Medical Device Link.

Originally Published MX March/April 2004

FINANCE

To date, all of the corporate scandals that have received attention from the media, federal and state prosecuting attorneys, and Congress have involved publicly traded companies. The actions and misdeeds of publicly traded companies, which are more heavily regulated than privately held companies, affect more investors and therefore receive more attention.

However, a lack of government regulation or media attention does not mean that privately held businesses should ignore the corporate governance reforms that are affecting the operations of publicly traded companies. Listed below are five reasons why boards of privately held companies need to be concerned with corporate governance.

• More than half of the states have enacted, or are considering enacting, changes to their corporate laws that would affect privately held firms—including California (board member transaction disclosure and independence of directors), New Jersey (tampering with corporate documents by directors and officers would become a felony), Ohio (increased statutes of limitations for lawsuits against directors), New York, and Texas.
• Companies that have an effective corporate governance program will have an easier time in making the transition from a private to a public company because the infrastructure for effective board operation will be in place.
• Investors, including venture capitalists, will have a better impression of a company that demonstrates utilization of the business acumen of the board. Effective corporate governance results in directors being more involved in the company's operations.
• The ability to obtain directors' and officers' liability insurance may be influenced by a company's corporate governance.
• Certain lenders, vendors, and distributors have indicated that a company's corporate governance will be added to the list of items that these entities review when making business decisions.

Copyright ©2004 MX