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Corporate Governance Helps Limit Business Risks

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By John Sier, Principal, MST Lawyers

 Corporate Governance is often – mistakenly – thought about as ticking boxes or ”corporate correctness”.

But what it is really about is optimising the performance of companies and mitigating the chances of individual directors becoming personally liable for company debts, being exposed to fines and going to jail.

It can be tempting to dismiss corporate governance as being only applicable to the largest ASX listed companies.  But recent cases in the courts have shown that these lessons can be just as relevant even for $10million private companies.

Some of the questions to consider on the performance improvement front are:

  • Can your board chairman ever be too close to your CEO?
  • How much do your directors need to know about your business operations?
  • What are some of the hard questions your board should be asking management?
  • When is it ok for directors to take a back seat and rely on the experts?
  • How to decide when a risk is too great?

Some of the questions to consider on the personal risk front are:

  • How well are we tracking our cashflow?
  • What involvement does our board have in ensuring workplace safety?
  • Are our board decisions always made for a proper purpose?
  • Are any of our directors also on the board of our customers or suppliers?

Then there are the Good Governance Principles which are so strongly recommended by the ASX that listed companies must either abide by them or explain to their shareholders why they don’t.

These Principles include:

  • The best way to make up a company’s audit committee, remuneration committee and risk committee – who should be on them and who should not.
  • The desirability of monitoring and evaluating board performance.
  • Proper recognition and management of risk.

An audit of your company to identify the potential for improved performance in areas of corporate governance could be what is needed to hit the next level.  That same audit can highlight any risks that, if not addressed, could otherwise lead to serious personal consequences for those at the top.

If you believe you could benefit from a Corporate Governance audit, please do not hesitate to contact John Sier by email or call him on +61 3 8540 0200.