Corporate Governance is of upmost importance.
Corporate governance is an important, and oftentimes overlooked, part of setting up your new business. Good corporate governance documents, such as operating agreements, buy/sell agreements, and corporate bylaws ensure that a business runs smoothly and efficiently. Perhaps more importantly, detailed and thorough governance documents can keep matters on track and in-line if relations within a business start to deteriorate. It's times like this that inadequate governance documents can quickly lead to litigation and even an eventual end to the business if matters cannot be settled.
Corporate Governance Made Uncomplicated
Simply put corporate governance is a system of rules, practices and processes by which a company is directed and controlled. This involves balancing the interests of everyone who keeps the business running (shareholders, board of directors, management, customers, suppliers, financiers, government and the community).
Corporate governance is meant to ensure that a framework is being followed in order to reach company goals and objectives. It heavily focuses on management in the form action plans, controls, performance measurements and disclosure.
The Role of the Board of Directors
The board of directors is the primary direct stakeholder influencing corporate governance. They are elected or appointed to represent shareholders of the company. The board makes important decisions, such as corporate officer appointments, executive compensation and dividend policy. The board is made up of inside and outside members of the organization, usually major shareholders, founder and executives. The mix of inside and independent members ensure that shareholder interest in aligned with those of the insiders.
Why Corporate Governance Matters to Us
Bad corporate governance ultimately can ruin a company's reliability, integrity or obligation to shareholders.
- Tolerance or support of illegal activities can create scandal.
- Companies that do not cooperate sufficiently with auditors or do not select auditors with the appropriate scale can publish spurious or noncompliant financial results.
- Bad executive compensation packages fail to create optimal incentive for corporate officers.
- Poorly structured boards make it too difficult for shareholders to oust ineffective incumbents.
Good corporate governance creates a transparent set of rules and controls in which shareholders, directors and officers have aligned incentives. Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate social responsibility through environmental awareness, ethical behavior and sound corporate governance practices.
At Gravis Law, our lawyers for business startups will provide you with governance documents that are both proven and tailored specifically to your individual business situation and long-term goals.