6 ways to develop a good corporate governance strategy
6 ways to develop a corporate governance strategy to support growth
Good corporate governance comes down to stability and accountability. The purpose of corporate governance is to ensure that the organisation is accountable for fulfilling its fiduciary duties. That is, investors know they can trust you with your funds; clients know they can trust you to provide worthwhile services; and internal stakeholders can trust that funds will be managed fairly and honestly.
Governance tips to sustain growth
Strong governance makes your company more reliable and stable and more likely to attract shareholders once it goes public. All of these factors create a solid foundation for long-term growth, especially if strategies are designed to develop and mature as the business expands. There are a few tips that are particularly important to follow.
1. Start corporate governance strategy early
First, don't procrastinate. While a small start-up or family business may have the primary goal of simply surviving in its early stages, having some solid corporate governance strategies in place from the beginning is also important. By starting early, you will set your organisation up for future growth as your business expands, especially in terms of regulatory compliance and overall corporate culture.
2. Establish an independent board of directors
The primary role of a board of directors is to help the company make sound decisions that meet the needs of all its stakeholders: customers, shareholders, investors, management, executives, etc. Even if your company does not have a full board of directors, it should have some people who can play an advisory role.
This means that your board members must be able to provide clear and honest information about your company's activities. If the board follows what the CEO proposes, it will not provide much value to the company as it moves forward. On the other hand, having an independent board provides the kind of push and pull needed to make sound business decisions.
3. Prepare to separate executives from management.
In the beginning, senior management - the CEO, CFO, etc. - will probably handle most of the day-to-day management aspects of your business, as well as governance issues. However, as your business grows, you will need your internal structure to develop to support it. Over time, your executives should begin to operate separately from management to allow them to focus on the governance aspects of your organisation.
As time goes on, look at your structure and see where individual roles have evolved. If management tasks are taking someone away from governance-related duties, it is probably time to bring someone else on board.
4. Plan financial reporting
To promote accountability and integrity in your organisation, reporting is fundamental. Ensure that financial reporting is a consistent practice, both in terms of the frequency with which it is carried out and the methods and practices used.
5. Determine compensation
How different stakeholders in your organisation are compensated should also be carefully considered. Large companies are often under close scrutiny as to how different members of your organisation are compensated, so in preparation for this, it is best to have a consistent, fair and honest system in place from the outset.
Establishing trade-offs and benefits at the outset will foster a culture of transparency and integrity that can carry you through to future stages.
6. Use external resources
Start-ups often do not have a lot of resources to spend on internal staff, so using external services can help develop sound governance practices without incurring excessive overheads.
External legal advisors can be particularly helpful when it comes to developing a corporate governance structure in a way that fully complies with all relevant regulations and incurs minimal liability. An accountant, financial advisor or auditor will also provide necessary guidance on the financial aspects of your organisation.
Corporate governance must grow with your company
In addition to the above advice, there is one piece of advice that is important at all stages of your organisation's development. It is the importance of reviewing your governance strategy regularly.
As your company grows, so will your structure, and that means you will have to deal with greater levels of complexity in ensuring transparency and compliance at all levels. It is therefore important to continually review your corporate governance strategies and your overall structure. Doing so ensures long-term sustainability and continuous improvement.
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