You are reading: Step 12 – Corporate Governance

Craig West

Founder & Chairman

In this article, we’re discussing corporate governance – a term that’s often misconstrued, particularly by small to medium-sized business owners. While the level of formality may vary for smaller businesses, the principles of structure and discipline that corporate governance brings are crucial, regardless of your business size.

In the early stages, your family-owned or small business might manifest corporate governance in informal dinner discussions involving business matters. However, as your business grows, so does the necessity for a more structured approach. Let’s delve into how you can implement an effective corporate governance system, tailored to your business’s unique needs and size.

Foundations of Corporate Governance

In the infancy of your business, consider establishing an advisory board comprising trusted advisors – a step that many small businesses take. This advisory board should convene regularly to discuss critical business matters, much like a board meeting in a larger corporation. The key is to focus on gaining insights, strategic planning, and effective decision-making.

Structured Reporting

Reports are the backbone of effective corporate governance. These reports should cover various aspects of your business, including financials, HR, sales, and marketing. By reviewing these reports before meetings, both you and your team can make the right decisions that align with your overall business strategy. Remember, it’s about strategic insights, not micromanagement.

Strategic Focus and Discipline

Corporate governance should shift your focus from day-to-day operations to a strategic overview of your business. It’s about identifying weaknesses, optimizing performance, and aligning actions with your long-term business goals. This strategic shift is pivotal to successful corporate governance.

Assembling the Right Advisory Board or Directors

As your business grows, consider incorporating independent directors with diverse expertise. These individuals, external to the day-to-day operations, provide a fresh perspective, challenge decisions, and mentor your team. They bring structure, strategy, and an invaluable reduction in business risks.

Decision Rights Manual: Defining Authority

Implement a decision rights manual to outline who holds decision-making authority at various levels within your business. This simple yet effective tool ensures that decisions align with expertise and responsibility levels, mitigating costly errors and promoting agility in decision-making.

Enhancing Value and Reducing Risk

By integrating structure and discipline through corporate governance, you inherently reduce risks and increase the value of your business. Potential buyers or investors find businesses with robust corporate governance systems more attractive due to their decreased risk profile and well-defined operational strategies.

Corporate governance isn’t just for large corporations – it’s a strategic tool that can significantly impact SMEs. Through the implementation of structured reporting, strategic focus, and the right advisory board or directors, you’re laying a strong foundation for the future of your business.

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