What corporate governance do I need?

So what is Governance all about? The most common definition of Corporate Governance is “the system by which companies are directed and controlled” (Cadbury Committee, 1992).

When a company is first incorporated, it will be a micro company and there will normally be a small number of people who make all of the decisions.  Management systems and controls are easy.  Fast forward to the point where that same company has grown to 50+ people and it has become a medium sized enterprise: there is no way that original team can control everything and the business needs a structured governance framework with a lot of management systems and controls.

At some point in between micro and medium, a company needs to make that conversion from one person making every decision to a complex web of management systems and controls.  Leave it too late and the company will be off the road for a few months sorting out the mess.  Start out on the right track and you will have a much easier job of dealing with the increasing burden of regulation and compliance.

In a small company, from a governance perspective, there are a number of things that you do need to do:  

• Firstly you need a business strategy with some associated objectives.  These need to be monitored, reviewed and adapted as the business horizon changes.

• Next you should look at what could go wrong – in other words, horizon scan for risks and manage them.  What is important is that you should as far as possible identify what the risks are, and then make a decision about whether you should accept, avoid or mitigate them.  

• Next you need to manage your stakeholders: be they shareholders, employees, suppliers, customers etc.  Stakeholders need communications, marketing to and respect.  As part of your governance framework, you should identify all your relevant stakeholders, and then have a plan about how to manage them.

Finally, there are a load of regulations that you need to adhere to: HR, Bribery and corruption, Health and Safety, data protection…  it is a long list and it really matters.  You need to ensure that you have relevant processes and procedures and monitor all of these regulations.  Internal procedures should be regularly reviewed to check that they are current.

All of this should be formally considered, monitored, and decisions recorded.  That is what board meetings are for.

Governance is not ‘business prevention’.  Governance is getting investment-ready. Leave the implementation of a governance framework too late and that will prevent you from doing business for quite a while and in some cases, could be commercially fatal.

Adopt a stage–appropriate governance framework from the get-go and adapt it as the business grows and you will find that governance will be the making of the business.

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