Build your business on solid foundations – don’t overlook the business basics of management and control

At a glance

• Understand the need for good governance principles and how they can help you drive your goals and objectives to achieve your strategy.
• Undertake a practical step-by-step “health-check” to see where you are now and compare that to where you need to be in the future; this provides an opportunity to deal with any gaps and keep you on track with your expansion plans.
• Sound management and control processes provide a solid launchpad for you to build value in the business and to nurture a performance-led culture; external expectations are now higher than ever – the bar has been raised – you have a reputation and a brand to protect.

As an entrepreneurial, growing business, it is easy to dismiss some of the basic business disciplines as involving too much “bureaucracy” and “red tape” – the business by-words tend to be focused on the ability to be nimble, fast-moving, flexible, innovative. However, a mature and responsible approach to business expansion should be based on establishing a solid foundation that draws upon the benefits of sound governance and the effective management of business risks.

Building a foundation to grow from

The concept of corporate governance typically gets bad press and is associated with lots of structure and a ‘conformance’ mindset; but if you consider what the term means, it should provide a more balanced view that is based on strategic considerations. A common definition is:

“The system by which organisations, of any size or sector, are directed and controlled. It provides a structure through which the organisation’s objectives are set, as well as a basis of attaining those objectives whilst monitoring performance.”

Company boards should undertake a corporate governance “health-check” as part of their business planning regime. In simple terms, the board should be considering – Where are we now? vs. Where do we need to be in the future?... How do we deal with any gaps to ensure we remain a viable and vibrant entity, that has a credible agenda for continuous improvement.

Good governance needs to be part of the DNA of all organisations, no matter their size, complexity or business sector – it should represent the base-line foundation upon which a strong business will grow and flourish.

Ten-steps to heaven…

Organisations need to determine their own practical governance framework, based upon the structures and systems that will work for them – there is not a ‘one size fits all,’ off-the-shelf package. However, there are 10 core elements that can help to guide your thinking and shape your own response. The sequence is based on a consideration order, rather than a priority ranking and hence there is a ‘Starting Position’ leading through to an ‘End Position.’

Starting position

1. Business Purpose: It may seem to be an obvious concept, but being able to clearly articulate and have a shared perspective on the ‘purpose’ of the organisation is an essential starting point. Defining your corporate purpose should help you determine how you are set up to deliver what your customers want, within the context of broader societal needs, based on your own unique position and values.

Clear direction

2. Leadership, the Board and strategy: Strong leadership at the top of the organisation will drive the business forward. This also links into establishing a well-balanced board who with the senior management team set the objectives and formulate the most appropriate strategy – the route map to achieve the objectives. The board is set up, based on a corporate legal framework, to have the ‘ultimate responsibility’ for what goes on in the business.

3. Risk management and internal control: Risk is anything that will take you away from achieving the agreed business objectives – risks can be both negative threats and positive opportunities to grasp – consequently it needs strategic focus, it is not just a list of the top 10 things that can go wrong. The control environment helps to protect and ring-fence key assets, essential systems and day-to-day operational activities. Internal controls need to be in place, and these are typically a mix of physical boundaries, human checks/balances and technology-based routines.

Embedded working practices

4, Culture, ethics and capability: People continue to be integral to all areas of the business, and an appropriate culture needs to be in place – this relates to the behaviours of the workforce and helps to re-enforce doing the right thing through ethical considerations. There also needs to be a drive to attract, nurture and keep people who are capable and know what they are doing, whilst maintaining an appropriate level of quality control.

5. Structures, policies and procedures: All organisations need to determine the best structure to get things done - small organisations will keep things simple, but growth may bring more complexity and so structures will evolve. Policies and procedures do need to be codified and shared, but again should be appropriate, clear, consistent and up to date.

Independent review

6. Information systems and reporting routines: Businesses create a range of data and information and need systems to be in place to capture, store and provide access – this is typically linked to reporting and communication routines. This is supported by the old adage: “the right information is needed at the right time to make the right decisions.”

7. Assurance and audit provision: There is typically a lot of moving parts across the organisation and as the business grows a ‘siloed’ mentality can take hold. At times boards and senior management can benefit from some feedback on how things are going – consequently some form of assurance activity may need to be put in place. The external auditors cover the financial and accounting information, but do other areas need an experienced specialist to “kick the tyres” now and again.

Objective judgement

8. Compliance and stakeholder relations: All organisations need to comply with the legal and other related requirements, some of which may be to do with size, sector, geography, customer or client interaction – it is important to keep these areas under review. All organisations will also have quite a broad range of ‘stakeholder groups,’ both internal and external – these represent anyone who has an interest in the organisation. Again, it is important to know who they are, what their expectations are and how do we best engage.

9. Board procedures and oversight: The cycle of overall corporate governance is driven by the board – they should have the ultimate responsibility (see step 2); hence the board and board procedures should be the best place to draw together all of the areas outlined (steps 3 to 8). The board should have oversight over the day-to-day business operations.

End position

10. Annual reporting and disclosure: ‘Trust’ in the organisation is central to good governance and you build trust through good communication and reporting mechanisms established by the company. Reporting and disclosure of information needs to be fit for purpose and there are now different ways to put across key messages and to engage in a healthy dialogue to enable all interested parties to come to informed decisions about the company. You need to be in control of your own narrative and be able to tell your own story.

The above summary should act as a cycle of activity geared to your own corporate existence, rather than providing a checklist of things to do and tick-off. Get it right and it can act as a ring of confidence to your expansion plans – attracting, supporting and retaining customers, suppliers and a committed workforce.

View from the boardroom

Good corporate governance is about having the right people, in the right roles working together and doing the right things to deliver longer-term value to stakeholders. As the business continues to expand a series of decisions are made by the board which itself needs to be kept dynamic and diverse and engender a consistent corporate culture throughout the organisation. The board needs the necessary mix of skills and experience to make robust decisions – it needs to be on the front foot and proactive.

Well run companies will have a published business plan linked to a strategy or route-map setting out how it intends to achieve sustainable growth, through operating its own business model. However, doing business comes with its own level of risk, especially in the current economic and geopolitical climate. Boards and business owners need to determine how much risk they are prepared to take to achieve objectives – their ‘risk appetite.’ The post-pandemic period has resulted in more time and attention being given
to the effective management of risk and a deep dive into this area can often be one of the next steps to consider.

Need support and an independent view?

Taking the time out to look objectively at the business can be tricky, especially when you are juggling a number of balls in the air at any one time. Working in partnership with you, we can help you undertake a governance health-check which both recognises the good practices in place at the moment but also highlights opportunities to do better. We help to make sure you are in the best position to take your business to the next level. Get in touch today and together we can look at the options that will suit you.

Elephants Child are an external growth adviser and SME specialists who have been carefully selected by St. James's Place. Their services are separate and distinct to the services carried out by St. James's Place and their opinions are not necessarily shared by St. James's Place.

‍