Is everything under control?
When you sit and think of all the things you could or should spend your time on, I’ll bet ‘good governance’ isn’t at the top of the list. I know it’s not because you’re anti-good governance, it’s just not a subject that appears on most small business owners to-do lists.
There isn’t any specific focus on governance, because it’s a constant theme in the back of your mind and the buck stops with you. In your own head you know how you run your show. If you thought your current approach to business was no good you’d change it; or so the thinking goes.
I’m going to provide a gentle challenge to that approach.
The power of good governance
Good governance is good business. This is not a legal or compliance-driven exercise.
Good governance provides you with a structure that will see you through years and even decades of business challenges. To quote goodgovernance.org:
“Good governance is about the processes for making and implementing decisions. It’s not about making ‘correct’ decisions, but about the best possible process for making those decisions.”
Good governance is part of your long-term success or failure. Sure, you might have got to where you are now by making your decisions on the fly. However, what got you here might not get you where you’d like to go in the future.
Are you being challenged as the leader of your business? Are you being forced to consider a wider range of opinions, or new ideas, rather than just your own?
Establishing a structure that embeds this more diverse and challenging approach helps you to stay forward thinking. It’ll be easier to avoid the catastrophic disasters that befall companies that may have become myopic.
(See the end of this article for a couple of recent examples)
4 steps to improve your business governance
1. Create a strong and qualified board for your business
A formal board for your business, just like larger corporations have in place, is an essential is you want to succeed.
If you’re very small, this might simply be getting one or two friends, family members or acquaintances that you trust, who meet with you once per quarter to challenge your thinking. We all know, it’s much easier to solve everyone else’s problems, rather than your own. External viewpoints can often cut through the noise in your head quickly and constructively.
If your business is a little bit larger (I’m thinking £500k+ turnover) then setting up a proper board comprising a range of skills and experience, in addition to the existing owner/directors, is a game changer. Get deliberate and strategic about the skills you are looking for.
If you’re not so hot on managing your finances, find a board member who is. If personnel issues cause you grief, find a board member who can add some value in that area. If technology is your number one challenge, go and find yourself a geek to sit on your board. If your strategic thinking needs an upgrade, find a good strategic thinker.
2. Define roles and responsibilities to maximise accountability
Once you’ve assembled your board, make sure everyone is crystal clear on the role you want them to perform. They will provide valuable input at board meetings, but there might be other areas they can assist you with in running an elite organisation.
For example, a good finance person might be able to help you restructure your access to finance as you grow and develop. That might be as simple as putting a larger overdraft in place for any rainy days, or to securing a loan to acquire another business.
3. Emphasise integrity and ethics
I’m pretty sure that for anyone reading this article a focus on integrity and ethics might seem like a given.
If you’re in a client service-focused profession as we are, then you can’t go wrong doing the right thing by the client at all times, even if sometimes that means you take a financial hit.
Although it’s easy to pride oneself on integrity, when the money gets tight even the most upright honest person can be tempted to make a decision that might later come back to haunt them. That’s why running a good ship on the financial front is so important. Don’t let yourself get into a position where you might be tempted to take the option that’s best for you, but not your client.
4. Engage in effective risk management
I know the FCA take this area seriously and force firms to look at a range of risks. Don’t let this become a mere tickbox exercise.
Small businesses should regularly identify and assess the risks they face, including:
- Legal risk
By keeping an eye on all of these areas you can not only stay out of trouble, but you can be constantly ahead of the curve in making yourself and your business bulletproof and high-performing.
In my experience, improving things in one area of your business often has positive flow-on effects to the rest of your business. So improving things in each of these key areas helps to create your ideal business.
We are the champions
Remember, champions act like champions before they become champions.
By taking good governance seriously from an early stage of their development, the best businesses acted like high performing businesses well before they actually were high performing.
You can perform financially and still be moral and ethical. The choice is not binary. Good governance allows for good decision making and planning ahead strategically.
I hope this article inspires you to take a closer look at your own governance and structure.
Let me know how you go.
When governance goes bad
Take a look at these two articles for some evidence of what can happen when your governance structure is not up to scratch, or has perhaps slipped in its focus:
Some of the points made in this article on where the Football Association is failing:
- The majority of those in senior positions [at the FA] are under-qualified to deal with the complexities of the FA structures.
- The FA Board is neither an independent board nor an independent regulator.
- “We feel now that time has run out,” said Damian Collins MP. “We no longer have any confidence that the FA can or will reform itself.”
- “It may well move us to redressing the woeful lack of English players or managers and the embarrassing failures of our national team for the past 50 years” (taken from signed letter from former FA executives David Bernstein, David Davies, Greg Dyke, Alex Horne and David Triesman)
Here’s what the New York Times had to say:
“When Wells Fargo admitted a few months ago that thousands of its employees had created as many as two million unauthorized accounts for its customers, alarm bells went off at Prudential, one of the nation’s biggest insurance firms.
Wells Fargo has a partnership with Prudential to sell a low-cost life insurance policy to the bank’s retail customers. After news of the Wells Fargo settlement in September, Prudential ordered an internal review of its dealings with the bank, to make sure nothing was amiss with the joint endeavor.
A lot was amiss. According to three former managers in Prudential’s corporate investigation division, Wells Fargo employees appeared to have signed up bank customers for Prudential insurance without the customers’ knowledge or permission.”
The article goes on to say that Prudential then fired the three staff that brought this issue to their attention.
“They say they were fired in November for trying to escalate attention internally to their discoveries about conduct at Wells Fargo. Prudential said on Friday that the three were fired for “appropriate and legitimate reasons” that had nothing to do with Wells Fargo.”