C2RM… To Know More
Something Awesome Is In The Work
In today’s corporate world, the concept of Corporate Governance has attained substantial prominence for systematic and well-organized management of day to day corporate affairs and complying with legal and regulatory necessities.
It is universally known that nowadays, Corporate Governance is at the heart of the corporate management and has the power to dictate the success or failure of a company in so far as complying with the legal obligations, achieving business objects and ultimately reaching the targeted financial projections.
As a result, more and more companies are enunciating their Corporate Governance policies and procedures of its own delineating the protocols to be adhered for:
· The administration of the company affairs;
· Effective dispensing of company’s business operations;
· Dealing with the conduct of company personnel (e.g., Prevention of Sexual Harassment at work);
· Handling client management; and
· Complying with rules and regulations formulated by the government and regulatory authorities.
While formulation of the Corporate Governance policies and procedures is one side of the coin, numerous companies are despondently dwindling in austere execution of the Corporate Governance policies and procedures.
What is the reason for certain companies’ failure to maintain or comply with the Corporate Governance standards?
The fundamental reason for certain companies’ dismal performance in preserving and complying with the Corporate Governance standards and ending up paying hefty price for non-compliance in the form of penalties is either not having a legal department in the organization structure or engagement of inefficient personnel in the company legal department.
Certain companies blatantly ignore the importance of the legal department and engagement of qualified legal and compliance professionals on board to ensure effective and efficient compliance with the legal, compliance and regulatory requirements. They tend to be penny wise and pound foolish and fail to do the cost – benefit analysis.
Such companies, however, do not grasp the importance of legal department (which plays strategic character in companies’ compliance with legal and regulatory requirements) until they end up getting punished by way of penalty and facing court proceedings as a consequence of non-compliance with mandatory legal and regulatory requirements.
Why is it very important for a company to have legal department with qualified professionals?
We are witnessing numerous instances of companies’ failure to comply with the legal and regulatory requirements and frauds committed by certain corporations. As a consequence, most of the companies face hefty penalties and prosecution for violating laws and end up as defunct companies, some even defrauding banks, shareholders, creditors and the economy at large.
Recently, in a major crackdown, the Indian government declared companies (2.26 lakhs) as defunct companies for non-compliance with mandatory legal and regulatory requirements imposed on these companies by the law. This shows the magnitude of the consequences that a company has to face for ignoring the obligation of compliance with legal and regulatory requirements.
Most of these companies overlooked the consequences for non-compliance with laws as a result wrecked up disqualified to conduct its business operations and guilt less independent directors barred from acting as directors for no fault of them. It is evident that if these companies entrusted competent legal and compliance professionals, they could have avoided the embarrassment of garnering the status of defunct companies. Now, many among the disqualified companies are seeking relief and condonation from the government.
Further, Indian government is also intensifying laws to stringently deal with the companies continuously falling short of complying with the mandatory legal and regulatory requirements.
Considering all this, one cannot undermine the critical role that a competent legal department could play in ensuring compliance with the laws and regulatory requirements.
Role of Legal Department in formulation and Implementation of Company Corporate Governance and other polices:
An effective execution of the Corporate Governance and related policies involves two parts:
· It is very important to articulate strong corporate policies concerning Corporate Governance and other key protocols to ensure company complies with all of its legal, business and financial commitments.
· The primary aspect in formulating the policy should be to employ a team of legal and compliance personnel who would be competent and qualified.
· Such legal team will consult all the stakeholders involved (legal, business and finance team) and incorporate all the representations received from them in the draft policy.
· Legal team will review and fine tune the policies covering interests of all stakeholders and protecting company’s business interest and ensure that such policy is in line with the objectives of the laws of the nation.
· Articulating a strong Corporate Governance and other related polices will not by itself serve the objective for which such policies are enacted.
· Proper implementation of such polices is equally important to ensure that objective of the policies is accomplished in veracity and to ensure that such polices won’t end up as paper presentation.
· Legal and compliance team will play mammoth role in enunciation and austere implementation of company policies.
· Legal and compliance team will be responsible to ensure that:
1. Company policies are implemented in a well-organized manner to make certain that company is complying with all existing laws and regulatory regulations without fail.
2. All the personnel of the Company are complying with the company internal policies and procedures.
It is evident that the legal department is the knight in shining armor of the Company for articulating company polices and well-organized execution of such polices without fail aiding companies to comply with mandatory legal and regulatory commitments without default.
Functions of a legal department in a company from the Corporate Governance aspect:
The legal department of a company is responsible to:
· Make certain company is complying with existing laws and regulations without flop.
· Educate the company management about cutting-edge development of laws and consequences for botch to comply with such laws.
· Articulate company policies and procedures with the objective to inculcate the elements of accountability and responsibility into the organization workflow.
· Provide sound legal advice to the company and its personnel in relation to any legal and compliance transaction and guide them in right path to preserve clean Corporate Governance standards within the organization.
· Maintain all legal, financial and business records of the company up to date with clean and spotless information to prevent any violation of laws and leaving no latitude for any fraudulent deeds within the organization.
· Conduct workshops on the importance of compliance with the existing laws and regulations along with internal policies and procedures to all departments of the company.
· Build a robust mechanism to identify the fraudulent intent of any company personnel at grass root level and ensure that such personnel getting punished for bad vices and no longer working in the company or any other company.
Right mix of talent and experience:
· Most of the companies do not pay attention to the importance of employing competent and qualified legal professionals. This is a dangerous practice that needs to be changed to catch up with the ever changing landscapes of the legal and compliance field.
· As a consequence, such companies willingly or unwillingly one way or the other join the bandwagon of the default or defunct companies for violation of laws which is a bad omen for the reputation and business of such companies and the country at large.
· It is thus very important for every company to comply with legal and regulatory commitments to employ a legal / compliance department with right mix of talented and experienced professionals and allocate adequate funds to run the legal department without any glitches.
· Such team should service the companies in the best possible way to fulfil their legal and compliance commitments and salvage the company a lot of time, money and most importantly the humiliation from getting punished for violation of the laws.
It is evident that every company needs to employ well organized and equipped legal and compliance department to maintain the Corporate Governance standards mandated by the law. It is also responsibility of the government and legal fraternity to educate companies about the prominence of the employing good Corporate Governance practices.
No company should ignore the strategic role that the legal / compliance department will play in a company’s ability to successfully comply with the laws and regulations of the nation and effective implementation of company’s internal and external policies and procedures.
To conclude, a legal department comprising of competent, talented and qualified professionals in the armor of company to guide the company in right direction and ensure that company complies with all relevant laws and salvage the company from the humiliation of facing the punishment for non-compliance with violation of laws.