Grappling with Governance - Companies and Businesses

Friday, March 24, 2017

We normally associate the term “Corporate Governance” with the big end of town or listed companies on the Australian Stock Exchange (ASX). There is an expectation that large companies, subject to public and government scrutiny, adopt and embrace the notion of “Corporate Governance” as part of their modus operandi.

The simple fact is governance, whether corporate or business should be adopted and embraced by all as it is fundamental to the integrity of the operations of that entity.

Governance is a very generic term but it is interesting how the media and the profile of “Corporate Governance” has somehow badged itself to the big end of town. This is understandable given every Annual Report of a listed company in Australia must include a detailed breakdown of its Corporate Governance policies or reasons as to why they have not adopted certain corporate governance procedures.

It is unfortunate the business community has not, by self-regulation, put forward a standard platform of corporate / business governance that can apply to the rest of the commercial community.

Part of the reason I think lies with defining Governance, as it is a very generic, broad term that may appear ambiguous or irrelevant to businesses outside of the ASX.

Governance is generally defined as the processes, principles and procedures by which businesses are operated, regulated and controlled, such that the controlling influences (directors / management) maximise profit while balancing their social responsibilities.

In many instances I notice Business Plans often fail to consider the issue of governance. Budgets, cash flows, market analysis, accounting are always included.

Governance is often a non-cash item, rather a function of significant time that the proprietor must invest into defining the:

  • Principles;
  • Procedures;
  • Policies;
  • Intellectual Property;
  • Checklists;
  • Flow charts;
  • Accounting Controls;
  • Organization Structures;
  • Chain of Command; and
  • Critical Path Analysis of various key operations

And these are just a few examples of how the controlling influences must disseminate information such that all levels of the business function at an optimal level in fulfilling their specific mandate within the overall operations.

So I stress that governance applies to all businesses competing for market share.

More importantly, new businesses need to give due regard to governance in their business plans as it is fundamental to the success or otherwise of the new venture and is generally not definable as an expense but rather a “significant investment of time required by the stakeholders / directors in defining the operational lines of communication that disseminate the culture and objectives of the business”.