Corporate Governance Awareness Vital for Future Proofing

What is corporate governance?  Our view is that corporate governance relates to an understanding of business.  Many directors do not fully appreciate the wide range of items that they are legally responsible for, once they are appointed a director.  It is this awareness and understanding of a director’s key role and responsibilities that plays a significant role in understanding “corporate governance”.

Why is corporate governance awareness a vital part of “future proofing” an accountancy business?

Accountants, who are conversant in all of the components of corporate governance, will be able to develop new “income streams” which will significantly contribute to “future proofing” the accountancy business.

Over the next couple of years, many SME businesses are going to be seriously looking at the opportunities to raise capital that are available to them via:

• Early Stage Innovation Company Capital Raising
• Crowd Sourced Funding Company Equity Raising
• Using S708 of the Corporation Act to Raise Capital

To raise capital in this manner, directors will need to be able to exhibit an understanding of “corporate governance” as it relates to company operations if they are going to be able to convince investors to invest in their companies.  Directors will need training and advice on performance of their duties to avoid embarrassment relating to some matters that might be brought to their attention by more experienced directors.

Business related matters that contribute to “corporate governance issues” could include:

• An understanding of the general rules of Board of Directors’ meetings relative to confidentiality and declaration of interest if a director and/or a member of his or her family is involved directly or indirectly in any matter being considered by the board.
• An appreciation of the need for directors to have carefully read the minutes of the previous meeting so that, if there are any matters that they disagree with, they can raise their queries with the chair or at the next board meeting.
• This includes ensuring that, if an individual director voted against a motion, that the director’s dissension is appropriately recorded in the minutes.
• Understanding the need for anyone, who has a responsibility to report to the Board of Directors, to ensure that the reports are submitted in accordance with the board’s timetable for reports to be submitted prior to the meeting so that they can be distributed to all directors.
• An understanding of “all things financial” and, if the director believes that he/she has difficulty in understanding financial reports, they should indicate this to the chair so that some extra training and explanations can be given to the director so that the director is able to fully participate in the discussions at the board table. Whilst directors are not required to prepare the financial accounts, they need to be able to understand the financial reports that are submitted.
• Being prepared to ask questions relating to reports submitted and discussions within the board meeting if the director does not understand a particular matter being discussed. This is a very important component of corporate governance; directors need to understand that they can fearlessly ask questions, so they have a clear understanding of the matters being discussed.
• Understanding financial matters then leads to the very important role that directors have to ensure that the company does not trade whilst it is insolvent.
• An understanding that ignorance of matters being discussed will not be accepted as an excuse for why a director agreed with a particular matter if there is a subsequent court case.
• Director’s responsibility includes reading the board reports prior to a meeting, so they arrive at the meeting with a clear understanding of what the reports indicated and they are in a position to ask any questions that they deem appropriate.
• Directors need to ensure that they read material relative to the company’s industry and to the markets in which the company operates, so they have a better understanding of the market place conditions relative to the company.
• Directors need to have an understanding of the key clauses of the Corporations Act that apply to the performance of their duties.
• If a director is uncomfortable about matters being discussed and decisions being formulated and is unable to agree with those decisions, then a director should seriously consider resigning from that Board of Directors. There have been numerous court cases in Australia that identified that not all of the board agreed on particular decisions but, unless those disagreements were clearly recorded in the Board of Directors’ minutes, and if the director continued to serve on that particular board, then the director’s opportunity to defend him/herself in a court is severely limited.
• Understanding the company’s culture and in influencing the ongoing development of the company’s culture.