Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. It involves balancing the interests of the company’s many stakeholders – shareholders, executives, staff, customers, suppliers and the community – and balancing these interests in such a way that no one comes off second best. Corporate governance provides the framework for attaining a company’s objectives and it encompasses every sphere of management.
In plain English? Corporate governance is your framework for running a legal, healthy company that does good and achieves success.
Governance specifically refers to the set of rules, controls and policies that are put in place to dictate the behaviour of every person in your company.
Some of these rules and policies are dictated to you by your country’s laws and legal requirements. Examples are the UK Corporate Governance Code or the South African Basic Conditions of Employment Act, or your specific country’s tax laws. These are laws and requirements that you have no choice but to comply with. Things that you, your company and your staff HAVE to do to be compliant and legal.
Some of these rules are dictated to you by your supplier or customer needs and requirements. For example, some companies will only deal with suppliers who are registered for VAT. In South Africa, some companies have a policy of only dealing with BB-EEE companies. Big corporates often have very strict purchasing policies in place, which means that if you want to be a supplier, you will have to set up your own policies in such a way that you comply with theirs. If you want to deal with any of these businesses, then your own company framework needs to be set up in such a way that you can meet these requirements.
And then some are developed entirely by you, to suit your ethics and needs. There are some rules, policies and needs that are specific to your industry or your product. If you are good and ethical person, then you will want your business to be run in an honest and ethical manner. You will want policies that are legal and fair. As a business owner, you will want controls that prevent fraud so that you don’t lose stock or money. If you create a product, then you will need your staff to comply with specific steps in order to ensure quality control. You need a set of rules and policies that ensure that your staff know how to comply with all of these requirements.
All of these things come together as the corporate governance framework that guides your entire organisation and whether you are a one-man show, or a big corporate, you need them. Regardless of your company size, you really should have them properly written out and thoroughly understood by everyone involved.
Good corporate governance has the following benefits for your business:
- Good corporate governance ensures corporate success and economic growth
- Strong corporate governance maintains (or creates) investor confidence, enabling faster access to capital
- It lowers the cost of capital, since a company with good corporate governance poses a lower risk for an investor
- It ensures that every person in the business knows how to complete a task correctly
- It minimises waste, corruption, risks and mismanagement
- It makes it possible, and easier, to achieve the company’s objectives
- It helps in brand formation and development – it helps develop your corporate culture and gives your company a personality
- It ensures good management and that the interests of everyone are looked after
If you do not have a set of definitive policies and procedures that lay out how your business runs and why, then it is in your best interests to create one. Developing a corporate governance framework and a system that enables all staff members to stick to it is crucial to business growth and success.
Start by simply laying out the steps of how you do business every day, be careful to detail how you want your staff to handle specific processes. Then add in the steps you have to comply with for your suppliers and customers. Then add the things that you have to do to be legal and compliant in terms of your country’s business and tax laws. Bring it all together and add your own personality and preferences. Lay it out in such a way that it is logical, easy to understand and easy to apply. Then put a process in place to make sure that you and your staff comply with it!
If you need some help with where to start, or with the whole thing, give us a shout.