Corporate Governance Advisory for Conducting a Risk Assessment

The first step is to examine the certificate of incorporation, bylaws, shareholder agreements, voting arrangements, stock records, board resolutions, and committee materials. Under New York BCL § 701, the business of a corporation is generally managed under the direction of its board, subject to statutory exceptions and qualifying provisions in the certificate of incorporation.

The review should look for inconsistent voting thresholds, outdated delegations of authority, unclear approval procedures, and provisions that no longer reflect the ownership structure. Companies preparing for an investment, acquisition, or restructuring may incorporate this work into broader corporate due diligence.

Corporate records should show how significant decisions were authorized. BCL § 624 requires New York corporations to maintain specified books and records, including complete and correct books and accounts, minutes of shareholder and board proceedings, and records containing shareholder information.

A governance review can compare those records with major actions taken by the corporation. Equity issuances, financing transactions, executive appointments, acquisitions, dividends, and related-party transactions may warrant particular attention. Incomplete records do not automatically establish liability, but they can make it more difficult to establish what was approved and how the corporation reached a decision.

A company should also identify who has authority to sign contracts, approve expenditures, appoint personnel, negotiate financing, or commit the corporation to significant obligations. BCL § 715 addresses corporate officers and allows officer authority and management duties to be established through the bylaws or, where the bylaws do not address them, by the board.

Unclear authority can create problems even when the underlying transaction makes business sense. Reviewing governance policies alongside bylaws and board resolutions can help determine whether internal procedures reflect the company's formal allocation of authority.

A risk assessment should consider whether board procedures support informed decision-making. Meeting materials, minutes, resolutions, committee records, and documentation of professional advice may help establish what information directors considered before acting.

The analysis should not assume that complete minutes automatically protect directors or that incomplete minutes automatically establish a breach of duty. The relevant question is whether the decision-making process and director conduct satisfy the standards that apply to the particular circumstances.

Transactions involving a director with a financial or other interest require closer review. Under BCL § 713, a transaction is not automatically void or voidable merely because a director has an interest in it. The statute addresses disclosure and approval by disinterested directors or shareholders and provides a fairness standard in circumstances where the specified approval requirements have not been satisfied.

A governance assessment should therefore examine how the interest was disclosed, who participated in the vote, whether the required approval occurred, and whether the transaction was fair and reasonable to the corporation when that standard becomes relevant.

Closely held corporations may rely on negotiated arrangements that allocate voting power or restrict transfers of shares. A governance assessment should determine whether those arrangements remain consistent with the corporation's governing documents and current ownership structure.

Changes in ownership, financing, succession planning, or management can make older provisions difficult to apply. Rather than assuming the same governance controls remain appropriate indefinitely, companies can review them when significant corporate events change the relationship among shareholders.

Recordkeeping also affects shareholder rights. Under BCL § 624, qualifying shareholders may inspect specified corporate records after satisfying the statute's requirements. Certain inspection rights depend on a written demand and a purpose reasonably related to the shareholder's interest as a shareholder.

A corporation should have a process for receiving, evaluating, and responding to record requests. Maintaining reliable ownership records and meeting minutes before a dispute develops is generally more effective than reconstructing the corporate history after competing shareholder positions have emerged.

Public companies may face federal securities disclosure and internal-control requirements that do not apply in the same way to an ordinary private corporation. Companies in regulated industries may also face federal obligations tied to their particular activities.

The same approach should be used for internal reporting and whistleblower procedures. Instead of assuming that one federal framework governs every New York business, counsel should identify the statutes and regulations triggered by the company's actual operations.