What is corporate governance and why is it important?

Governance consists of a compendium and series of policies and procedures which safeguards the business to protect the owners and shareholders, thereby building and enhancing the company’s long term value and “blue sky.”

Most problems at dealerships start with customer issues, followed by employee problems, followed by unintentional advertising mistakes.  So, continued success and building the value of the company in the dealership environment depends on the employees to ensure customers’ trust is maintained at the highest standards.  Employees should conduct themselves to merit consumer confidence so they can be assured the dealership will transact business in accordance with the spirit and intent of the laws.

The good use of judgment in dealerships enables smooth transaction in daily business activities, which is at the core and heart of good governance, risk, and compliance (GRC) activities. To be compliant, all employees must adhere to the rules and regulations with federal and state laws and the dealership’s policies and procedures. This is the core of corporate governance; it’s how the employees behave and the ethics surrounding the interactions with fellow employees, as well as with the customers.   The compendium of policies and procedures will safeguard and guide dealership team members through compliance with these dealership principles. Without operating within these guidelines, dealers risk their dealer’s license which could be revoked or suspended.  Reputation is a key factor in customer trust and satisfaction. Without customers, dealerships have no business.  Dealerships’ integrity must be beyond questioning.

Compliance is an umbrella term for any and all laws and regulations which dealerships are subject to following.  There are laws surrounding the selling, buying, financing, servicing, and customer communications.

Both lawyers and regulators can challenge dealers on these issues.   Regulators are those governmental agencies which have oversight into dealer operations.    Here’s a sampling of some of the regulators:

*Motor Vehicle Dealer Boards

*The Attorney Generals

*The Consumer Financial Protection Bureau (CFPB)

*The Federal Trade Commission (FTC)

*A Member of the House of Representatives (Federal and State)

*A Member of the Senate (Federal and State)

*The State Police

*The Internal Revenue Service (IRS)

*The Treasury Department

Dealers should be  prepared to engage with these overseers and should constantly make the effort to assure the highest level of public respect and confidence. How? By maintaining an unwavering standard of honesty and integrity, the business will be able to continue for many years.    Dishonesty on the job should be cause for immediate discharge.  Dishonesty at the dealership in any form should be considered unacceptable.

How do you know the employees performing the way you want?  It requires checking.  Policies and procedures aren’t worth a whole lot if someone isn’t checking to ensure compliance. This is at the core of a robust GRC program.  Someone has to audit.  Then, the dealership should be prepared to fix the newly discovered issues and document them. Consider a process where this is the cycle:

  • Remediate and correct
  • Document and report
  • Evaluate and revise

It’s wash, rinse, repeat, with critical thinking and action injected throughout the process.

Dealership owners, through their policy of corporate governance, needs to know if there is wasteful, fraudulent, wrongdoing, discrimination, illegal activities or anything that may be harmful to the public safety.  Then, these issues can be addressed directly and specifically.

It is responsibility of each and every employee to bring problems or violations of any kind to upper management or the owner.  Employees should understand, through written policies, that they will be treated equitably and will not be punished simply for bringing this information to the owners, officers, or directors. Their concerns should be investigated thoroughly and vetted in accordance with the store’s written compliance program.

Consider adopting these type of company policies through written employee acknowledgements. Here’s an example:

“I have read and agree to the Company’s Corporate Governance and Code of Conduct.  I acknowledge I have had an opportunity to review and ask questions.  I agree to comply with these policies and guidelines, which may be supplemented from time to time.”

For best practices, this statement should be accompanied by a thorough and strategic governance, risk, and compliance (GRC) program as described above.   If any of those regulators visit, or when the lawyers fire on you, you’ll be glad you’ve trained your employees on these important topics and have documentation to back it up.

Wash, rinse, repeat indeed!