A common perception in family and private businesses is that corporate governance is about compliance and therefore the domain of their Accountant and / or Solicitor to provide guidance, advice and checks. Compliance is a role of governance within the business and no one will argue that business owners / managers have an obligation to comply with all relevant legislation, accounting standards and to be accountable to stakeholders. However compliance must be considered the secondary benefit otherwise the business will struggle to achieve sustained profits.
Good corporate governance is a risk management tool, productivity driver and the platform for improving performance of the business. In addition, it assists the business to be responsive to its market and broader business environment. BUT what is corporate governance?
In layman’s terms, corporate governance is the policies, procedures, processes and systems that direct and control the business. This framework enables the business to operate effectively and ethically while complying with legislation. It also acts as the platform for strategic decision making to take the business forward. It is important to stress that corporate governance applies to every business regardless of size, type or complexity and is primarily the concern of the person / people that direct the business.
So, how does good corporate governance add value to your business?
Firstly corporate governance MUST be aligned to the strategy of the business and is a tool to allow the owner / manager take the business forward. It also has a positive influence of the culture of the business. This is achieved by having clear documentation about how you what your workforce to interact with all stakeholders, be they internal or external. Other value add benefits include:
- Accuracy of information (clients, suppliers, stakeholders and regulators) to facilitate the business decision making process and to enable timely reporting to management and external stakeholders such as your accountant, financier and regulators
- The capture, storage and retrieval of operational data used for decision making and stakeholder management
- Management of the risks associated with the business and its operating environment including operational, reputational, financial, physical or technical. Risks can be obvious or emerging therefore assist in the risk mitigation process
- Documentation of work practices to achieve efficiency, high levels of productivity, reduce waste (materials and time), product / service quality and to promote continuous improvement across all operations
- Guides the development, monitoring and evaluation of workforce performance and allows the establishment of clear KPIs for the individuals and departments. This includes the integration of the Workplace Health & Safety, Environmental Management and Training & Development processes across the business
In the current business environment financial institutions are placing greater emphasis the governance frameworks within a business as part of their assessment process A business that cannot demonstrate sound governance systems could be limiting their opportunity to secure appropriate funding to operate effectively. Client and supplier terms of trade are one aspect that comes under considerable scrutiny.
Finally, it must be stressed that corporate governance is not a “one size fits all” process and if your key stakeholders assert this, question then thoroughly. A restrictive view of corporate governance will achieve compliance however it will not provide the business with the flexibility to capitalise on opportunities that will positively impact on the bottom line.