• Transparency: A Legal Balance Between Planning, Communicating and Governing Your Business
  • August 30, 2018
  • Law Firm: - Office
  • “Transparency” is a popular term these days across all industries — a seemingly simple word but with a complex meaning. On the one hand, some argue transparency is considered the foundation of business dealings; on the other, some argue such candidness hinders business and its development.

    As noted in a prior Client Alert (California Threw Down A Privacy Law Gauntlet), on June 28, 2018, California implemented a new law that requires businesses to be more “transparent” by giving consumers extensive control over how their personal information is collected and used. Continuing on that “openness” theme, this Alert focuses on businesses and what owners may want to consider as they move forward in today’s more scrutinized climate.

    Today, all businesses are under a higher level of scrutiny. Consumers and investors have specific demands and will avoid dealing with entities that appear to be mismanaged or lacking integrity. Watchdog agencies and government regulators are looking more closely at businesses to ensure a level playing field—seeking transparency. News reports have documented many examples of the public’s or government’s demand for more transparency—financial institutions disgraces; food recalls; vehicle emissions scandals; law enforcement use of force; politicians’ use of data; executive compensation packages, and the list goes on.

    As lawyers, we are held to many ethical standards and, in many instances, higher standards than most. We are “expected” to be transparent with our colleagues, opponents, the judiciary and, of course, our clients. Failure to do so defies the oath we took upon admission to the Bar.

    Studies have shown that consumers want businesses to be forthright, telling it “like it is,” even if the information is “negative” or one admits to a mistake. Like establishing a long-lasting personal relationship, being upfront and honest in a business relationship usually produces a level of trust that may not otherwise have previously existed. That frankness and trust in the business world can, and usually does, translate into better internal business operations, increased employee morale and consumer and client confidence. While business transparency relates to an analysis of many areas, such as financial, marketing, sales and operational, below I present a “legal” task (I believe obligation) which each business owner should consider implementing to become more transparent and, in turn, possibly increase their bottom lines, within their organization internally and externally with consumers.

    The Legal Audit

    A properly conducted legal audit is a way for management to become “transparent” by allowing it to identify, frame, prioritize, and anticipate the most important issues and minimize costly surprises which can in turn distract management’s focus. Careful analysis, forecasting and planning will allow management to communicate and govern its operations as well as gain value from the financial, emotional and time investment that has gone into building its business.

    Whether you are an entrepreneur, just starting a business, or are an experienced business owner or manager, there are many legal and business issues to consider. Navigating the legal minefield can be confusing, time-consuming and expensive. Decisions must be made about the form of the enterprise and its legal structure, including management and control, financing, tax elections, employer-employment relationships, protection of ideas, and insurance coverage, just to name a few.

    A legal audit is a comprehensive appraisal of a company’s legal affairs at every level. Not only can a legal audit highlight transparency in processes and procedures, but it can prevent attorney’s fees or other future ramifications. Think of a legal audit like a business’s physical examination for the purpose of understanding its current condition, identifying any problems, and enabling management to take appropriate actions to address current problems and to avoid and prevent future problems before they can worsen. A legal audit examines a company’s policies, procedures, filings, and documents. Once aware, management is in a better position to adopt safer, more productive, and more beneficial ways of conducting business. An analysis will save time and money by reducing the likelihood of consumer distrust, litigation or other liability. Once a matter is red-flagged, one can then focus attention on the business affairs to handle them appropriately. In the end, a business could save thousands of dollars.

    For example, a legal audit provides a unique opportunity to find out whether the human resources department is meeting employees’ needs by putting a high premium on transparency in their interactions with different levels of management and in determining their happiness and satisfaction in the workplace. Aside from legal issues, such a legal audit can identify issues that might create negative publicity (e.g., immigration or other compliance violations, privacy and data breaches). However, the results of a legal audit will also send a message to customers, clients and investors. Naturally, a positive legal audit report can help to encourage the development and growth of a company because it is statement as to its overall business health.

    A legal audit is an incredible source of knowledge for management to landscape its position. Proceeding without an audit is like travelling to sea without radar. Without an early warning system, only relying on instinct, management cannot react appropriately when an issue arises, only hoping its response is spot on.