Corporate governance is imperative for small and large businesses, enabling them to compete effectively. Unfortunately, many companies fail to adopt the concept because they believe it is only theoretical and costly to implement. Lawyers from a law firm in Colorado say that the rapid adoption of corporate governance principles should be a priority for all companies to impact their performance and long-term viability positively.

With well-planned implementation, corporate governance can boost a company in the following key areas:

  • Raising capital
  • Attracting and retaining qualified and talented directors
  • Securing debt
  • Fulfilling the demands and expectations of sophisticated shareholders
  • Preparing for exit or the next growth phase.

While there is no one-size-fits-all approach to good governance, Denver business lawyers recommend adopting the following best practices for the most favorable outcome:

Board Composition

Effective corporate governance should be based on board diversity and independence. Board members are responsible for handling highly complex and often technical matters that affect a company’s operations. Diversity in the composition of board members opens doors for different perspectives on the board table for sound decision-making.

Business lawyers in Denver advise companies to have a majority of independent directors on the Board. However, they should have the necessary skills and abilities to make sound corporate and financial decisions. They also should have trust in each other to hold productive board discussions.

Clear Definition of Roles and Responsibilities

Once a board is in place, it’s crucial to establish clear lines of accountability among the various members in the different capacities of the Board. These include the chairperson, CEO, Executive Offices, and management. The following guidelines can help:

  • Creating written mandates for the Board and each committee, clearly setting out their duties and accountabilities
  • Delegating specific responsibilities to a sub-group of directors which entails creating special committees such as auditing, nominating, and compensation to evaluate proposed transactions or opportunities.
  • Separating the roles of the Board Chair and CEO. The Chair should lead the Board while ensuring it acts in the company’s best interest. In contrast, the CEO leads the management, develops and implements the business strategy, and then reports to the Board.

Directors’ Accountability

Accountability must have a strong position in the best practices for corporate governance. Denver business lawyers recommend developing strong internal controls and monitoring them often to enhance accountability. Reporting systems should be accurate and transparent, with adequate checks and balances.

Board and management members should agree on quantifiable performance metrics or key performance indicators (KPIs) and how to report them. It would help to periodically evaluate the Board’s disclosure practices for internal and stakeholder communications transparency.

Accountability among directors includes deciding the correlation between attracting the most talented board nominees and providing enough compensation to make their responsibilities and duties worthwhile without creating a conflict of interest. It is good practice for board committees to manage and oversee board director remuneration.

Stakeholder Communication

Corporations should emphasize the need to regularly communicate with members and other stakeholders through resources such as:

  • The mission statement that describes the company’s purpose to members and the public
  • Surveys that measure participant satisfaction while providing a basis for improvements
  • Annual reports, letters, and updates on operations

Skilled business lawyers in Denver can advise and oversee various disclosure matters to stakeholders, such as the public reporting of executive compensation. If your company experiences disclosure issues or deficiencies in financial reporting procedures, skilled legal experts can assist.

Integrity and Ethical Dealings

There must be a general culture of integrity in business dealings and respect for laws and policies. Directors should declare any arising conflicts of interest and not vote on matters in which they have an interest. These can be achieved by:

  • Establishing and implementing a conflict of interest policy and a code of business conduct that sets out the company’s requirements and processes to report and deal with non-compliance. A Whistleblower policy is also a crucial part of the package.
  • Ensuring someone is mandated to oversee and manage these policies and procedures.

Strategic Planning

Companies often thrive where there is strategic planning, which may comprise several components:

  • Goals and performance measures for critical functions
  • Review of long-term investment objectives, diversification goals, and level of risk tolerance in investments
  • Succession and leadership development plans and refreshed Board policy

Strategic planning is a solid pillar that can enable boards to match their strategies and risk management activities with the company’s goals. A well-implemented framework can help monitor risk and mitigate it when necessary.

Accurate Financial Reporting

Financial reporting is a legal mandate and essential for effective corporate governance. Some regulations require comprehensive internal controls over financial reporting, but ongoing financial reports enable boards to understand the organization’s present and future economic performance.

It’s a corporate governance best practice to create monthly financial records and present them to the Board to show visibility into the organization’s finances. The reports should be clear and easy to read, explaining how finances have changed and why. Accounting teams should be ready to provide deeper insights into financial reports when the Board requests.

A Skilled Business Attorney Helping You Explore Corporate Governance Best Practices

Corporate governance determines a company’s direction and control and entails various crucial elements. While different companies may have a framework for good corporate governance, business lawyers in Denver recommend embracing the above best practices to achieve the most of it.

Implementing corporate governance within the established legal framework in Colorado is important. The Ragab Law Firm, PC, is an established law firm with knowledgeable business lawyers in Colorado. We can evaluate your governance policy and help you refine it based on best practices. Call us at 720-776-8853 to schedule a FREE case assessment.