“Governance” defines the model for interactions between stakeholders in a business relationship across the life cycle of their economic relationship. Governance reflects the autonomy of the parties to mutually define how they wish to interact. Governance documentation serves as a tool for protecting the deal benefits, limiting risks and avoiding surprise outcomes. Governance is essential for development and extension of any business venture. Failed governance leads to litigation and loss of employee morale, sunk capital, future profits and switching costs. Good governance can improve enterprise value and sustainability.
The parties’ autonomy expressed in a mutually agreed governance model must nonetheless fit within legal and regulatory frameworks mandating compliance actions.
- Organizational Governance. In enterprises with indefinite duration, “governance” is a long-term framework that refers to the legal and operational framework for decision-making and actions among shareholders, boards of directors, employees, lenders and those with a financial stake.
Typical governance agreements:
Certificate of incorporation or organization
• Special preferences
• A shareholders’ agreement
• By-Laws
• An operating agreement
• A stock option plan
• Other specialized arrangements
• - Voting trust agreements
• - Proxies
Venture finance
• Ownership rights (including anti-dilution formulas, vesting periods and associated performance metrics, early termination “cliffs”, stock option pools)
• Redemption rights that force a liquidity event
• Board representation and observer rights
• Veto and super-majority
• Exit strategies
- Governance of Ongoing Business Relationships. In ongoing business relationships, “governance” is an intermediate-term framework that refers to the legal and operational framework for managing collaborative tasks, including breakdowns in performance and loss of intended benefits across an intermediate term. This is usually defined in an annex to the main services agreement and ancillary documents as the relationship evolves.
- Governance in Spot-Market Transactions. In spot-market purchase-and-sale agreements, the duration of any “governance” framework is short. This governance relationship is usually defined by the traditional contract and tort issues and is usually detailed in a single section of a purchase agreement (typically entitled “Dispute Resolution”).
Codes of Conduct
• Applicable to employees, contractors and flow-down subcontractors
• Compliance with laws
• Compliance Officer role, outside normal hierarchy
• Civil rights and whistleblower protections
• Avoiding corruption and bribery
• Training
• Reporting
Governance or Performance framework across life cycle of an ongoing business relationship
• Service quality metrics
• Continuous process improvements
• Checkpoints across organizational ladders
• Flowdowns
• Mediation of disputes
• Termination phase
• Post-termination phase
• Reporting, audit and controls
Traditional contract and tort issues involving:
• Due diligence disclosures
• Representations and warranties
• Covenants
• Default
• Breach
• Remedies
• Limitation Of Liability
• Dispute Resolution
Dispute Resolution may include:
• Choice of law
• Choice of forum
• Judicial action
• Arbitration structure and procedures
• Equitable remedies
• “Corporate divorce”
In our corporate and commercial practice, we advise clients on designing and implementing legal frameworks for corporate governance and business relationship governance. While applying traditional legal frameworks for contract breaches, we promote governance structures targeted towards minimizing the duration and impact of ongoing breaches and lead towards continuing development of improvements, if feasible, and reasonable reliance.
- Supply Chain Management. We assist clients in developing internal policies relating to the governance of their supply chains, their roles as employers and their compliance with applicable privacy, data security, green IT and other generally applicable industry norms and regulations. With emerging issues such as energy efficiency, sustainability, and carbon credits, we help clients identify and develop associated policies to extend their emerging internal governance policies to their supply chain.
- Retained Organization Managing the Supply Chain. While the outsourcing contract focuses on the supply chain, we also help clients in the governance process with respect to the enterprise customer’s retained responsibilities and the governance of its retained organization.
- Renegotiation. Everything changes with 20-20 hindsight. As many relationships reach maturity, they may need recalibration to reflect changes in laws, regulations, business conditions, finances, markets, technology, organizational development and product design. We assist clients in exploring and achieving non-contentious solutions to disputes in business relationships.