Governance for Small and Medium Businesses

(Talk given to CEO Institute Syndicate #1 on 18^th July 2023)

Good governance improves the likelihood of enjoying long-term success and sustainability in any business.

Small and Medium Business – we’re talking to businesses with revenues between $10M and $250M and/or a permanent or casual workforce between 10 and 200 people.  They’re privately owned, led, and managed by one or some individuals, or family(s).

Governance refers to the structures, systems, and processes that create, implement, manage, monitor, and enforce the organisation’s: culture, operations, decision-making, employee conduct, and commercial performance.

Appropriate governance systems and processes form a framework of rules, policies, and practices to induct, train, guide, and measure employee performance in all aspects of business operations.

Key Objectives of Good Governance in Small and Medium Businesses

• Establish the organisation’s “Why”, or clear purpose > Values, Vision, and Mission and,
• Encourage and support admirable and inspiring leadership and,
• Implement efficient, effective, and ethical systems of business management and,
• Create and maintain a business-appropriate culture of collaboration, responsibility, and accountability amongst staff and,
• Comply with all relevant legal, social, and moral requirements.

Fundamentals of Good Governance for Small and Medium Businesses

Good governance requires the implementation of appropriate Strategies, Structures, Systems, Performance and Behavioural Standards, and the Skills to make them all work well.

This constitutes a fundamental challenges for business leaders and mangers, who should be driven to make themselves (partially) redundant by safely transferring some of their operational responsibilities to more junior staff after they’ve created a framework of rules, policies, standards, and processes to induct, train, direct, guide, and measure employee performance.

Good governance gives leaders & managers more time to work strategically ON their business by transferring responsibility for many IN business activities into robust governance systems.

10 Elements of Good Governance for Small and Medium Businesses

Strategies

1. Clear – Values, Visions, Mission, and Goals.
2. Formal – Strategy Plans, Business Plans, and Action Plans.

Organisational Structures

3. Paramount Authority Structures – Boards of Directors and/or Advisory Boards. Range from basic Compliance Boards to sophisticated, formal Governance Boards.  Sounding Boards and Advisory Boards may provide additional strategic guidance and objective oversight of operations.They hold regular meetings (monthly to quarterly, with special meetings as required)  to make strategic decisions, review financial and executive performance, identify macro risks, explore new business opportunities, and resolve major issues.

Systems (1) Human Resources – Role Clarity

4. Where they sit. Require detailed organisational placement and job descriptions to cover:  positions, roles, responsibilities, authorities, and accountabilities of Owners | Leaders | Managers | Employees.
5. What they do. Consider: Ownership vs Leadership vs Management power and influence.  Define:  legal structures and their practical implications, including documented separation of ownership rights from employment rights and establishing clear rules and procedures to direct and control the exercise of ownership power and influence in the business.Always include explicit and agreed Standards for expected and/or required performance and behaviours.

Systems (2) Strategic and Operational

6. Problem-Solving and Decision-Making. Consistently wise decision-making makes for a happy workplace, satisfied customers and clients, and a sustainable business (with happy owners).To make good decisions on a consistent basis requires a repeatable, disciplined process to solve problems and provide clarity about the why, when, how, and who of the decision exercise, including: voting rules, compliance obligations, variation, documentation, communication, and enforcement.

7. Financial Management. Efficient systems of financial control produce accurate financial and business performance reports to deliver relevant financial information and useful business performance metrics.  These help managers to manage, and ensure compliance with corporate, financial, and tax obligations, laws and regulations.
8. Risk Management. Good governance practices identify, assess, and manage financial, operational, legal, and reputational risks to help safeguard assets, and business survivability.
9. Business Best Practices – Formal Policies and Procedures. Best practices support business efficiency, culture, profitability, and sustainability.  They’re derived from accumulated experience, active learning, and considered judgment – to create commercial wisdom and competitive advantages.  “Best Practice” and “Good Governance” are synonymous in overlapping structures and systems areas.Best practices include Standards for expected behaviours and required performance.Formal Policies and Procedures provide documentary evidence, guidance, and instruction into what the business considers to be best practices in specific areas of activity.  The most practical policies and procedures are usually developed organically by people on the job, using senior management and/or expert inputs and reviews to polish the final product for approval by a Business Board.Engaging appropriate personnel in standardised processes to develop, implement, and enforce policies and procedures relevant to their areas of corporate and/or operational responsibility is practical, respectful, educational, and engaging.  All of which help to ensure that policies and procedures become part of your corporate culture, rather than pages in a forgotten operations manual that’s only used when things go wrong.

   Documented policies and procedures support new employee induction, staff training, quality control, and performance management, while helping to ensure operational consistency, objective fairness, and broad compliance with laws and regulations.

10. Corporate Communications and Stakeholder Engagement. Efficient, open, and regular communications help to create collaborative business cultures.  Good communication systems and processes engage key stakeholders, including employees, customers, suppliers, industry bodies, owner and investor groups, and local communities.  Winning strategies include: good communication access, welcoming and responding constructively to feedback, and seeking appropriate stakeholder input into decisions.

Benefits of Good Governance

1. Respected and Protected – Business Reputation and Brand Image. Moral, Ethical, and Social Responsibility – all businesses leverage reputation and brand image to attract customers and staff and develop competitive advantages.  Admired brands encourage staff, customers, and suppliers to want to transact with the business, because they want to share your journey.  Governance systems help to develop, promote, and support collaborative cultures of integrity, ethical behaviour, and responsible business practices.
2. Access to Capital. Good governance practices that confirm focused leadership, effective management, strong financial and internal controls, stable customer base, and a happy workforce increase perceived value and make smaller businesses much more attractive to potential lenders, investors, and buyers – thereby increasing access to capital and/or funding for business operations, expansion, innovation, and ….. sale.
3. Great Culture. Leaders get to do what they say they want to do, and enjoy doing it with a highly motivated team of like-minded people.
4. Employee Satisfaction and Retention. Business-appropriate governance systems encourage collaboration between employees, managers and leaders to create business cultures and work environments they want to be part of, and are willing to attract other, like-minded personnel, into.  Being, and being perceived to be an employer of choice improves prospects for recruiting great staff, as it increases employee satisfaction, loyalty, and retention.