Jonathan Marchant, Hazlewoods Director, considers the importance of corporate governance in all businesses.
The phone hacking scandal is being labelled as another failure in corporate governance by politicians and commentators alike. Many of the questions posed to the Murdochs at the Commons’ hearing focussed on how News International has been run, the tone set at the top, and who is ultimately responsible. Corporate governance, or a lack of it, is blamed.
Many of us hear the phrase ‘Corporate governance’ and switch off. It feels like the preserve of large listed companies and conjures up images of form filling, stuffy committees and bureaucracy. However, if you strip away these preconceptions, the underlying theory is one that is relevant to all businesses, not just those abiding by the Combined Code.
A good corporate governance framework ensures that decisions made are consistent with the aims, ethics and ethos of the business. If you increase the likelihood of making good decisions, then your business (large, small, listed or private) can only benefit.
Are you going through the motions?
The advice to ‘create a framework’ is easy to write but hard to do. Start by asking yourself what your last board meeting was like. If it was challenging and dynamic you are probably going in the right direction. If you felt like you were going through the motions, maybe it is time for a change.
There are many good examples of private businesses which find an approach that works for them. Some introduce non executive directors, or non family board members to professionalise the team or bring a fresh perspective. Others introduce incentive schemes to attract, retain and motivate quality staff who will make decisions that work for the business.
If corporate governance is about ensuring that you ‘do the right thing,’ then the challenge for listed businesses is straight forward. Management need to grow profits for their investors in a legal and sustainable way. If investors do not agree with the approach then they can sell up and move on.
Investors in private companies do not have the same flexibility, more often than not they are invested for the medium or long term. Add a family dynamic to the private company and you have yet another challenge in the often constant tension between family and corporate objectives. ‘Doing the right thing’ is therefore more difficult and arguably more important. There may not be a Combined Code to follow, no watchdogs and little guidance, but do not take that to mean corporate governance can be ignored.
Clear vision, quality people
My view is simple; have a clear vision of what you want to achieve and surround yourself with quality people to ensure that your actions are consistent with the vision. That is good corporate governance, the forms are optional.