Corporate governance plays a crucial role in ensuring the transparency, accountability, and overall success of businesses. In Quebec, the Business Corporations Act (the “Act”) provides some general guidelines which can be used to establish corporate governance practices.
In this blog post, we will explore some essential corporate governance best practices that align with the Act, enabling businesses to foster trust among stakeholders, enhance decision-making processes, and drive sustainable growth. Our business law firm can help you implement strong corporate governance practices. Book a strategy session with us today.
What is Corporate Governance?
Corporate governance can be thought of as a rulebook guiding how a company is run. It helps ensure the corporation is managed responsibly and fairly, which includes implementing a board of directors, transparency guidelines, and honesty about the business’s performance. More than that, it includes treating everyone in the company, like the shareholders and employees, fairly.
Why Should Your Business Care About Corporate Governance?
As either a business owner or an important stakeholder in a company, you should care about corporate governance matters for a few reasons. First, it helps build trust with shareholders, investors, and other stakeholders. Second, having a rulebook in place guiding decisions and behaviours, reduces the risk of fraud, mismanagement, and legal issues, enhancing the company’s reputation and attracting investments. Corporate governance also improves decision-making, operational efficiency, and long-term sustainability, leading to better performance and overall success.
What Are Some Best Practices For Corporate Governance Matters?
Let’s take a closer look at some of the corporate governance best practices.
Best Practice #1: Composition of the Board of Directors
The Act requires that corporations have a board of directors (a “board”). It’s important to elect members that will create a well-balanced board. This means electing directors with diverse skills, expertise, and backgrounds. Under the Act, if the corporation is a reporting issuer, the board is composed of not fewer than three directors, at least two of whom must not be officers or employees of the corporation or of an affiliate.
Consider implementing term limits to promote board refreshment and encourage the infusion of new perspectives. Additionally, having a sufficient number of independent directors is essential to maintain objectivity and avoid conflicts of interest. However, where a board member may have an interest in a corporation’s transaction with a third party, having a pre-established disclosure procedure in place allows the members to maintain transparency.
Best Practice #2: Implementing Board Committees
Establishing board committees can enhance the efficiency and effectiveness of governance processes. These committees can include those such as audits, compensation, and nominating committees. They assist the board in fulfilling its oversight responsibilities in specific areas, such as financial reporting, executive compensation, and board nominations. Implementing clear charters for these committees and ensuring regular reporting and interaction with the board are key elements of effective committee governance.
Best Practice #3: Director's Duty of Care and Loyalty
Directors must act honestly, in good faith, and in the best interests of the corporation which stems from the Act and the Civil Code of Quebec. They must exercise a reasonable degree of care, skill, and diligence when making decisions. This includes staying informed, actively participating in meetings, and thoroughly analysing key issues. It is also crucial to avoid conflicts of interest and disclose any potential conflicts promptly.
Best Practice #4: Shareholder Rights and Engagement
The Act emphasizes the rights of shareholders. Promote open communication channels with shareholders, providing them with regular updates on company performance and significant developments. As required by the Act, this includes conducting annual general meetings to allow shareholders to exercise their voting rights, express their concerns, and review the financial statements of the company. Encouraging shareholder engagement builds trust and fosters a strong sense of ownership among stakeholders.
Best Practice #5: Disclosure and Transparency
Transparency is a cornerstone of good corporate governance. Disclose relevant information to shareholders and the public, including financial statements, annual reports, and material changes in the business. Compliance with applicable disclosure requirements is crucial for maintaining transparency and ensuring the fair treatment of stakeholders. Implement strong internal control systems to safeguard the accuracy and integrity of financial reporting.
Best Practice #6: Compliance with Legal and Regulatory Obligations
Businesses must remain compliant with all legal and regulatory obligations outlined in the Act and other relevant legislation. Regularly review and update corporate policies, practices, and procedures to ensure alignment with the Act's provisions. Engage legal professionals to guide on compliance matters, helping to mitigate legal risks and liabilities. Contact us now to get started.
Conclusion
By aligning corporate governance practices with the Act, businesses can strengthen their overall governance framework, promote ethical behaviour, and enhance stakeholder confidence. Adhering to best practices such as a well-structured board, effective committees, and transparent disclosure not only ensures compliance but also contributes to long-term success. By prioritizing good corporate governance, businesses can build sustainable relationships with shareholders, foster innovation, and maintain a competitive edge in today's dynamic business landscape.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.
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