Why Should I Care About Corporate Governance?
By ZARAH WALPOLE
Corporate governance is the process of conducting a corporation’s affairs, monitoring management, ensuring that all major issues affecting the business are given proper consideration and that decisions are properly communicated and documented. We’ve all heard about the big corporate scandals: Enron, Bre-X, Conrad Black and Hollinger International. In these cases, it is clear that corporate governance was problematic (to put it mildly) and the roles of officers and directors got fuzzy. “What has that got to do with me?”, you may ask. “I run a small privately owned business – not a multinational company that is traded on a stock exchange”. You should care about corporate governance because good governance will help your company operate effectively and efficiently and comply with the law.
Good governance is the responsibility of a corporation’s directors. Directors are stewards, with responsibility to oversee the conduct of the corporation’s affairs, monitor management, and ensure that all major issues affecting the business and affairs of the corporation are given proper consideration. Instead of hands-on management, directors are involved in strategic planning processes; identification and monitoring of principal risks; implementing effective communication policies and management of information systems; and adoption of relevant and reliable internal systems to enable the directors to fulfill their responsibilities.
In some cases, a director or officer of a company can be personally liable for damages that others have suffered as a result of their action (or inaction), particularly where such action or inaction is in breach of the director’s or officer’s fiduciary and other duties to the company or in certain cases, in breach of the law. A director or officer may be held personally liable for damages or losses caused because she engaged in a wrongful act, such as fraud, deceit, dishonesty or want of authority. The liability of a director is not the same as liability of the corporation. A bad business decision will not necessarily result in a director’s personal liability. A director is expected to use his or her judgment as a reasonably prudent person would in the circumstances. She is not expected to be perfect or right all the time. Directors or officers can reduce their risk of liability primarily by acting lawfully and reasonably with the best interests of the corporation in mind at all times.
You don’t have to be big to care about corporate governance. Good corporate governance has positive results: it contributes to the effective functioning of the board; it helps ensure the corporation’s compliance with applicable laws; it helps to attract and retain good directors and good management; it is vital in establishing a due diligence defence if a director or the corporation is ever sued; and it can permeate the whole corporation and improve decision-making and efficiency at all levels in the corporation. If you have incorporated your business, take the time and care to govern properly.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
