Small and aspiring businesses often fall at the first hurdle when it comes to ‘good governance’. Throughout the course of this article, we will highlight a few common mistakes and why they occur as a way of showcasing the best steps your business can take going ahead.
Why You Must Establish the Principle of ‘Capability’
The first point to make is that many small businesses rely solely on their founder when it comes to governance. Founders often feel as though they should make all the decisions, as they have a clear vision of where they would like the business to go, and therefore wish to handle the entire structure of the business to ensure that the way things are done meet this ideal. The problem with this is that founder’s attachment to their ‘idea’ means that they often make assessments and judgements based on their emotions. By making decisions based on emotions, rational approaches are often missed and there is little consideration, negotiation or understanding given to the decision. Founder’s view-points can be narrow or blurred (especially when under stress from shareholders) which can results in poor decisions for the business.
For example, founders may feel as if growth targets are not being reached and subsequently, under stress from stakeholders, they may implement changes that are not discussed with their team. The team themselves may consider that such changes are not necessarily the way things should be done and might not benefit how they work. This can result in disengagement by team members, who feel that their ideas and concerns are not being addressed, potentially damaging the outcome of their tasks and hindering the business further.
To avoid this, small businesses must reflect on one of the core principles of corporate governance – ‘capability’. Capability is enabled when organisations are led by a team of stakeholders that have a diverse mix of skills and responsibilities, as well as varying levels of experience and expertise. When those with different capabilities are brought into discussions about change projects and how business goal can be achieved, a much more structured organisation is formed where there is greater understanding of the inner-workings and a greater chance of achievement.
Clearly Defined Roles and Responsibilities Establish Good Governance
When a range of capabilities are harnessed, understood and operating together, this principle of corporate governance also makes sure that members are able to discharge their duties and responsibilities, by clearly defining their roles and obligations. A structure of ‘who’s who’ and what they do is established; teams or departments develop (such as a marketing team) lead by key stakeholders (i.e. a head of marketing), in which individuals are expected to perform specific functions that go towards the ‘status quo’ of the business. This can be used as a metric for ‘good governance’ since there is a stable team working together (albeit often in separate departments) in the best interests of the business, whilst being engaged in constant and fluent communication across all levels of the organisation.
The Importance of Accountability
Once a founder has distributed leadership by utilising the organisation’s varying capabilities, accountability is also enhanced. There is a clearer flow between the actions taken by individuals and their outcomes, as a result of a greater number of ‘team leaders’, who are able to track and monitor results. When meeting shareholders and other stakeholders, a fair and balanced assessment of the organisation can be presented, which is something that can only be achieved when there is a strong system of communication which reaches into different aspects of the organisations. This can then take stock of the business, ensuring that it is achieving its purpose, meeting legal and regulatory requirements and setting out how responsibilities are met. If there are flaws in the organisation, a good governance structure makes it easier and quicker to identify these and implement changes.