Is it time to take the “Corporate” out of “Governance”?

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Corporate Governance has been described as “the system by which companies are directed and controlled”.   Clearly this applies to all businesses.    However Corporate Governance as a subject tends to be the ambit of public companies, charities and other public interest organisations.  On line conversations in the Corporate Governance community seem to mostly relate to larger businesses.

In small to medium sized organisations it is not uncommon for systems and information to lag behind the growth of a business.  Directors often focus on business development, but don’t always mind the back office or the long term perspective.   In recent years I have been called into situations where small/medium sized companies did not understand the cost of the goods or services they supplied or, when supplying services, they weren’t monitoring staff time/effectiveness.   In the first situation the businesses couldn’t make informed decisions and in the second they risked incurring avoidable costs.

Oversight by non executives is a key feature of Corporate Governance – while the idea may be alien to many SMEs, they bring experience, an alternative perspective and the need for accountability and as such can help small businesses* as well as larger ones!!   Similarly, most large public companies have internal audit to help the non executives monitor the effectiveness of the organisation’s controls.   I prefer to regard internal audit as “entrepreneurial audit” as it is something that helps ensure that systems and information support the business going forward and it could have helped the SMEs that I mentioned make improvements at an earlier stage.

These are a couple of examples of how SMEs can learn from the Corporate Governance world.  Over time the wider community would benefit through there being more profitable and robust smaller businesses!!    Having said that I also I sense that many people in the SME community regard the word “Corporate” as almost a dirty word.   It’s a shame because the word “Governance” is usually accompanied by the word “Corporate” and perceptions are really important!  ….

… So perhaps now is time to take the “Corporate” out of “Governance”?     Do you agree that small businesses can learn something from bigger ones and if so how else can they brought together?  Your thoughts would be appreciated!!

*please see my White Paper: 5 Questions Successful Directors Ask Themselves About Their Business Strategy
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Comments

  1. Hi David… the first pair of terms that need defining here are, what is a small business and what is a large business… depending on who you ask you will get very different answers… In order to clarify my response I guess a corporate business might be one turning over £50 million per annum… an SME one with perhaps £1M plus and then micro businesses under that…

    The simple answer to your question is of course YES… however this cuts both ways… whereas big business has controls and procedures sometimes these lag well behind the times and it is the micro and entrepreneurial arena that they ought to be looking to access this knowledge but they have no conduit to be introduced… until now of course….

    The same problem applies to the SME… they often lag behind preferring to stick to ‘this is the way we’ve always done it’ set of processes… and yet they suffer from not having the controls to run the business and are also too busy to pick up more effective methods and modernise which could be introduced via the experimental and agile micro / entrepreneurial businesses…

    Corporate is not so much a dirty word rather one which is associated with something that meant ‘I was just a number’, ‘stress and pressure from an unforgiving boss’, ‘politics and watching your back’ as others with personal agenda’s tried to get ahead… so I guess corporate just means walking through treacle and having little capability to make a real difference in the big scheme of things… we all like to feel valued and important, making a contribution that is recognised… this is often missing in corporate which is why people get out!

    As you know what we are doing is rebuilding community… every business whatever size is in a community… therefore the right way to engage is through this community conduit… we have some exciting innovations and plans to do just this in 2013… so watch this space… or even get more involved!

  2. Chris

    Thanks for your comment. Regarding the size of businesses, a former colleague had an interesting definition of small medium and large companies:

    – In a small company everyone knows everyone else
    – In a medium sized company some people know everyone else
    – In a large company no-one knows everyone else

    While people clearly have different perceptions when thinking about turnover and number of employees – this is in some ways is a better definition as it sort of represents the interaction within the company!

    Regarding your observation of “Corporate” – I’d say that cultural influences and staff structure have a big part to play in achieving engagement in any organisation. Clearly it becomes more difficult in larger companies and is something the boards & NEDs of some of them should work on more. Apart from anything else disengaged staff will often not perform well and it increases risk as well as the cost of hiring and training new staff!!

    I think you are quite right that big companies can also learn from smaller ones. Incidentally, I don’t think that SMEs should be clones of their bigger cousins, but I do think that in a number of cases the lessons they can learn will make the difference between success and failure.

    I look forward to hearing news from Link4Growth!

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