Corporate policies are guidelines that help direct a firm, business, or company in determining its approach to issues that come up in the the course of its day to day operations, including positions on growth and social responsibility. They are normally written by a board of directors responsible for overseeing the big picture topics that are likely to define a firm's identity and in part determine its success. Among the concerns taken into consideration when corporate policies are being written are factors concerning the interior workings of the company, such as cash flow and labor, as well as exterior factors, such as market trends and interest from potential investors and sponsors.
While corporate policies are often written and approved by a board of directors, third party consultants and advisers may participate in the composition of policies. Lawyers, accountants, and other financial advisers may gather data regarding market and credit risk. They may assess and forecast the financial health of the firm, the relevant markets, and the competition so that the board of directors can create policies that are well informed.
Many financial experts believe that corporate policies are written to fulfill the needs of operational stability and expansion, as well as for strategies for the reduction of activity. The first of these needs refers to the day to day business of the firm. The operational stability may include factors such as cash flow and pricing. Expectations put on employees, the quality and effectiveness of technology and equipment, and relations with clients are all contributors to the stability of operations.
Corporate policies may also be written as guidelines for growth or expansion. Such increases in capacity can include adding to the locations in which a company or business may operate, thereby increasing the size of its potential customer base. Growth can also refer to a larger company or parent company's purchase of shares of a subsidiary company. In either case, the growth is expected to generate greater returns. Policies that provide guidelines for growth may direct the nature of the businesses in which a firm may get involved, as well as the risks the firm can take and the gains it expects to make.
On the flip side, most companies occasionally go through stages in which their activities must be reduced. The act of ceasing growth or lessening operations is known as retrenchment. Corporate policies are often written to provide direction for when a firm is faced with great risk or when it has already experienced damaging losses. Retrenchment, when effective, should be able to save resources and provide new structures and strategies under which the firm may operate. Restructuring debt, selling assets, and dismissing members of the workforce are activities that may be addressed in corporate policies that direct the process of retrenchment.
