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 taking action based on emotions, rational approaches are often thrown to the wayside and their is often very little consideration, negotiation or understanding. Their view-point is often narrow or blurred (especially when under stress from shareholders) and they do not make the best decisions for the business.
For example, they may feel as if growth targets are not being reached and under constant stress from stakeholders they may implement a change that is not discussed with the team. The team themselves may not find that this change is necessarily the way things should be done and might not benefit how they work. This can result in apathy from team members who feel their ideas and issues are not being addressed, 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. 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.
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 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 check of the business, ensuring that it is achieving its purpose, meeting legal and regulatory requirements and stating how responsibilities are met. If there are flaws in the organisation, it’s easier to identify where mistakes are being made.