefits are:
TOP 5 CORPORATE GOVERNANCE BEST PRACTICES
Right-sized governance practices will positively impact long-term corporate performance – but companies must design and implement those that both comply with legal requirements and meet their particular needs. Here are the top 5 corporate governance best practices that every Board of Directors can engage – and that will benefit every company.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Corporate Governance & Compliance Law Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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