MyFondia VirtualLawyer
February 25, 2016

Corporate governance – or: ”What is the meaning of life?”

After roundabout 10 years of experience with matters regarding corporate governance I think I can confidently say that corporate governance as a concept and the matters regarding it, are widely considered to be somewhat of a sleeping pill.

This is actually quite unfortunate (although not that difficult to understand why), as the handling of corporate governance matters is a decisive factor in how a business develops over time. Naturally the basis for all the businesses you have, and manage to hold on to but simultaneously develop, is a good business plan and model. In addition to that, you also need to have a functioning relation between owners, board and CEO on one hand, and between CEO, management and organization on the other hand, and it is here where corporate governance comes in. Corporate governance is namely more or less the binding factor which keeps the business intact and makes it work like the machine described by the set of rules regarding corporate law.

As it is with machines, familiar to each and every one who is a proud owner to a lawnmower, boat, car or in the worst case a lousy shaver as I am, they are more or less well functioning which naturally applies to businesses as well. Sometimes flaws in the corporate governance can be of obvious and easily fixable nature, e.g. substandard control mechanisms regarding business agreements and the risks they bring along is far too common. Analyzing and taking care of such a problem is best handled in cooperation with an experienced lawyer who has a broad competence, business insight and a strong focus on concrete procedures. Moreover, if the person is willing to charge for his/her output (result of the analysis) instead of his/her input (amount of hours put in the matter), is naturally an additional plus. Sometimes the matter is about more subtle and hard-to-handle flaws, e.g. which values and what culture will imbue the business. A problem in this regard might suffer from consequences that are just as bad, e.g. the Volkswagen debacle. An even worse situation occurs when the company structure actively makes it harder, or even impossible, for the management and the organization to run the company. It can be anything from how the board is elected to a wrongly implemented fusion.

An even more important insight for entrepreneurs when it comes to corporate governance is the fact that it is their foremost tool in order to achieve their goals regarding ownership, both short and long term, hence the reference to the meaning of life in the title. What does the entrepreneur want to achieve with his/her business, what is the point of it all? Is it a point in itself to own and run the business so that it can grow or is the building of a company merely an instrument to reach some other goal (make a lucrative exit, help refugee kids, gain control over one’s existence)? Be it as it may, the corporate governance is of fundamental importance as it is through its mechanisms that the owner can influence and direct the company’s activity towards the goal. E.g. if you’re thinking about making an exit the first thing you want to do is to structure the company’s financial and legal management, and to make sure that all the agreements and other formalities are in order. A well-managed company leads almost every time to a considerably smoother sales process, sometimes even to a bigger note.

Next time you hear the words “corporate governance” or read about it, don’t set your brain on autopilot but instead consider what kind of possibilities stand offered in order for you to streamline your business, reduce risks and costs and carry out your plan.