Govern Your Business: Why Meaningful Corporate Governance Policies are the New Success Metric

This article originally appeared in the September 2009 issue of Smart Business Philadelphia magazine.

Corporate governance is more than just a means to comply with legal requirements; it’s taken on a whole new role in whether a company will be profitable or even survive. Today’s focus on a robust set of corporate policies and procedures is paramount to maintaining the health of businesses as they emerge from the recession.

According to Richard Snyder, director in the audit and accounting group at Kreischer Miller, if businesses aren’t already diligent about their corporate governance, now is the time to get there.

“Set a strong tone from the top down with the leadership of the company,” he says. “That will really add value as the company moves forward and looks to grow in the future, especially coming out of these current economic times.”

Smart Business spoke with Snyder about how business leaders can take the reins to increase their company’s value, competitive outlook and security.

What issues do stakeholders need to pay attention to right now concerning corporate governance?

In light of the recession, it’s time for boards and upper management to take a new look and address areas of concern in their business. This means tailoring their governance structure and processes to the current needs of the company, as they may have changed due to adjustments in the company’s current business outlook.

Many businesses have struggled over the past several months. Some have downsized, sales may have decreased and revenue streams may have changed. Some companies may be reinvesting in themselves or looking for new avenues to increase revenue. They also might be going through significant cost-cutting measures.

You want to make sure the internal controls and the policies and procedures are still being adhered to by all members of the organization.

Another area to revisit is the composition of your board, the competencies of the board members and whether they add value to the company. Family-owned businesses may want to add outside board members independent of the family to bring stronger competencies to their business.

Companies should re-evaluate the effectiveness of the internal controls currently in place. This includes ethics policies, such as whistleblower policies, corporate code of conduct and conflict of interest. Having these types of policies and procedures in place helps to set the tone from the top.

What are the consequences for companies that do not make governance a priority?

These companies could end up missing valuable opportunities as the economy slowly rebounds in the next year or two. They should take the time to look at the business risks they face, make changes to their business operations and add quality people to their boards and upper management.

It’s a great opportunity to improve the board composition or find new, talented C-level executives in the pool of talent that’s currently available.

Past scandals with certain public companies really demonstrate the need for strong governance and the need to have strong policies and procedures in place to help prevent individuals from overriding corporate controls. It does depend on the makeup of the company, however. Is it a family-owned business, or is it a public company?

Family-owned businesses may have different priorities than a public company that dictates what ownership may want to achieve. But there’s always value in a strong board of directors and having independents present who can add value and bring issues to the table that they encounter outside of the company and in other markets.

What role do owners, upper management and boards play in governance?

One of the key aspects is making sure that owners, shareholders, boards of directors and upper management have their goals aligned. They need to implement a short-term and long-term strategic plan for the company.

How should companies involve their accountant in governance?

The auditor must remain independent from a company but can have a significant role in reporting to the highest level of corporate governance within a company, which may be a board of directors or a subcommittee of the board of directors, such as an audit committee. Aside from financial statements, there are various communications required by auditors that should be reported to the board of directors. The auditor also plays a role in making sure the financial statements are completed in accordance with appropriate accounting standards.

Auditors and outside accountants can also add value by making suggestions concerning the board composition, for example, whether it makes sense to add independent outside members.

It’s important that auditors meet with audit or finance committees, board members and owners before an audit begins so that there’s an understanding as to the expectations and the timing of the audit. They need to address any questions that the committee may have.

The auditor should inform the board and audit committee if there are any new changes in accounting standards and what the impact to the company may be. Lastly, they should review with the committee the results of the audit at its conclusion.

Related: