Corporate Governance

Corporate governance, a set of processes which includes laws and the corporation’s policies, determine the way a corporation is managed. Corporate governance is the term which makes a corporation responsible to its stakeholders by managing its goals and objectives to meet the requirements of the stakeholders. Stakeholders for a corporation can include not only its shareholders, Board of Directors, and executive management, but also its employees, customers, lenders, suppliers, regulators, and the community that it serves. Corporate governance generally means that the corporation must deal with the accountability issues including its fiduciary duty to its stakeholders when implementing its policies and procedures under the direction of laws, regulations, its own articles of incorporation, and bylaws. The purpose of laws and the corporation’s own articles of incorporation and bylaws is to ensure the corporation acts responsibly to protect its stakeholders. Because of recent corporate scandals, corporations have been more mindful of corporate governance issues. US Securities and Exchange Commission has a complex set of regulations for publicly traded corporations require ongoing compliance for corporate governance. The last couples of years, Sarbanes-Oxley regulations directly affect larger publicly traded companies but increasingly have an indirect affect of the smallest corporation. As a consequence, corporations increasingly are using the services of external providers to help it meet the many corporate governance issues it faces, including the conduct of the important annual meeting for both the shareholders and the Board of Directors.

Why is an annual meeting important for corporate governance purposes?

In corporate law a doctrine, the internal affairs doctrine, says that the internal affairs of a corporation will be governed by the corporate statutes and case law of the state in which the corporation is incorporated. Each state’s statutes and case law prescribes different remedies and actions for all kinds of the corporation’s activities including voting rights, distributions and the obligations of management. The external affairs of a corporation, such as employment and tax liability issues, are governed by the state and federal laws. Other issues governed by state and federal law may include: contracts, mergers and acquisitions between the corporation and other entities and sales of its securities to third parties. In addition, the internal affairs doctrine for each state requires that a corporation adopt a set of bylaws that govern its actions. These bylaws are the document that drives the actions of the Board of Directors who are responsible for setting the strategic direction of the corporation and hiring management to manage the corporation. One issue the bylaws usually mandate, based on state law, is an annual meeting of the shareholders, where certain issues are presented to the shareholders.