New climate of accountability yields better corporate governance

| Jul 9, 2012 | Business Formation & Planning

Throughout Massachusetts businesses, activist shareholders are insisting on having a greater voice, litigation seems to be a constant threat, regulators are stepping up enforcement, and whistleblower incentives are bringing misconduct to light. On the plus side, the pressures are also yielding better corporate governance.

Corporate board members and directors who once seemed above the fray are facing challenges every time they turn around. Investors are increasingly holding corporate directors responsible for their votes and decisions in the boardroom from hiring executives, to finances and audits, to stock performance. No longer protected by rubber stamp mentality, directors are being held accountable. In addition, they are required to uphold and represent their company’s reputation, question management, be active in corporate strategy decisions and manage risk oversight.

This new level of accountability is good news. Better corporate governance occurs when directors are allowed access and two-way communication with management and shareholders. A new atmosphere of transparency may keep us from traveling down another road of bank defaults and ponzi schemes.

In this political and economic atmosphere, stockholders are demanding resignations from directors who may even put their own job in harm’s way. Take the case of International Game Technology CEO Patti Hart who resigned her position on the board of Yahoo! at her own board’s request after Yahoo! executive Scott Thompson revealed that he did not have a computer science decree, as he originally inferred.

Today’s businesses are in treacherous waters. Even the slightest misstep in negotiations or error in contractual language can cause tremendous damage to a business and its reputation. While some businesses choose to enter into a wide variety of transactions without the assistance of a lawyer, this is ill-advised. Quality legal counsel regarding transactions can be the difference that helps steer your business through dangerous waters of business transactions.

Source: law.com, “Corporate Directors Finding Themselves on the Firing Line,” Philippa Maister, July 9, 2012