The structure of governance in any corporation is of key importance in terms of establishing responsibilities, rights and accountability within the firm. A strong corporate governance structure is one that clearly defines the company’s goals and objectives, specifies the rules and procedures for attaining same, and reflects the context of the industry’s social, market and regulatory environments.
Having this pyramid carefully vetted and consistently re-evaluated by an experienced corporate governance lawyer can help a company avoid a host of issues, including costly litigation and a potentially tarnished public image.
Failure to establish a good corporate governance structure, particularly as it relates to accountability, has resulted in a number of high-profile company collapses in recent years, the corporate financing scandals of Enron and MCI Inc. (formerly WorldCom) are prime examples.
More recently, the $265 million settlement reached by the Massey Energy Co. and the Massachusetts Pension Reserves Investment Management Board is an example. Announced late last month, the settlement stems from allegations of securities fraud by the coal company, which is now operating as Alpha Natural Resources.
The settlement involves just one of scores of lawsuits that were filed by the company’s investors and shareholders following a mine blast in West Virginia three years ago that resulted in the deaths of 29 miners. After the tragedy, it was alleged that the firm had made misrepresentations about its own safety record, therefore misleading investors and resulting in an artificial inflation of stock prices.
These alleged misdeeds weren’t uncovered until after the blast, when federal investigators began delving into the firm’s practices. It was at this time that they found hundreds of unreported safety violations.
This revelation caused stocks to plummet.
Massachusetts Attorney General Martha Coakely was recently quoted as saying that businesses have a responsibility to be honest with investors, and her office would continue its push to uncover breaches of this trust and protect public funds.
This issue has been one that has sparked the interest of numerous federal lawmakers in recent years, a number of whom are pushing for increased corporate regulation. One such effort in Congress that would have bolstered oversight and accountability of corporate boards failed. However, this isn’t the end of the issue, especially as long as these kinds of incidents continue to occur.
Companies can certainly lobby against those efforts, but self-policing is also going to be a major factor in ensuring those tougher standards aren’t enacted. A corporate governance attorney can help you:
- Set governance best practices, including implementation of practices that comply with SEC rules, the development of workable charters and handling of communications with stockholders and investors;
- Offer advice on public disclosure on matters of financial results, executive compensation, fair presentation standards and other public filings;
- Help you manage compliance with existing local, state and federal regulations (including the Dodd-Frank Act and the Sarbanes-Oxley Act);
- Formulate a strong defense for your firm in the event of a corporate compliance investigation.
In the case of the Alpha firm, the company has admitted no wrongdoing and was prepared with legal funds to settle the outstanding claims. It has also worked with federal authorities to improve internal safety standards (including retraining workers) and has re-aligned its corporate accountability structure. In the future, this should help the firm not only to grow, but to protect itself from further legal liability.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Mass., firm settle fraud allegations, Dec. 9, 2013, By Chris Reidy, The Boston Globe
More Blog Entries:
Sarbanes-Oxley Establishes Responsibilities of Corporate Boards in Massachusetts, Aug. 29, 2011, Boston Corporate Governance Lawyer Blog