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Risk Mitigation Through Good Corporate Governance

Risk Mitigation Through Good Corporate Governance

December 29, 2017Virtus LawNo CommentsCategories: Articles, BusinessTags: Business Law, Corporate Governance, Risk Mitigation

Risk.

We can say it’s just a part of doing business, but it’s certainly a part we’d like to minimize. One way to lower risk and reach the highest level of mitigation possible is through good corporate governance. And good corporate governance can be achieved by strategic advanced planning with the help of legal experts.

Corporate Governance

First, corporate governance is literally the way a corporation governs itself. In other words, the company employs certain methods to institute policies and rules, then ensures employee compliance at all levels. “Well-executed corporate governance should be similar to a police department’s internal affairs unit, weeding out and eliminating problems with extreme prejudice.”

Risk Mitigation

Risk mitigation, also known as risk reduction, is the “systematic reduction in the extent of exposure to a risk and/or the likelihood of its occurrence.”  Identifying potential risks is important, so the company knows what steps to take to lessen exposure and liability. Some common risks related to corporate management include failure to assess potential risk, inability to form and implement policies and procedures, and reckless behavior on the part of management.

What can a company do, then, to reduce risk?

First, management should determine the type of governance needed, depending on factors likes the business structure and size of the company. Then, formal procedures and guidelines setting forth requirements for ethical behavior and accountability should be developed and implemented, with a close eye kept on employee compliance.

Pitfalls of Poor Governance

There’s no question that a company’s ability to develop and implement internal rules, regulations, and policies may reduce risk and liability. When internal procedures don’t exist or are not enforced, a company could go down in a flurry of scandals, lawsuits, defective products, bankruptcy filings, and criminal investigations. Even if the owners or board members escape personal liability, the lost investment and the impact on a person’s reputation could take years to overcome.

Reduce Your Company’s Risk

The experienced business attorneys at Virtus Law have what it takes to help you maximize risk mitigation through effective corporate governance. Please contact us by calling 612.888.1000 or emailing us at info@virtuslaw.com. Our main office is located in Minneapolis, with other offices located in Edina, Mendota Heights, and Red Wing.

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