Understanding Fairness In Corporate Governance

The main goal of corporate governance is to establish a system of practices and rules by which a company operates and to build that system into the DNA of the business. Good corporate governance aligns stakeholder interests around the fundamental principles of accountability, responsibility, transparency, and fairness.

Adherence to these principles and other related ones, like integrity and sound judgment, helps the business operate ethically, preserve its reputation, and remain financially viable.

In this article, our attorneys offer some perspective on one of the key corporate governance principles: fairness. We base these brief thoughts on years of experience acting as outside general counsel to Colorado businesses on corporate law, compliance, employment law, contracts, and more.

What Is Fairness?

In corporate governance, fairness refers to the treatment of all those with interests in the company. It means protecting the rights of shareholders and ensuring fair treatment of the company’s various stakeholders, including:

Directors and officers
Employees
The community in which the business operates
Public officials and entities with which the company interacts.

One way to think of fairness is this: fairness is about avoiding any behaviors or policies that show unjustified favoritism toward one or more stakeholders or shareholders.

Why Is Fairness To All Stakeholders Important?

Corporations exist to benefit shareholders and those who run the company. The primary benefit is money, which flows from the company’s products and services. The better the company performs, the more satisfied the stakeholders are.

The fairness principle has a significant effect on company performance. When stakeholders know they are being treated fairly, it’s easier for them to trust each other and believe in their work. Fairness allows the corporation to run smoother in several respects:

Relationships between management and employees are positive and healthy
Stakeholders tend to engage and take more accountability for their actions
It helps the company earn the trust of the community as well as local and state leaders
Shareholders genuinely have a voice proportionate to the number of shares they hold
Stakeholders become more likely to comply with and reinforce company policies

Consequences Of A Lack Of Fairness

Unfair treatment of stakeholders can eat away at the company’s fabric over time. Other corporate governance principles, such as accountability, transparency, and responsibility, begin to erode. Eventually, the lack of fairness can have a negative influence on the entire corporate governance system, resulting in issues such as:

Corruption
Shareholder lawsuits
Negligence
Fraud
Instability
Insolvency

Responding To Allegations Of Unfair Treatment

Since fairness is the result of a company’s structure and culture, it’s usually advisable to turn to outside counsel when facing alleged fairness problems. Outside counsel is more capable of viewing the situation objectively and without the fears that employees and other stakeholders may have about confronting the issue.

Get Corporate Governance Advice From Seasoned Colorado Lawyers

Hackstaff Snow Atkinson & Griess, LLC is available as outside general counsel advisers to corporations based in Colorado or elsewhere but with operations here. Our attorneys have decades of experience in all aspects of corporate law and can advise you on virtually any corporate governance issue. Contact our Greenwood Village office at 303-534-4317 or send us a message.