Effective governance is the cornerstone of business success and longevity.
Good governance is about structuring, operating, and controlling a company with a view to achieving long-term strategic goals for shareholders, creditors, employees, customers, and suppliers.
The effect of good governance is the realisation of the company’s desired vision and purpose due to achieving the required results and outcomes operationally in the business.
Governing vs Managing
The difference between Governing and Managing is a very important distinction to understand in business.
You often hear people talking about working on the business as opposed to working in the business. Working on the business is Governing. You’re accountable to the shareholders and the company. You’re most likely wearing a director hat, and your job is to maximise shareholder value. That’s quite distinct to Managing when you’re working in the business, and you’re accountable to the board.
When we’re governing, we’re quite strategic in our focus including setting the Vision of where the business should be in the next five years, creating the strategies to get there, and putting a really effective plan in place.
So how will we know we’re doing the governing job properly? We have to make sure we’ve got a clear purpose statement, good business culture and good core values; we’re holding people to account, and we are making sure we’re dealing with risks and other compliance matters so the business is in the best possible shape it can be. And that’s quite distinct to Managing when you’re very operational in your focus.
You may wear multiple hats, you may wear a Governance hat and a Managing hat but just at different times. When we’re wearing the Operational or Managing hat, we’re implementing those strategies that we’ve developed in that plan. We’re making sure the business delivers on that purpose and achieves that vision. And how will we know whether we’re on track or not? It’s important to have regular reports and regular meeting rhythms to check in and make sure that each of the departments is delivering what they need to. The job of Managing is to make sure that the business achieves that vision, that strategy set by the people working on the business.
Why is good governance so important?
At a base level, good governance allows a business to keep operating:
1. Shareholders continue to invest money and time.
2. Funders continue to fund the business.
3. Suppliers continue to supply and allow credit because they sense a stable business environment.
4. Regulators (if any) allow the company to continue, as compliance matters are being met.
5. Customers continue to support the business by buying from it.
6. Employees continue to have faith in the business and continue providing their services.
What types of companies should undertake Governance Planning?
Any company that is serious about creating and developing an effective Board of Directors should have a Governance Plan. Even if your business is currently small, if your growth plans are large or you simply want to get better at guiding your business, an effective Governance Plan will remove stress and add value.
If your industry is going through times of change or family dynamics are getting in the way of the business, having a Governance Plan will help align the directions to respond to industry changes and minimise the effect family relationship issues will have on the decision-making in the business.
We would argue that the majority of companies, even smaller ones, would benefit from more effective governance. After all, “A big business starts small”
– Richard Branson
When a business is small, governance tends towards ad-hoc and laid back. On the other hand, when a business is large, governance can tend towards overly bureaucratic and arrogant.
The best governance, for all sizes of business, involves:
- Everything that’s needed; nothing that’s not
- Intense professional will, with deep personal humility
- Consensus without ‘groupthink’
Good governance isn’t so much about learning a set of rules and procedures; it’s about having a mindset that desires to have a well-governed business. And you need some practices and coaching to get you there.
Call us today for more information about our Governance Planning services.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or get professional advice from an adviser at KMT Partners.
