Six Ways to develop a governance strategy that supports growth

By Jonathan Herpy, Forbes Business Council Member – December 2020

One of the main priorities for small businesses – especially these days – is survival. While that often means items such as corporate governance may take a backseat to accomplish that goal, they’re still important to achieving long-term stability. While your corporate governance may look simple for now, it should be constructed in a way that facilitates growth, both in terms of your governance structure and your business as a whole.

How Good Corporate Governance Promotes Growth

Before getting into the details of how your corporate governance should work early on, it’s worthwhile to look at how it promotes growth in the first place. Ultimately, it comes down to stability and accountability. The purpose of corporate governance is to make sure your organization is held accountable in fulfilling its fiduciary duties – i.e., investors know they can trust you with their funds; customers know they can rely on you to provide worthwhile services, and your internal stakeholders can be confident that funds will be managed fairly and honestly. Solid governance makes your company more reliable and stable, less prone to liability, and more likely to attract shareholders once you go public.

All these factors create a sound basis for long-term growth, particularly if your strategies are tailored to develop and mature as your business expands.

Governance Tips to Sustain Growth

So how can you develop your corporate governance strategy to sustain current and future growth? There are a few tips that are particularly important to follow.

1. Start Early

First, don’t put it off. While a small start-up or family business may have the primary objective of just surviving its early stages, having some sound Six Ways to develop a governance strategy that supports growth corporate governance strategies early on is also important. By starting out early, you’ll prime your organization for future growth as your business expands, particularly in terms of your regulatory compliance and overall business culture.

2. Establish an Independent Board

The central role of a board of directors is to help the company make sound decisions that satisfy the needs of all its stakeholders – customers, shareholders, investors, managers, executives, etc. While your business may not have a full-fledged board of directors, it still should have some individuals on board who can provide an advisory role. That means the members of your board should be able to provide clear and honest feedback on the goings-on of your business. If the board goes along with whatever the CEO proposes, it won’t provide much value to the company as it moves forward. On the other hand, having a board of independent directors gives the kind of push and pull needed to make sound business decisions.

3. Prepare to Separate Executives from Management

Early on, your senior management – CEO, CFO, etc. – likely handle most of the day-to-day managerial aspects of your business as well as governance issues. As your business grows, however, you’ll need your internal structure to develop to support it. Eventually, your executives should begin operating separately from management in order to allow them to focus on the governance aspects of your organization. As time progresses, look at your structure and see where individual duties have evolved. If managerial tasks are pulling someone away from their governance-related duties, it’s likely time to get someone else on board.

4. Plan for Financial Reporting

Central to promoting accountability and integrity in your organization is reporting. You’ll want to make sure you make financial reporting a consistent practice, both in terms of how often it’s conducted as well as with respect to the methods and practices you use. Even if you just have an outside auditor look everything over once a quarter, that can help solidify financial responsibility in your organization.

5. Determine Compensation

The way different stakeholders in your organisation are compensated should also be carefully considered. Large companies are often placed under close scrutiny in terms of how different members of their organisation are compensated, so in preparation for that, it’s best to have a consistent, fair and honest system in place from the get-go. By hammering out compensation and benefits early on, you’ll promote a culture of transparency and integrity that can carry you through futures stages.

6. Use Outside Resources

Startups and family businesses usually don’t have a lot of resources to use on internal staff, so utilising external services can help you develop sound governance practices without incurring excessive overhead costs. Outside legal counsel can be particularly useful when it comes to developing your corporate governance structure in a way that is fully compliant with all relevant standards and incurs minimal liability. An accountant, financial advisor or auditor will also provide much-needed guidance on the financial aspects of your organisation. More specialised skill sets may be needed for certain situations. For instance, if your section of the market is currently awash in mergers and acquisitions, having an expert in that area on your side can be invaluable to navigating your course moving forward.

Governance Should Grow with Your Business

While the above tips should help you get a handle on your business’s corporate governance from the start, there is one point of advice that is important through every stage of your organization’s development. That is the importance of revisiting your governance strategy on a regular basis. As your company grows, so too will its structure, and that means you’ll have to deal with greater levels of complexity when it comes to ensuring transparency and compliance at all levels. As such, you should continuously revisit your corporate governance strategies and overall structure. Doing so lends itself to long-term sustainability and continuous improvement. By applying these principles and revisiting them on a routine basis, you’ll prime your business for continued growth – both now and in the future. – Forbes

//