Governance in small businesses

corporate governance

The word governance refers to the processes of ruling or controlling resources in particular. The pillars of corporate governance are ethics and risk and main elements of governance are fairness, accountability, responsibility and transparency.

The increased importance of governance in business today is from the collapse corporations such as Lehman Brothers, Enron and WorldCom as a result of breaks downs in one or in the case of Enron, all of the elements of corporate governance.

Corporate governance as a practice has grown immensely subsequent to the economic impacts of the collapse of these global giants and has been strictly required of large corporations. Organisations of this size are powerful and they tend be most at risk of such power being abused by individuals on the other hand this places investors and other stakeholder with legitimate claims to the corporation at the mercy of management and this relationship is a risk of being abused.

The question now however is whether small businesses should be expected to instil good governance procedures in their companies. It is said that compliance with the codes of good corporate governance such as Sarbanes Oxley in the US in particular costs companies millions per annum and yet they don’t necessarily prevent impropriety from occurring where good corporate governance is concerned. So what then is the point for small businesses many of whom barely make enough to get by?

The opposing view particularly among advocates of codes such as the King 3 report (SA) and the Combined Code (UK) will tell you that investors are more likely to pay a premium for equity in a well governed company than pay a discount for one that has no proof of adequate controls or governance measures in place.

What then of small businesses?

Well according to research by 4imprint, a research company which provides “how-to” articles based on this research, small businesses should start integrating corporate governance practices in order to support its investors.

Corporate Secretary, an online publication on governance, says reasons for corporate governance in a small business are;

Small companies are always growing so they need to implement policies and procedures ahead of time. This will eliminate future risk of growing bigger in the future such as insidious growth of the wrong culture of distrust or abuse of power.

Regulations, unfortunately part of being in business is to comply with regulation and a big part of this regulation is to ensure that the business has transparent procedures and policies that provide its employees with a framework on how to conduct business while still being compliant with the law.

So how can this be done exactly?

An advisory board is probably the simplest way in which this can be done as it would be composed of independent members who are able to help the organisation identify risks, address conflict of interest and identify how the business can operate optimally. This advisory board can be a type of business “mentor” to the small business and by extension would fulfil a function similar to a board of directors in a large corporation.

Further to this the small business should consider consistent financial reporting which will equip it with the resources it needs to closely monitor its revenues and expenses. These records will also serve to hold staff accountable and promote transparency.

Lastly, addressing compensation and benefits by means of a kind of policy or protocol for how staff (owners included) is remunerated. Once again this promotes transparency and fairness and goes a long way to ensuring that in the future the company has entrenched in its culture the moral code of doing the right thing.

 

 

 

Sources:

Corporate secretary.com

SA Business Index

4Imprint

Reflection

Reflection is what links our performance to our potential.

I recently had a discussion on self mastery with a leadership coach and professor. To make me understand the relativity of reflection to leadership, she told me about a story of a ball. She said that during a ball, at a castle, a King was looking to appoint an advisor.

There were several men in the kingdom which were there and they all were highly recommended. So the King held a ball so he could see these men in a social setting in order to get a sense of who they were and what they were really like.

During the course if the evening, the King went to the dance floor and joined his guests. He spent quite a lot of time there, entertaining and taking part in the various dances. In all this time he realised that he was tired and had spent so much time being the star of the dance floor that he had not given thought to the real reason he held the ball.

Upon this realisation, he immediately went to the balcony. He found that at the balcony he had time to himself, where he could think through what it was that he really wanted in a trusted advisor as well as which of the men on the dance floor below exhibited such characteristics. Suddenly, his understanding of what was happening below changed. He got to see so much more than what he did at the dance floor.

The professor then said that as a leader in any organisation, one needs to ensure they spend more time on the balcony than on the dance floor. This, she said is what reflection allows one to do. It is the process of properly unpacking ourselves as leaders for the good of others.

It is also an extremely necessary activity for an entrepreneur, one would recommend that thinking time of at least half a day in each week, perhaps at the end of the week will do wonders. It allows you to learn lessons and record them soon after they happen this process allows one to internalise these lessons and in so doing, the thinking around certain things changes.

As mentioned before, your business is as big as your vision of it. The more time you spend here, the better for the long term growth of your business.

Go on, reflect!

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