UNDERSTANDING CORPORATE GOVERNANCE
(Jan. 10, 2020) — Practicing good business governance helps your company succeed. Managing risks by adhering to laws and regulations is crucial.
Small companies start with one or two, perhaps even up to five employees. But if your business becomes successful, you can’t stay small for very long. Business growth requires growing your team, and from about five employees, you will get to 10 or 20. It is at this point that a more formal and organized structure needs to be put in place.
You need a better system for dealing with matters like employee compensation, equipment policies, increasing the customer base, or even your company’s taxation compliance, for which you might need the help of an attorney. With different players, different interests and relationships, your little enterprise starts to look like a full 100-piece orchestra with each instrument ready to play its tune. Without a conductor, it’s going to be chaotic.
In comes the concept of corporate governance. Here are a few things that you should know about corporate governance as you try to make your company more successful:
Understanding Corporate Governance
Continuing with the orchestra analogy, you want your organization to be playing a beautiful symphony. No instrument should be playing too loud that it drowns out the music of the others or too soft that it can’t be heard. Balance and fairness are at the core of the concept of corporate governance. Technically speaking, it’s putting in place policies, protocols, and processes that guide an organization’s behavior. Goodness in running a company embodied in a code of conduct is what corporate governance is all about.
Why It Is Important
With increasing regulations, even for small businesses, a slight misstep like the failure to file a document in your county office can spell catastrophe for your business. It will negatively impact both investor and customer confidence. Here’s why corporate governance must be an integral part of your business operations:
- Making the right decisions. You want to encourage or rather institute the practice of good decision-making in your organization. Should managers outrightly recommend the dismissal of subordinates starting gossips around the office? An informed decision is based on policies that are in place, and both the manager and assistant should trust and rely on those policies. Good decision-making is guided by policies and not by whims. This will benefit the overall morale of a team rather than foment discontent.
- Adherence to laws and regulations. Sales and marketing teams are driven by the need to push products and services out the door to generate new businesses. These efforts pose risks that might not be immediately obvious to the team. Inputs from external advisors like accountants, lawyers, and communication experts will help ensure that all activities adhere to specific laws and regulations. A good example that many small business practices are trying to grapple with is how to comply with data privacy laws.
- Integrity and ethics matter. Put in place a policy that governs conflicts of interest. This is particularly crucial at the executive leadership and board-of-directors level, where members take a vote. Members should not be voting on matters where there is an apparent conflict of interest. Someone must take the lead in overseeing this conflict-of-interest policy. A clause on whistleblowers should be an integral component of such a system.
Clearly defining roles and responsibilities amongst C-level executives as well as the board of directors reinforces both individual and collective accountability. As your company grows, understanding these key concepts will help make your organization more efficient and successful.
Sharon Rondeau has operated The Post & Email since April 2010, focusing on the Obama birth certificate investigation and other government corruption news. She has reported prolifically on constitutional violations within Tennessee’s prison and judicial systems.