I’ve got a small company… where do I start?

The following blog will show you how your SME can benefit from implementing a formal business structure.

This blog serves only to give you a more in depth insight in what corporate governance is especially for the small business owner that is not used to these type of concepts and wording.

During the years that I’ve been working with entrepreneurs and specifically small companies I notice that most of the smaller companies do not see the value of corporate governance and don’t see the reason they must carry out such governance. A lot of these small entrepreneurs would argue that it will take too much of their valuable time – time that they could have used to get new customers.

“According to Christo Botes, Executive Director at Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SME) says this need not be the case. He says a framework creates discipline within a company and ensures a formal business structure which helps with steering the business in the right direction for growth.

Corporate governance framework is the set of policies, rules and procedures put in place – agreed upon by the business’ main shareholder, most likely the entrepreneur – that Botes says, will assist with transparency, accountability, ethical behaviour and ultimately profitability within the business. It’s as the company grows that most businesses are most in need of a structure.

“Corporate governance is a natural progression and while the full structure may not be suited to all businesses, a certain degree of structure needs to be implemented”

He says many business owners occupy all the roles in the business which is not always ideal. “Often the entrepreneur plays the role of sole shareholder, director and management of the company and differentiating between these roles can become blurry. This results in the entrepreneur running from day-to-day and job-to-job, and letting other aspects of the business be overlooked, such as budgets, returns and employee structures.”

Start small

Botes says the common misconceptions among SME is that they believe they can’t afford to implement a framework. It’s important, he says, that entrepreneurs start small management teams. This can include themselves, a mentor and perhaps a spouse or manager or team leader.

“This team will be responsible for the different areas in the business.  Regular team management meetings should then be held where progress is reported. The mentor will be responsible for overseeing all such meetings to ensure sufficient progress is being made” he says.

As the business continues to grow, and generate more money, a board of directors can slowly be introduced, says Botes. “Corporate governance is a natural progression and while the full structure may not be suited to all businesses, a certain degree of structure needs to be implemented in order to ensure business growth. Corporate governance enables entrepreneurs to grow their business and turnover without taking on more risks, and rather grow organically through efficient planning and management of the company’s workforce”, he says. http://www.smesouthafrica.co.za/Corporate-governance-framework-Does-your-SME-have-one/

Important ways a mentor can assist in building your corporate governance framework:

– They can provide guidance for entrepreneur.

– They are able to ask the right questions e.g. what are the business’ goals for the next one to five years, whether the budgets have been drawn up and whether the business should be sharing more or less risk.

– They can provide a helicopter view of the business, while an entrepreneur may just be looking internally.

What is corporate governance?

The term corporate governance is widely defined as: “The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders (financiers, customers, management, employees, government, and the community)…. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.

According to this site: http://www.businessballs.com/corporate-governance.htp

Good Governance also includes and extends to:

  • policies and protocols
  • leadership style and methods
  • management structures and practices
  • accounting and taxation
  • organizational culture and habits
  • systems and administration
  • strategies and tactics, marketing and advertising
  • buying, supply chain management
  • manufacturing and distribution
  • organizational purposes, aims and priorities – and how these are balanced against by-products, effects, consequences
  • the psychological contract
  • decision-making and decision-making processes
  • quality, safety, sustainability
  • staff development, well-being and health
  • equality, discrimination, human rights
  • risk assessment of activities and decisions
  • communications and public relations
  • ITC – information and communications technology
  • technology and innovation
  • social and environmental responsibility
  • finance, profit, remuneration
  • shareholder relations and returns
  • legality, probity, ethics and morality

Each of these factors has the potential to go badly wrong, so that people or planet or simply the organization itself suffers in some way. And the larger the organization, then the greater the potential for disastrous impact.

Bad Corporate governance

  • anything unlawful (according to the territory or other laws applying)
  • taking risks which have serious consequences
  • failing to take action after serious failings
  • dishonesty, withholding information, distortion of facts
  • misleading communications or advertising
  • deception
  • exploitation of weakness and vulnerability
  • anything liable to harm or endanger people
  • avoidance of blame or penalty or payment of compensation for wrong-doing
  • failing to consult and notify people affected by change
  • secrecy and lack of transparency and resistance to reasonable investigation
  • bribery, coercion or inducement
  • harming the environment or planet
  • unnecessary waste or consumption
  • invasion of privacy or anything causing privacy to be compromised
  • recklessness or irresponsible use of authority, power, reputation
  • nepotism (the appointment or preference of family members)
  • favouritism or decision-making based on ulterior motives (e.g., secret affiliations, deals, memberships, etc.)
  • alienation or marginalization of people or groups
  • conflict of interest
  • neglect of duty or care
  • betrayal of trust
  • breaking confidentiality
  • causing unnecessary suffering of animals
  • ‘bystanding’ – failing to intervene or report wrong-doing within area of responsibility (this does not give licence to interfere anywhere and everywhere, which is itself unethical for various reasons)

This is not an exhaustive list but it will give you a starting point if you want your business to grow and excel!