Insights – The Importance of Effective Corporate Governance
What is Governance?
Governance is a framework, a set of rules and procedures in which a business should follow.
Documentation from the start is critical and should be tailored to incorporate plans for growth, provide versatility and be forward thinking, not just suitable for right now.
The documentation could include a company constitution, shareholders agreement, partnership agreement, memorandum of articles, trust deed as well as a matrix listing of who is in the organisation and what role they play.
Other beneficial documentation includes having a set of guidelines for each department or sub committees of the business, outlining the role of the department, protocols, what authority each department has by way of delegation, budget and spending and decision making. By having this documentation, it assists with the business being nimble and not wasting time on matters within meetings, when they can be focusing on more important items including future strategies.
A risk register is also beneficial, and should outline all potential risk areas as much as possible and have suggested solutions or actions to follow should that risk event arise. This may take some time to compile, however as many potential risks should be identified that you can think of as well as an analysis of the likelihood that it will occur. Identifying the likelihood and level of importance will help you to identify clear actions which must be undertaken if a risk is identified.
It is advisable also to regularly review the risk register and matrix’s you have in place to ensure they remain up to date and accurate. You should assign a dedicated person to ensure this is completed regularly.
When starting a business, it is prudent to consider a skills matrix of people starting the business and what people you need to get involved in the business, to ensure the business continues and achieves the growth, future plans and direction you want within the business. This provides a long term view of the business to help with hiring decisions.
Business owners should also understand the difference between governance and operational and which documentation is important for each.
Shareholders agreement governs the relationship between the shareholders, it doesn’t govern how the business should be run. A shareholders agreement should consider “what if” scenarios, you need to ensure to mitigate as many risks as possible. A company constitution or trust deed provides the rules on how the entity should be run and what they must comply with.
The key elements a business should consider depends on the size, what industry they are in and who you have in what roles within the business. When engaging the people within your business, ensure they have the relevant expertise for that role. If you are a small business, ensure you have engaged external parties to assist, for example, IT, legal, accounting marketing, HR.
if you don’t have the expertise to handle all areas yourself you can engage professionals to assist you by participating at a board level. it is important to remember thought that their role is to provide relevant information and answer questions of the board, not actively participate in the decision making of the business, otherwise there may be implications as being seen as a shadow director.
Even if you are a small business, when starting out, you should also consider implementing a decision making matrix around tax and asset protection. All businesses should regularly identify and review challenges and opportunities in the short, medium and long term. This should include succession planning, both for preparing your business for sale or passing it down to family members.
By having good corporate governance in place, it can aid in efficiencies within the business and ensure everyone knows their roles and responsibilities.
How Can Alto Help?
The team at Alto enjoy assisting and guiding our clients to implement and review strategies and policies, so please feel free to reach out to discuss further in relation to your own business.
Author: Tanya Holtham