Good governance for small businesses

The King Code of Governance Principle consists of the three key elements of leadership, sustainability and good corporate citizenship and, though South African businesses are operating in a trying and difficult economic environment, good governance in place helps ensure stability and in return sustainability, even for small businesses.

“The current economic climate is resulting in a lot of smaller owner managed business failing,” says Seugnet van den Berg, MD at consulting firm Bizmod. “These could also benefit from good governance but implementing such a framework and in particular, the introduction of a board into an intimate environment can be daunting for business owners.

“The value of different expertise and diverse personalities in a small business environment is invaluable, despite the perceived effort and complication in introducing this element.

“The primary role of a board is to provide strategic direction and a bird’s eye view of the path the company is taking. The board is also there to look at the sustainability of the business and stay independent. It is especially important that any operational issues that the company might be experiencing do not impede board members. If nothing is changed, then the outcome will remain unchanged.”

Five tips to establishing good governance

As a small business owner, there is a moment when you realise that you require outside expertise and you are no longer able to do it alone. The next step is to move past your fear of inviting strangers into your business and allow them to guide and direct the company.
The most important step is finding the right people to sit on the board. This should be approached professionally and candidates should be interviewed so as to ensure that their skills and personalities fill the gaps that are evident in the current management team. It may feel easier and safer to appoint a family member or friend, but if they are not the right person for the role, the entire governance framework will fail.
Formalising the board’s role and what will be required from the board and management team on a regular basis is a requirement. These activities will include creating board packs, MD reports, financial forecasts, business objectives, etc. A formalised approach will highlight areas of strengths and weaknesses and where focus needs to be placed for the company to grow.
The board fulfils a function in an owner managed business that is lacking, it is important that all members understand this role and are mindful of the fact that there will be an education and learning period for all. It is normal to experience anxiety and insecurity but if everyone collaborates and contributes positively, it will be a success.
It will take approximately twelve months for the governance framework to be properly established and to be working to its full potential. The board will begin to push boundaries and challenge the business into new and exciting areas; for example, implementing a marketing strategy, developing an official sales pipeline, developing leadership competencies, etc.

“There are many advantages of putting a governance framework in place but the primary advantage is the growth and development it brings to the business. An owner managed business focusses on its areas of strength, whereas an operation with governance procedures focus on running the business holistically, producing significant long-term benefits,” concludes van den Berg.