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Why Corporate Governance Matters

Why Corporate Governance Matters

For many small and medium size businesses corporate governance is considered a ‘big end of town’ requirement and not relevant to their operations.  However as businesses grow, earnings increase and partnerships are established, it’s becoming an aspect we believe organisations of all sizes should incorporate into their operating models to ensure a robust and sustainable enterprise.

The majority of small business owners we speak with often view corporate governance as having little value for their business. While viewed by many as simply being a compliance requirement with formal rules and regulations, good governance is in fact more than that. It provides the framework with which a business operates from and in turn, ultimately adds value to its customers,  building its capabilities and ensuring long term sustainable growth. Through this process of ensuring good corporate governance a solid foundation is also built for the business to consider its options for succession planning or future sale.

So what are the key concepts to good corporate governance.

Communication  –  A key ingredient of a successful business is their ability to consistently communicate to their team about what the priorities of the business are and how they are progressing towards those goals.  Transparency within the business allows the team to feel connected with the outcomes and not just turn up and do their job.

Roles and Responsibilities  –  Good governance addresses who is responsible for what areas or functions within the business.  This helps creates efficient decision making and allows the business to finds its flow.  The roles and responsibilities should regularly be reviewed and revised to achieve the best results for the business and ensure that team members are progressing in the best areas possible.

Improved Decision Making  –  On any given day a business will be faced with many decisions.  With a solid governance framework in place, the business can navigate these decisions based on how they have agreed it adds value to customers and stakeholders.

Better alignment of incentives  –  Most businesses struggle to develop an effective incentive structure for key people.  Regularly in small business the bonus structure is tied to the annual profit, which is great, until the business profits are in decline through no fault of the individual.  With the long term operating model in place it allows for better alignment to long term business objectives.

Accountability –  Any business will always operate more effectively with a strong accountability framework in place.  With proper roles and responsibilities defined it then allows the business to implement an efficient system to ensure deliverables are met across the business.

In short, good corporate governance is not just for large businesses.  Having a solid operating framework in place adds value to all stakeholders within your business no matter its size or industry.

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