Corporate Governance Law: Everything You Need To Know
Corporate Governance Law describes ways in which a company is managed and regulated.4 min read
Corporate Governance Law describes ways in which a company is managed and regulated. Corporate governance aims to keep corporations, financial institutions, and markets honest and reputable, in order to protect social and economic development.
Corporate governance is the term used to describe the systems, policies, and processes that allows for a company to run their business in an ethical manner. Corporate governance is based upon the principles of responsibility, transparency, fairness, leadership and accountability. Corporate governance focuses on how a corporation is operated and covers every part of the company organization, including:
- How a company resolves issues and makes decisions.
- The involvement, contribution, and communication between management, shareholders, and workers.
- The ways in which rights and responsibilities are shared between the company's workers, management, and shareholders.
- Policies and procedures for decision making on company affairs.
- Checks and balances designed to eliminate wholesale fraud or abuse of the office.
- Policies that try to reduce or eliminate the principal–agent problems.
- The relationship between the company and its shareholders.
- Business decisions, ideally made with everyone's best interest in mind, such as:
- Mergers and acquisitions.
- Intellectual property.
- Other key decisions made by the corporation.
Corporate Governance Benefits on a Company Level
Corporate executives benefit from corporate governance and keep themselves out of legal problems by following simple business practices like:
- Appointing strong leaders.
- Making sure the company has enough information and time it needs to make proper decisions.
- Offering support and resources to management.
- Engaging in crisis management when necessary.
Corporate Governance Lawyers
Simply put, a corporate governance lawyer acts as a business consultant and guides corporate leaders in decision-making processes. Corporate governance lawyers represent business leaders and investors, with primary importance placed upon their relationship and communication. Lawyers need know specific corporate laws and regulations, as well as have basic legal and business knowledge. They also must have experience in advising corporate leadership in both basic and unusual situations. Corporate governance lawyers have a strong knowledge of typical corporate trustee practices, laws, regulation, and of how a company identifies, describes, and forms the roles of its leaders and management. A corporate governance lawyer also acts as risk management, and advises clients that are in high-risk situations.
Corporate Governance Lawyer Roles
- Consultation of the company and its leadership through the board and senior executive level, advising on topics including:
- How the board should be formed and operated.
- Roles of independent board chair or independent lead director.
- The defining of a company's rights and privileges.
- The reviewing and performing of assessments on the board and board committee.
- The assessing and controlling of possible threats and losses.
- How salary is distributed.
- New and improved procedures for corporate governance.
- Current rules, rights, and privileges and possible changes regarding these rules, rights, and privileges.
- Corporate governance lawyers also counsel corporate clients on management, investor relations, key business procedures, risk management, and other topics like:
- Conflicts of interest and transactions.
- Whether to accept or reject a merger.
- Leadership selection.
- National, state, and global regulation issues.
- Federal review.
- Answer questions and perform research on unethical behaviors.
- Investigations and reports.
Changes in Corporate Law
Corporate law is constantly changing, making it vital for business lawyers to be aware of new laws. Not only are businesses monitored by the government and investors, but the general public is also becoming more knowledgeable about corporate law.
- Federal or state level laws, called statutory law, that are written and passed through legislature or government officials.
- More participation from the court system, governing officials, and self-regulating groups.
- Involvement from the Delaware Court of Chancery .
- Non-traditional groups are becoming more aware of issues such as union pension funds, or retirement plans, and the huge gap between how much executives make compared to regular employees.
- Increase in interest from investors from financial institutions, such as banks, labor unions, insurance companies, and pension funds.
- Global regulations.
- Technology plays a big role in corporate governance through easier communication and timely information processing.
Personal Liability for Corporate Executives
Corporate governance lawyers are responsible for keeping tabs on the executive, ensuing that they are aware of issues and well-informed to make major decisions. Business leaders need to be aware of what is going on throughout their company, active in decision-making and business processes, and focused on important issues. It is key for directors to make decisions that are in the best interest of the company and its shareholders. Business documents should be read, preferably by a lawyer, and understood prior to signing. Simply put, acting and conducting business in an ethical manner is the number one way for a director to avoid corporate governance issues.
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