Do You Know How a General Counsel helps Manage Corporate Governance Risks? – Part 2 of 2

In Part 1 of this series, Do You Know How a General Counsel helps Manage Corporate Governance Risks?, I defined the terms corporate governance and general counsel.  I also provided the first of four tips on how a GC can help manage corporate governance.

Here are the remaining three tips: 

  1. Keeping Governance Documents Current.

As a company grows, it may be prudent to amend its corporate governance documents.  At the outset, it usually makes sense for start-up companies to have simple capital structures and to require unanimity for key decisions. Amending the Articles of Incorporation to authorize additional classes of shares opens the door for greater capital investment. Amending Bylaws or Operating Agreements to permit majority voting and to ease meeting notice requirements streamline decision-making.

  1. Keeping Execs out of Jail via Regulatory Compliance.

“Demonstrating the importance of full and accurate disclosure, a Chicago commercial real estate developer faces a maximum sentence of 230 years in prison for misrepresenting his company’s finances. After a two-week trial, on February 24, a jury found Laurance Freed, president of Joseph Freed and Associates LLC (JFA), guilty of bank fraud, mail fraud, and false statements to a financial institution.  Caroline Walters, vice president and treasurer of the company, pleaded guilty in early February to making a false statement to a financial institution.  She faces a potential sentence of 30 years in prison.” – By Lauren Cafferty Mahaffey of McGuireWoods on 3/3/16.

  1. Succession/Exit Planning.

A strong management team is an essential ingredient of any good company. This is especially true when it comes to setting the company valuation for purposes of sale or investment. A business-savvy GC is a component of a strong management team, and with a working knowledge of the business structure, can also play a role in constructing and updating the company’s succession plan.

A Succession Plan identifies the key roles at a company and gives top management a vehicle for developing the company’s talent. The Succession Plan should also include a Business Continuity Contingency Plan.  This is vital in companies where only one person has been the face of the company.  The BCCP must identify all of the company’s key stakeholders (customers, suppliers, employees, etc.) and must assign someone on the management team to each stakeholder.  Those people must then be introduced to the stakeholder as the “owner” of that relationship. This will help avoid disaster if the company’s public face suddenly disappeared.

A GC can also help ensure that the owners of a closely-held company have an up-to-date, properly funded buy-sell agreement.

Risk Management Recommendation:

Have you had a conversation with a veteran GC that knows your industry and is licensed to practice law in your state?  If not, please schedule one.

I am blessed with a network of GCs and specialists across the country.  Please permit me to tap that network on your behalf to get you connected with a GC who is a good match for your needs.

Michael Oswald

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2019 Michael S. Oswald

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