A corporation is a representative entity, meaning the Board of Directors (Board) and company officers are charged with representing the interests of their shareholders and the organization. Many successful corporations leverage outsourced general counsel when it comes to maintaining business, as well as positioning the company for continued growth. Oftentimes corporations, through its board members and management team seek outside counsel on a range of legal matters, including corporate governance; from organizational structure, board of director oversight, to succession planning for the company. Overall, general counsel provides guidance to the corporation so they can consistently uphold their fiduciary duty on one hand and protect the corporation when there are claims/accusations of breach of fiduciary duty on the other hand.
This article will provide a general overview of corporate governance, including roles and responsibilities, in addition to the importance of corporate bylaws, management of Board meetings and preparation of meeting minutes, as well as risk management and mitigation.
The foundation for a corporation is its bylaws and governing documents. Bylaws create the structure for how business is maintained, be it through accurate corporate records, routine audits of governing documents and officers’ and committees’ performance – majority of the components of the bylaws are designed to promote overall growth and success of the corporation. General counsel can draft and/or review the bylaws and make proposed changes to meet legal requirements and to align company priorities with the business’ goals and objectives.
As part of its legal function, a corporation through its board has the legal authority to act primarily through applicable laws and as found in its governing documents which includes its articles of incorporation and bylaws. These bylaws (and board resolutions) help set up the legal entity and outline expectations of a corporation and its members.
Working with outside counsel provides an opportunity to assess priorities, collaborate with management, and implement process improvements in operations. Bylaws articulate the procedures and responsibilities of management, as well as the necessary regulations to maintain business and structure efficiently while remaining legally compliant. In contrast to a company’s articles of incorporation, bylaws do not need to be filed with the Secretary of State and are not a public document. Nevertheless, it is imperative that bylaws are regularly maintained and updated, as they are the foundation for any business and complying with current, relevant governing documents is essential for the successful operation.
When drafting corporate bylaws, companies and their counsel need to be aware of the legal requirements from state to state, as they vary. Below are some examples of provisions to be reviewed that can be customized and addressed within your corporate bylaws, that may need additional review by counsel to ensure they meet the needs of the corporation.
- Identification Information — Although this seems like basic information, companies must include the corporation’s name, detail whether the company is public or private, its principal location, as well as other office locations.
- Board of Directors— As the main governing body of the corporation, it is essential for the bylaws to include details of the Board structure, maximum and minimum number of directors, length of term, and operation of the Board, including the qualifications and duties of board members.
- Officers, Committees, Members and Shareholder Information — Outside of the Board, shareholders, officers, committees, and members are carefully selected as part of the organization. Within the bylaws should be a description of the membership, including the selection process, voting rights and procedures for disciplining, and removing members. Along these terms, bylaws can include election process, definition of function, roles, and responsibilities, and more.
Shareholders play a different role within the corporation as they are owners of the company who possess exchange assets within shares and company stock. Within the bylaws, shareholder information includes meeting schedule, dissemination of reports and information.
- Purpose or Statement of Purpose – This provision is specific to the understanding and goal of its founders, as it details why the company was founded and provides a base for current and future investors, officers, and partners to align with business opportunities and company values.
The statement of purpose should relay why the company was incorporated/created, how it sets itself apart from competitors and the industry, as well as who their primary client is and how they plan to serve their needs.
- Conflict of interest — Bylaws should also provide a procedure or mechanism for addressing conflict of interest within the organization. Establishing the process throughout the bylaws establishes a structure to process, but also is a proactive step to smooth and efficient processes.
- Amending bylaws — Bylaws need to be maintained and updated as needed as companies grow, objectives change and especially when facing organizational restructuring. It is imperative to assess and regularly audit the governing documents. Working with counsel can help the organization address the necessary steps and navigate the process on how to amend the bylaws, as well as the specific circumstances.
Board Meetings and Minutes
Another important function of corporate governance where outsourced general counsel can provide valuable guidance is to assist in managing and facilitating the annual and quarterly board meetings. Proper planning and organization are critical to the overall success of the board meeting process – this involves preparing the “Board Packet,” which typically includes an agenda or an outline for the meeting with additional relevant supporting documents such as reports related to items for discussion.
