Corporate Governance and the importance of Board Meetings

Corporate governance in Malta, just like in other larger jurisdictions, has become a common theme of conversation due to the heightened importance it deserves in today’s business world.

In theory, corporate governance is important as it supports organisations with reaching their targets / goals, take important relative decisions for which they hold themselves accountable, manage and control risks and assure compliance. Good corporate governance should be an essential part of a company’s way of doing things, a culture, a frame of mind, which unfortunately is very much neglected or not given the amount of importance it deserves in many organisations.

Theorists define it as ‘a set of rules / principles that define the relationship between stakeholders, management and the board of directors of a company’. One might argue, “Isn’t this obvious and isn’t this something that automatically happens during the course of any organisation’s daily operations?” Even if this statement has some validity, one must never underestimate the importance of recording such rules / principles, ensuring that everyone is aware of them, meeting up for board meetings frequently, taking minutes of what is discussed in such meetings, and ensuring a healthy reporting system whereby everyone can be accountable for the actions taken and the results obtained whilst handling their daily tasks. This is not only important for people holding senior positions but it is of utmost importance that such a culture and way of doing things is implemented throughout all of the organisation from top to bottom. Moreover, it is of essence that there are monitoring systems in place to ensure that such rules and principles or ‘ways of doing things’ are being adhered to and in line with the aims of the organisation.

Leading onto this would be the importance of having an effective communication system. Whilst this may be easier to achieve within small, single-location organisations, it may be tougher to maintain a healthy and clear communication system with effective information-exchange habits in organisations that are larger in size or multinational. There could be various ways and endless discussions on how communication could be improved and how a useful communication system could be implemented and maintained, however, for the purpose of this article I have chosen to focus on one way, a formal way that takes place at a board level and hereby specify the importance of organising frequent board meetings.

It has become increasingly important to add substance to the business operations of entities, particularly those registered in Malta, especially in view of the change in the international tax landscape amongst surrounding countries. Malta is today considered to be a very attractive jurisdiction within the European Union for company registration given its extremely strong and robust legal framework, its English-speaking population and a strongly educated workforce. Companies that do not have any substance or presence by way of offices, employees, managers and directors in Malta and do not hold any board meetings, may be considered as shell companies, merely used to shelter taxable income, and could be subject to tax investigations from other jurisdictions.

Consequently, board meetings are essential in forming part of a healthy and good corporate governance system of any organisation. Effectively, this not only shows that the board of directors is meeting to discuss the organisation’s operations and to transparently analyse whether the organisation is keeping in line with its overall aims in a profitable manner, but it also aids to show that ‘mind and management’ is happening in Malta or any other jurisdiction where the company is registered. This adds further substance to the entity and additionally corroborates that the company is not using the Maltese company registration framework fictitiously. It also helps to prove that the organisation was not merely registered in Malta simply for tax motives but shows that the choice of the jurisdiction was made purely due to the advantages that it could present in view of its operations in comparison to other jurisdictions.

Furthermore, detail of the company’s activities of the previous period are discussed between the directors and perhaps plans are put in place for the next period following the board meeting and until the next board meeting takes place. Apart from minuting and recording such actions being taken and being planned, board meetings are also an opportunity for the directors that form part of the organisation’s board to get together and re-align themselves with respect to the ultimate – wider aim and scope of the organisation as a whole, whilst discussing any actions that have been taken, actions planned and also importantly, any difficulties arising in one’s managed tasks.

Whilst the focus of this article is mainly on good corporate governance and the need for effective communication, one must also keep in mind, as briefly also mentioned above, the need to have a healthy structure in place to prove substance and presence in the country of registration of the organisation especially in light of today’s increased requirements for better accountability and transparency emanating from the stricter requirements of the global tax regimes and also scrutinisation from different authorities.

In view of the above, CSB Group as a licensed Corporate Services Provider in Malta, can offer full assistance with the planning of such board meetings, preparation of the minutes, coordination of signatures and safekeeping of the final formulated minutes and signed agreements.

About the Author

This article has been authored by Mr Sacha J. Farrugia, CSB Group Senior Manager - Corporate Services. He is responsible for the general Management of the Corporate Services Unit and may be contacted on [email protected] for any advice required with regard to corporate governance and respective formalities.