What is the Purpose of Corporate Governance? What are its Benefits?

What is Corporate Governance?

Informally, corporate governance is gathering a group of smart, accomplished people around a board table to make right decisions on behalf of the company and its stakeholders.

Formally, Corporate governance facilitates effective management that can deliver long-term success to a company and is the mechanisms, processes, and relations by which companies are controlled and directed.

The 21st century is focused on corporate governance which is a relatively new field of study involving regulatory and market mechanisms, and reconciling the relationships with their board of directors and numerous corporate shareholders and stakeholders within an organization.

Internal Stakeholders:

  • Company management
  • Executives
  • Board of Directors
  • Shareholders
  • Employees

External Stakeholders:

  • Shareholders
  • Debt holders
  • Trade creditors
  • Suppliers and customers

The Composition of Corporate Governance –

  • The Board of Directors is typically central to corporate governance.
  • The board should be elected by a majority. Some can be nominated if they are well known and would be additive to the board.
  • The governance should not be run solely by a CEO.
  • The loyalty of the directors should be to the shareholders and the company.
  • All directors must have high integrity and represent the interests of all shareholders.
  • All directors must have professional experience related to the company’s vision and business and expertise with companies without related business to the company.
  • Directors should be willing to challenge, but also be collaborative and collegiate.
  • Directors should be business minded with a strong allegiance to the company.
  • Directors should have a diverse skill set.
  • The board should represent a variety of perspectives and should be drawn from a diverse pool of candidates.
  • Boards can be different sizes depending on the needs of the company. They should remain relatively small to promote effective communication among directors.
  • Board members must be able to dedicate their time and energy to their position.

Principles of Corporate Governance:

  • There should be forward-thinking discussions about the business.
  • The performance of current members of management should be evaluated.
  • There should be planning for each key member of management.
  • The board should ensure the company has the right CEO.
  • Shareholder value should be created with a long-term focus.
  • The board should bring strategic discussions, including investments, potential mergers and acquisitions, operational and financial planning and growth.
  • The board receives assessments on strategic fits, risks, and valuations.
  • The board should assess the company’s valuation and significant risks and rewards as it focuses on the long-term interests of the company.

*Corporate governance gives structure to a firm, shapes corporate efficiency, employment stability, and retirement security.

Paul J. Burkhart

Paul J. Burkart is a Palm Beach business and corporate law attorney with experience in all areas of business. Our team assists both individual and business clients with all their legal needs, including; Business and Corporate Transactions, Business/Commercial and Civil Litigation, Real Estate, Intellectual Property, Family Law, and Estate Planning matters. We are a full-service private law firm ready to assist your business with any request, large or small.

Business Attorney Palm Beach Gardens

Our team assists both individuals, and business clients with all their legal needs, including business and Corporate Transactions, Business/Commercial and Civil Litigation, Real Estate, Intellectual Property, Family Law, and Estate Planning matters. We are a full-service private law firm ready to assist you with any request, large or small.

Call 561-880-0155 or visit our website.

 

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Phone: (561) 880-0155

 

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