Corporate governance is the system by which companies are directed and controlled. This section looks at the main areas of corporate governance and how they affect your business.
2. Corporate Governance
Corporate governance deals largely with the relationship between the different parts of a company - the directors, the board and the shareholders and exists to ensure that companies operate in a fair, equitable and appropriate manner.
Transparency and accountability are the most important elements of good corporate governance. This means:
- the timely provision by companies of good quality information
- a clear and credible company decision-making process
- shareholders giving proper consideration to the information provided and making considered judgements
The UK has some of the highest standards of corporate governance in the world. The UK Corporate Governance Code sets out good practice covering issues such as board composition and effectiveness, the role of board committees, risk management, remuneration and relations with shareholders.
Whilst corporate governance primarily concerns large, publicly owned companies, it makes sense for small businesses to be aware of the principles and to adopt good practices in the way they are run.
Although small businesses don’t typically have large boards or extensive shareholder groups, they do have investors or multiple business partners with a substantial interest in the success and growth of the company. Adopting sound corporate governance demonstrates that the company has a culture of transparency and fairness and conducts business in an ethical and accountable manner.
3. How to adopt corporate governance in your business
“No company is too small to have to worry about strong corporate governance.” Jeremy Copp
Whilst corporate governance primarily concerns large, publicly owned companies, it makes sense for small businesses to be aware of the principles and to adopt good practices in the way they are run. Here are some tips for your business.
A basic knowledge of the underlying principles of corporate governance is a first step. Be sure to explain why your small business has chosen to follow these principles to all your stakeholders.
Map the business's current structure and visualise how you plan to grow
Essentially this is an organisation chart that not only shows the roles and reporting structure, but also defines responsibilities and highlights the focus areas for your business.
Develop a process or procedure document for each activity
Having basic process and procedure documents in place is good practice. This may be from how to answer the telephone to fulfilling orders and responding to customer queries.
Establish an advisory board
An advisory board is a voluntary group of people with no legal rights, that serves to mentor and support your business. Select people you know and trust and who have an interest in helping you and your business succeed. Invite them to share their experience and ideas, offer insights and be a sounding board for your growth plans.
Introduce a code of conduct
This describes the required behaviours, responsibilities, actions or attitudes of those in the business. It can provide guidance on how to act or react in various business situations and ensures everyone has a clear understanding of the values underpinning the business.
Set goals and develop a strategy
Having written goals and a plan in place gives direction to a business. It also ensures that everyone involved in the business is aware of what is required and is working towards the same outcome.
Map a plan for consistent financial reporting
Knowing when, where and how money is being spent or allocated, is not only good practice, it serves to hold people accountable for their actions and also promotes transparency in the business.
Make a plan for the unexpected
Having plans in place to handle the unexpected, reduces confusion and response times if something happens. Social media and instant communications mean that things happen fast, so be prepared and have back-up plans in place for both positive as well as negative events.
Have open policies for pay and benefits
Being open and clear about how employees are rewarded minimises potential problems.
Keep up-to-date with industry trends and governance laws
Pay attention to what is happening around you to stay ahead of the game in acting fairly and ethically.
Whether you are looking to substantially grow your business, seeking support for your investment plans or simply looking for a way to conduct business in a more ethical, transparent and fair way, follow corporate governance best practice.
Use this template to consider each of these areas of corporate governance in your business (MS Word 12kb).
Next: Creating an effective board