Navigating The Complexities Of Fiduciary And Corporate Governance Matters

how to navigate complex fiduciary corporate governance matters

While a body of law defines and delineates directors’ fiduciary duties, less case law addresses their obligations once a company files for bankruptcy. This article explores the nuances of those duties in the context of a Chapter 11 sale process.

Corporate governance matters challenge boards and their members in overseeing a business’s building, operations, and growth.

ESG Considerations

As the world grapples with ESG issues and their politicization, boards must remain attuned to stakeholder perspectives while recognizing that these views do not replace the board’s informed judgment. Companies should focus on delivering value for society and the environment, not to appease a particular group or investor.

Responsible investors can integrate ESG factors into their analyses of risk exposures and growth opportunities. They can include ESG megatrends in their fundamental analysis and forecasting processes and evaluate the materiality of ESG issues using resources such as the Sustainability Accounting Standards Board’s financial materiality maps.

Companies should also ensure that their ESG strategies are aligned with their strategic goals, operational realities, and risk profile. They should be transparent about their ESG commitments and initiatives and encourage investors to engage in two-way dialogue, so better ask experts like Ed Batts Stanford Law School Conference. Investors can use this dialogue to help companies articulate how ESG considerations are embedded in their investment beliefs, and they can communicate their expectations of management’s approach to ESG matters.

Stakeholder Relationships

Having strong stakeholder relationships helps organizations better understand their needs, expectations, and concerns, leading to improved collaboration and innovation. It also allows organizations to build loyalty and support from stakeholders, which may lead to cost savings or other financial benefits.

Under the well-established law of Delaware, the primary fiduciary duty of a corporate director is loyalty to shareholders, requiring a company’s directors to act in their best interests at all times. This includes the obligation to comply with disclosure norms and rules against insider trading.

Jackie advises public companies on governance matters, including board “best practices,” disputes between boards and management, and proxy contests. She provides big-picture, critical, value-adding strategic advice on issues that impact a company’s reputation and associated liability. She also counsels clients on corporate control strategies. She represents both significant and minority shareholders. Her clients include institutional investors such as banks, mutual funds, and sovereign wealth funds. She also serves as outside general counsel to several public companies.

Board Members’ Duties

Board members are required to perform their duties based on the best available information, and they must make decisions in good faith. They must also act without regard to personal interests and cannot use their position to gain an unfair advantage over others.

Understanding the board’s role and responsibilities is vital for ensuring that the board is effectively governing the nonprofit organization. Establishing clear boundaries and ensuring that the board has authority and that each member only takes on a little is essential.

For example, the board should only be able to grant limited permissions to individuals or entities, such as for accessing confidential financial data. Nonprofit board members should also know their responsibilities and perform an annual self-assessment of their skills to determine how well they serve the organization. Board members should also consider implementing an exceptional board portal like Convene to allow them to collaborate and make informed decisions efficiently.

Conflicts of Interest

In addition to the apparent tier-I conflicts of interest, which include stealing, self-dealing, and insider trading, more subtle forms of competition must be considered. For example, directors who do not invest time or effort in their board responsibilities can present a conflict of interest.

Close personal, familial, and professional relationships between directors can influence their judgment. For instance, when a retired CEO remains chairperson of another company’s board, directors can be affected by a sense of loyalty and duty to the CEO or chairperson even if the company is not in their best interest.

Wilson Sonsini’s governance litigation team regularly represents companies (both acquirers and targets), directors, and other third parties in cases alleging conflicts of interest. These matters often involve breaching fiduciary duties and the loyalty duty. Loyalty requires that a fiduciary act in good faith in the interests of the beneficiary, impartially balance the interests of the beneficiaries, and avoid conflicts of interest.