Corporate governance is an important topic for any business, but it can be especially important for new startups looking to secure investment funds. Additionally, it’s also a key point for established private companies that are looking to go public. The reason for this is investors place a great deal of importance on effective corporate governance when deciding to buy shares from your organization.
Why Corporate Governance Is Important to Investors
Ultimately, investors want to be sure they get a return on their investment. As such, they need to be reasonably certain that your company is safe to invest in. That means your company needs to be stable, reliable and characterized by a high level of integrity. Effective governance helps ensure all of those.
For investors, this is particularly important since there is a separation between ownership and control where corporations are concerned. Shareholders may own the company, but managers control the day-to-day operations. Having effective governance policies in place helps ensure the decisions made by management align with company goals and shareholder interests.
Governance Principles to Remember
Solid governance increases investor confidence. Some of the reasons for this include the following.
Equal recognition
Corporate governance policies should ensure that each shareholder has a voice at annual meetings, no matter how small their ownership in the company may be. If investors can’t be confident that their desires will be recognized by the company, they are less likely to feel confident in investing.
Minimize conflicts of interest
Governance also serves to minimize conflicts of interest on the part of directors and others in the company. Company leadership should be encouraged to uphold their fiduciary duty to the company and its owners, and effective policies help accomplish that.
Uphold accountability
In terms of what can help minimize conflicts of interest, accountability is of utmost importance. Corporate policies should encourage reporting, transparency, and integrity on the part of those who manage the company and its resources.
Accountability is not only vital to make sure both the organization and its shareholders see profits from the company’s operations, but it also minimizes liability. With a lower risk of legal problems, the company’s revenue is safer and its public image more secure.
Improving Corporate Governance
There are many ways to improve your corporate governance in a way that will help investors be more confident in your company. Some basic tips include:
- Make sure board members don’t have a conflict of interest (such as by being separate from your CEO and other executives).
- Have strict policies on how payment is handled and reported.
- Set procedures for board meetings to make sure shareholders are represented.
- Select board members who are able to devote enough time to your company.
- Keep pertinent regulations in mind when designing procedures and policies.
On that final point, retaining legal counsel can help you make sure your corporate governance is both effective and in line with all relevant laws. An attorney can help you design policies that promote accountability and transparency while also helping you keep on top of the numerous duties you need to attend to in your organization. The end result is a more reliable corporation to which investors can feel more confident entrusting their funds.