Jonathan Xianqi Zeng’s Primer on Corporate Fiduciary Duties and Internal Controls

Wirecard and Luckin Coffee are two most recent frauds investors met. Here are some takeaways from my corporate board responsibilities class last semester. I’d like to take the opportunity to share several important points.

Several duties categorized below.

Duty of care is mainly procedural. Criteria include:

  • Time commitment and attention being applied. Conduct diligent process in decision makings
    • Collect accurate and timely information
    • Receiving Advice of Outside Experts
    • Making reasonable business judgement that decisions serve the best interest of corporation.

Duty of loyalty

  • Employees should put the company’s interest ahead of personal interest
  • Disclosure. Make timely disclosure on potential conflict of interest events

Internal controls

  • The management must prepare an annual report on company’s internal controls. CEO therefore also cannot claim he/she doesn’t know about the weakness in internal controls.
  • PCAOB regularly reviews external audits of public companies, and would be the agency that most likely have found this alleged violation.
  • It’s always a good idea for investors to read through investment prospectus files or annual filings (10-K for domestic companies, and 20-F for foreign companies listed in the U.S), and read through the management’s discussions on internal control procedures, and whether the management has identified any areas for improvements.
Internal Controls for eCommerce Companies – Risk and Control ...

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