A corporation is owned by its shareholders and governed by and through a body of appointed individuals called the Board of Directors.
Good governance is critical to mitigating risk and exposure to liability, as well as maximizing shareholder profit.
Tovella Dowling advises its business clients on governance matters, including board functions and authorities, fiduciary obligations, corporate governance documents, policies and procedures, legalities associated with shareholder rights, including sale and assignment of shareholder interests, voting rights and privileges, observance of corporate formations, including the legalities involved in noticing and conducting board of director and shareholder meetings and maintenance of corporate records, including minutes and other corporate resolutions.
Corporate Fiduciary Duties
Directors and officers of a for-profit business are fiduciaries of the corporation. As fiduciaries, such corporate actors must discharge their duties according to three broad principles: (1) the Duty of Care, (2) the Duty of Loyalty, and (3) the Duty of Obedience.
Duty of Care
The standard of conduct for directors of a corporation requires that a director discharge their duties in good faith and a manner that the director believes to be in the best interests of the corporation.
Board members must exercise due care in all business dealings. This includes careful oversight of financial matters and observing corporate formalities.
Directors are expected to raise attention to issues that are of concern and remain informed about business operations by attending and engaging in scheduled meetings of the Board of Directors.
The duty of care extends to the Director’s duty to make reasonable inquiries, as an ordinarily prudent person in a like position would use under similar circumstances.
This means that a director may not ignore concerning conduct carried out by agents and representatives of the corporation, and if put on notice by suspicious circumstances, they may be required to exercise their power under this authority. This duty of inquiry may also arise where a director or the Board relies on the opinions or reports of others.
Duty of Obedience
Obedience to the businesses’ central purposes must guide all decisions. The Board must also ensure that the business functions within the law, including both state and federal law, and its governing documents and other policies.
Duty of Loyalty
The Director must administer his or her corporate powers for the common benefit and act in a manner that he or she believes to be in the best interests of the corporation and all its shareholders.
Conflicts of interest and usurpation of corporate opportunity must be avoided. This element of the fiduciary standard articulated in the Corporations Code is commonly referred to as the “duty of loyalty”. This duty extends to personal conflicts of interest or conflicts with other organizations to which a Board member is connected.
Corporate Governance Policies
Adopting and implementing governance policies fosters higher internal ethical standards and practices and safeguards against the misappropriation of corporate assets and other regulatory violations.
Maintaining robust governance policies and procedures signals to shareholders, industry partners, and consumers that ethics and governance are a priority thereby mitigating reputational, operational, and financial risk. Tovella Dowling assists in the drafting and implementation of various governance policies, including the following:
- Conflict of Interest Policy
- Whistleblower Policy
- Document Retention and Destruction Policy
- Expense Reimbursement and Accountable Plan
- Ethics Policy
- Joint Venture and Strategic Partnerships Policy
- Delegation of Authority Policy
- Fiscal Management Policy
- Procurement Policy
- Social Media Policy
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