Operating agreements, bylaws, corporate books and meeting minutes. These are the basic documents when people think of “corporate governance.” After all, they define the structure of the company and how the business governs itself. However, in today’s economy, corporate governance needs to extend beyond just the documents.
Corporate governance is not just how your board of directors is structured, but who sits on the board. Corporate governance is making sure that your top management is connected to the base of operations in some manner. It’s ensuring that procedures are in place to create accountability and neutral decision-making. Above all, corporate governance is making sure that your company prioritizes regulatory compliance at every level.
Many business owners I meet are laser-focused on obtaining their state and local licenses, so they can start to conduct their business. Licensure is a time-consuming project, but it only allows you to get across the start line. Corporate governance dictates how well you run the race, and it’s something that business owners can’t afford to ignore.
Take care in how you structure management
How you structure your business sets the tone for your relationship with investors, defines how you connect to your target market and results in the company’s overall profitability. If your management doesn’t reflect your target market’s diversity, you may find that your corporate vision is detached from consumers and investors alike.
An analysis by Marijuana Business Daily concluded that men hold 93% of all boardroom positions in the leading Canadian marijuana companies. Further estimates show that 99% of licensed cannabusinesses are owned by white business owners.
For any successful marijuana business to connect with its target market, it needs to structure the management team – from executives, to senior managers, to supervisors – in such a way that it encompasses a diverse spectrum of individuals. Women, minorities and baby boomers are considered some of the fastest growing sectors of cannabis users.
By ensuring that you have gender, racial and age diversity within your corporate structure, your business is able to respond to those demographics’ needs rather than a monochromatic board of similar individuals.
Connecting top management to operations
It’s no surprise that the larger the company, the more removed business executives typically are from the day-to-day business operations. For example, a small grower operation may have an office on the same parcel of property as they grow. A large cannabusiness may have corporate offices several cities or states away. However, when you add distance and multiple levels of managers, the business owners and board of directors may become unaware of what is occurring in their facilities.
It’s imperative that these individuals, who are often vetted at the state (and sometimes local) levels for licensure, are knowledgeable about the day-to-day operations. Regulatory compliance becomes increasingly more challenging when you factor in multiple cities or states, or different license types. To foster a sense of strict compliance with the state and local laws, the corporate ethos needs to be established from the top down.
If your LLC’s members connect to the operations and show an interest in maintaining compliance, the work environment will reflect that. Take the time to create offices in or near your facilities, or arrange management facility visits on a regular basis to instill a sense of corporate responsibility and compliance.
Regulatory compliance is key for corporate governance
At the end of the day, how you structure and implement your corporate governance policies ultimately impacts your history of regulatory compliance. A company that’s familiar with the industry’s ever-changing laws and regulations and creates procedures for ensuring compliance holds the highest chance of success.
Prioritizing compliance in every division of your cannabusiness helps create an environment of strict compliance that every cannabusiness needs. For example:
- A legal department can assist in developing structured standard operating procedures for your employees and conduct mock inspections to meet (or exceed) state requirements.
- Human resources can hosting job-specific training seminars.
- Managers can check in on their employees daily or weekly to ensure that all job expectations are met.
By fostering an overall culture of compliance within your corporate governance framework, your company is much less likely to be charged with violations or fined for non-compliance.