Of utmost importance is to ensure timely dissemination of the Board Packet which needs to be provided to the board and received several days, ideally a week out, to allow sufficient time for the board members to review ahead of the meeting. This is a guaranteed way to run board meetings efficiently and effectively.
As a comprehensive compilation of documents and data, these board materials are intended to address issues and propose solutions to the corporation’s top challenges, as well as lead to thoughtful debate during the meeting process.
Through collaboration, the board and management gain additional value when a board confers with and gains the insight of experienced outsourced counsel especially when it comes to considering what may lay on the horizon for the corporation and outlining strategic plans.
Post meeting follow-up is also integral to successful board meeting management as this step helps to summarize proposed solutions and provide action items for follow up and further discussion. Counsel can communicate with the members post-meeting to answer any questions and provide additional information needed on critical matters addressed in the meeting.
The legal insight provided by outsourced counsel when preparing and/or supervising the process of drafting meeting minutes, is a distinct advantage to ensure they are consistent and contain the correct level of detail. Because meeting minutes are defined as business records, general counsel is the best person to ensure they contain pertinent information. Should a court order force their production in proceedings that involve the corporation, executives or the board members, minutes serve as preservation of the board’s discussions and decisions during that meeting. When minutes are recorded appropriately, they can potentially provide evidence that the board discharged their duties properly.
Risk and Crisis Management
Companies rely on general counsel for guidance on complex and high stakes matters, like complaints and allegations of breaching their fiduciary duties to shareholders. General counsel is responsible for ensuring that company executives, management, and board members do not violate their fiduciary duties. This is initially addressed in the bylaws which outline duties and procedures to address infractions, alleged and actual. General Counsel will also conduct internal investigations and respond to federal or state inquiries regarding complaints of breach of a fiduciary duty.
Based on the findings of the investigation, general counsel will provide a legal roadmap to resolve the impending legal matter. At the conclusion of the matter, general counsel will conduct a post-analysis of the events or circumstances leading to the predicament. Finally, general counsel will develop a plan to address any risk factors in the company from policies and procedures to personnel to overall corporate goals and strategies.
The function of corporate governance has expanded over recent years having more legal implications than ever before, thus migrating the role away from corporate executives to corporate general counsel. The current role of general counsel often involves also acting as corporate secretary. As a result, the responsibilities of general counsel as the purveyor of corporate governance is recognized as the natural fit because of the myriad of legal issues that were previously managed by the company Chief Executive Officer who typically disseminated individual matters out to different outside counsels on an issue by issue basis.
Now, outside general counsel can be utilized and involved with the processes of the corporation from its inception and remaining an integral component to the success and longevity of the company. Counsel will assist with the formation of the company by drafting articles of incorporation to winding up and dissolving the company and all the legal issues in between.
In today’s market there is a great opportunity for a corporation to partner with outsourced general counsel to handle and support the corporate governance function. Whether there is a need to assist with the composition of the Board, to executive compensation, to providing guidance to the Board and executives on corporate strategy, to managing Board meetings including drafting meeting minutes, to ensuring the board fulfills its fiduciary duty or defend attempts to pierce the corporate veil, collaborating with outsourced general counsel will help.
We understand the importance of the role of General Counsel to provide the guardrails around the corporation to not only protect legal interests of the company but also the executives, the Board of Directors, and the shareholders. General counsel will provide practical, creative solutions and offer strategic proposals that will guide companies through complex, corporate, legal issues. In managing corporate governance and meeting the corporation’s other business needs, our Jacko Law Group team stands ready to provide specialized counsel to help fulfill this essential role.
Author: R. Shea Lea, Esq., Sr. Attorney; Editor: Alicia Bond, Counsel at Jacko Law Group, PC (“JLG”). JLG works extensively with investment advisers, broker-dealers, investment companies, private equity and hedge funds, banks and corporate clients on securities and corporate counsel matters. For more information, please visit https://www.jackolg.com/.
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