What is Corporate Governance and Due Diligence?

Governance means acting prudently and in accordance with the law. Where people and enterprise fail to do so, there are usually consequences. How do you ensure you know what you have to know and act on what you are liable to act, when you can not be at all places at all times?

The answer lies in efficient electronic systems to bring processes and knowledge of the enterprise together so that they become wisdom. Without the knowledge being stored and shared in the enterprise, any individual processes are meaningless and a liability to it’s officers or company directors.

Corporations and similar businesses are directed by the directors and officers. While enterprise itself in its own right may be liable for breaches of law and contracts, because they are directed by people, such people, typically officers and directors, are in most cases either held directly or indirectly personally accountable. This means that they are personally subject to litigation, fines and or penalties. Statutes and contracts law essentially apply in the same to manner to public and private companies, not for profit organisations, government and semi government enterprises and their officers. While as you would expect officers in Government enterprises as often immune from prosecution, they can still held liable in certain instances, particularly for liability under contract.

The more complex and the larger the enterprise, the more difficult it becomes to achieve compliance. While we all have seen many public cases of directors being liable such as in HIH and FAI Insurance, Onetel, WorldCom, there are events daily occurring where directors of those enterprises, lose their life’s endeavors. Directors and officers are held responsible regardless, for the actions or inactions of their employees and contractors that cause breaches of law or liability under contracts.

How does this affect me and my company?

We know that in some cases business must have risk management policies in place by law. For example most Occupational Health and Safety law requires risk identification, analysis and treatment of risk to be performed. Where business does not do so and an injury or death occurs, the director and or officers of the business and the enterprise itself are liable prima-facie.

Similarly, where directors of companies fail to act prudently and the company or its customers, suppliers, contractors or third parties suffer damage or loss, then actions for liability flow. Defences for these actions are limited in either in contract law or often where the action has been brought or under Legislation such as the Trade Practices Act or Corporations Law and most Occupational Health and Safety Law. These can be highly prescriptive and limited defenses, not to mention expensive actions to prove that no wrong may have even been caused by the enterprise or its officers.

It is not enough to ensure you know the legal scope of contracts entered into. It’s not enough that you know the laws pertaining to business and directors or that you have best practice such as ISO. The processes to identify these risks and liabilities must be defined, culturally embedded in staff and demonstrable at law.

Plainly then, systems and processes if already in place need to be integrated into a single management information system, accessible to key personal, intelligently and actively utilized for the benefit of the enterprise. Where there are no systems or they exist in part, careful analysis and process flows should be designed to examine voids. Once individual systems are then designed, only then can they be integrated into a holistic enterprise management system.