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Peace of Mind

Events in recent months at Enron, Tyco and Worldcom have highlighted the importance of proper corporate governance. Ask yourself if your current corporate policies are enough. Will they protect you as...


Events in recent months at Enron, Tyco and Worldcom have highlighted the importance of proper corporate governance. Ask yourself if your current corporate policies are enough. Will they protect you as an individual and will they protect your company from liability? No company is immune from the possibility of an Enron disaster. This applies to both public and private companies, small or large.

A company without the right corporate policies faces significant legal and regulatory risks. Claims start to fly when a company suffers loss or damage due to the wrongful or unauthorized acts of its employees. The risks include crippling lawsuits, regulatory investigations, and loss of goodwill and personal liability.

I spoke recently with Chris Koressis, a partner with Toronto-based law firm Fogler, Rubinoff LLP (ckoressis@foglerrubinoff.com) who described the duties of Directors and Officers: “Directors and officers have a legal obligation to control the company. They must evaluate potential weak spots and see that effective corporate policies are in place to mitigate the risks. They must ensure that the company has adequate systems of internal control and accountability. And that it has effective compliance programs. Directors and officers have an obligation to see that the company upholds the highest standards of ethical behavior.”

If properly drafted and disseminated, says Koressis, corporate policies protect the company from liability. “Good policies serve as a defense to a lawsuit or governmental investigation. Good policies also give the company grounds to terminate employees that have breached its policies. Effective corporate policies must be carefully drafted to cover all the subject matter without leaving legal loopholes. At the same time, they must be understandable by all employees. Effective corporate policies must take into account the global nature of a company’s operations. The policies must also be flexible enough to deal with the culture and customs within which the company operates.”

Examples of subjects on which a company needs to have corporate policies are: compliance with laws; accounting; continuous disclosure; insider trading; stock options and compensation; records retention and destruction; ethics and business practices; corporate security; disaster recovery; health & safety; whistle blowing; unauthorized copying or use of intellectual property; confidential information and trade secret protection; purchasing; travel and corporate expenses; home office usage and corporate resources; sexual harassment; Internet and e-mail usage and privacy.

A firm commitment to a corporate code of ethics serves as a foundation for the activities of the company and its employees. It sets the standard of behavior and performance. It sends a strong signal to investors, employees, customers, suppliers and regulators that the company is serious about ethical behavior. It can forestall questionable practices and prevent the need for regulatory intervention. And it makes the company more attractive for financing and for mergers and acquisitions.

The following are seven steps your company should consider taking immediately:

Consolidate all existing policies;

Eliminate duplication;

Develop a standard format and method of organization for policies;

Create internal consistency among present policies;

Ensure that applicable legislation and regulations are adhered to;

Develop a process for the training of employees; and

Identify gaps in policy and amend or draft new policies.

Companies are well advised to assign the responsibility of drafting corporate policies to their legal counsel. Working with counsel to implement the policies and to set up an appropriate corporate compliance program is critical to avoiding an Enron like disaster. And it is relatively inexpensive “insurance”.

The integrity of an organization ultimately depends on the character of its employees, from the top down. Corporate policies will not prevent a dishonest officer or employee from engaging in fraud or other misdeeds. They will however make your company more attractive to its stakeholders. And as Koressis says, “they will assist a company in avoiding potential liability”.

Mark Borkowski is President of Mercantile Mergers & Acquisitions Corporation. He can be contacted at mercant@interlog.com


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