The importance of corporate governance

Businesses go through many different forms throughout their lives. A typical SME will usually start in a very proprietorial manner and, if run and controlled properly, will develop and grow into a mature and profitable business.

With maturity brings value, which can be realised when the business owners wish to cash in on the results of their efforts and skills.

However, it is crucial for any business owner to know the point at which proprietorial controls are no longer appropriate and proper corporate governance needs to be introduced.

What is Corporate Governance?

Corporate Governance refers to the internal controls a company has in place in order to ensure legal compliance, develop a strong corporate identity and deliver sustainable growth. For most businesses corporate governance should be introduced when the business is still in its early stages. This would include the implementation of protocols such as setting regular board meetings to ensure the five core areas of the business, finance, operations, sales and marketing, information technology and strategy, are running efficiently.

Why is it important?

Having a robust corporate governance strategy allows a business to think one step ahead and future proof for any unknown challenges or crises that may appear. The strategy will allow for business owners to ensure accountability across the entire organisation, with risk management and reporting systems keeping one eye on the strategic direction of the business.

How to implement good Corporate Governance?

When you’re first getting started in a business it can be difficult to see the long-term importance of governance. To get started, here is what we would recommend focusing on for the five key areas:

1. Finance

Regular reviews of financial budgets and ‘actual’ figures within the reporting to ensure that the business is growing in accordance with the business owners’ original plans, with any variances having suitable explanations. Key Performance Indicators (KPIs) should also be established and reviewed, to ensure that where it is possible to measure trends as well as performance, this is being done.

2. Operations

This includes HR and all other relevant matters relating to the day to day running of the business. Corporate governance can help to identify what is working well, and what can be improved upon.

3. Sales and Marketing

Any successful business will have a sales and marketing strategy. The strategy should be reviewed regularly to ensure that the direction of the marketing strategy is working or if it needs to be changed depending on market circumstances.

4. Information Technology

A strong IT presence within a business is essential for process efficiency. Therefore, as part of your corporate governance strategy, a monthly review of IT processes and expenditure should be undertaken.

5. Strategy

Business owners should examine how the business is performing against not just the current year’s budgets and forecast, but against their ultimate aspirations. This may include an analysis of the market (including competitor behaviour) and the creation of an ‘opportunity map’ for the development of the business, whether through organic growth or mergers or acquisitions.

Other ways you can focus on implementing good corporate governance include:

• Corporate governance planning – We can support company boards to establish a clear corporate governance framework that delivers a range of positive outcomes.
• Defining roles and responsibilities – Corporate governance is a collective effort and therefore leaders need to be accountable for key duties across different areas of the business.
• Keep pace with regulatory compliance – Our advisers can deliver peace of mind by keeping your business on the pulse of the latest demands from industry regulators.
• Assess risks and red flags – Auditing key processes and systems within your organisation to cut out inefficiencies and catch underlying issues before they impact your operations.
• Independent reviews – Whether it’s salaries, structural hierarchies or shareholder rights, it often pays to have a neutral party advise on the most appropriate set-up for your business.
• Deliver effective reports – Implementing reliable reporting processes to monitor and improve outcomes across your organisation.

How can Gerald Edelman help?

If you feel that you could benefit from an initial chat as to how we may be able to assist you in implementing strong corporate governance, please get in touch with our business advisory team or myself at hwallis@geraldedelman.com.