5 Corporate Governance Practices Worth Implementing Into Your Business
When running a business, you are responsible for the company’s accountability and transparency.
When you’re at the helm, you’re not only responsible for yourself but for your employees too, and without proper oversight and ethics guidelines, you could all find yourself in hot water. That’s why when you’re setting up a business it’s important to implement corporate governance practices. We asked 7 industry experts about their best governance practices and this is what they said.
- Adopt a risk-management strategy that is successful
One risk assessment won’t be enough to protect your business, according to Mike Chappell, Founder of FormsPal. Risk assessments should be regular and they should be expansive.
“Businesses should do frequent risk assessments and identification, including financial, operational, reputational, environmental, industry-related, and legal risks: The Board of Directors is accountable for providing strategic leadership in determining the company's risk tolerance and implementing a framework and clear accountability for risk management. It should conduct periodic reviews of the effectiveness of the systems and controls in place to detect, analyze, mitigate, and monitor risk, as well as the sufficiency of its reporting. Directors are accountable for understanding the company's present, and developing, short- and long-term risks, as well as their impact on performance. They should question management's assumptions and the appropriateness of the risk management systems and procedures in place at the organization."
- Draft an ethics policy with an emphasis on accountability
Shahar Erez, Founder and CEO of Stoke Talent shares the importance of rules being established so that employees know if they are crossing a line. An ethics policy is a good way of outlining those rules to everyone in the company.
“You should carefully consider and draft an ethics policy. Be clear about what is, and isn't, acceptable behaviour for board members and what constitutes a conflict of interest. The last thing you want is someone representing your company doing something that could be construed as unethical. If someone does act out of line, you need to have a framework in place for disciplinary procedure. These guidelines are only effective if there's a tangible way for instances of impropriety to be reported. Boards need to set up lines for whistleblowers to come forward and report any suspected unethical behaviour without fear of reproach. This all forms part of being accountable as a board to your employees and customers.”
- Have clearly established roles
There should never be confusion over what each person does in a company, says Richard Mews, Sell with Richard . Knowing the roles and responsibilities associated with each job will keep everyone accountable.
“Roles and duties must be defined. Establish distinct lines of responsibility between the Board of Directors, the Chair, the CEO, the Executive Officers, and management. Create written requirements outlining the Board's and each committee's responsibilities and accountability. Delegate specific duties to a subgroup of directors. Committees that are typical include audit, nominating, remuneration, and corporate governance committees, as well as ‘special committees’ constituted to analyze potential mergers or possibilities. Create formal job descriptions for the Chairman of the Board, the Board Committees, the CEO, and Executive Officers. Distinguish the duties of the Board Chair and CEO: the Chair leads the Board and ensures that it acts in the long-term best interests of the firm; the CEO leads management, creates and executes business strategy, and reports to the Board.”
To Charles Leduc, Chief Operations Officer at Mold Busters, having a clear definition of each role helps the business run because it eliminates ‘grey areas’ which may present conflicts of interest or disputes within the company.
“A corporate governance practice we use that translates very well to running a business is having well-defined roles, responsibilities, and accountability. Every function of the business is clearly defined to the last detail in black and white. This eliminates redundancy and grey areas in responsibility. As new systems and processes are developed, these definitions must be adapted to fit the business as it evolves. Eliminating any grey areas through clear definitions is a must for any business.”
Harriet Chan, Co-founder of CoCoFinder says defining job descriptions is one of the first things that should happen when creating a governance framework since it promotes accountability.
“Creating a governance framework is the key to ensuring that corporate governance is possible and implemented swiftly in your business. Start with identifying the key roles in your organization and structure each of these to provide viable and effective oversight. A governance framework will come in handy in streamlining the following;
- Enabling sustainable business practices
- Ensuring transparency on all roles and responsibilities
- Aids in the creation of effective management teams for the business
- Promotes accountability with both stakeholders and customers
- Invest in continued education and training
To stay up-to-date with all the newest laws and regulations required to run a business, Lauren Blair, Lawyer at FreeAdvice, emphasizes the need for directors and officers to receive continual education and training throughout their careers so that they can adapt to changing times.
“My number one advice for best corporate governance practices is training and evaluation for both directors and officers. Directors need continuing education and training on regulatory, corporate, and employment laws, which are frequently subject to amendments and changes. The corporate officers are responsible for the management and day-to-day operations of the corporation. They need annual training given that they are the ones who act on behalf of the company.”
Evaluations can be a good way for board members and officers to receive feedback on their work and make adjustments, according to Blair.
“Board member and officer evaluations should occur at least once a year. The evaluations should be anonymous, the results should be discussed, and a development plan should be a result.”
- Remember to maintain corporate formalities
Many businesses like to emphasize the personal relationship between them and their customer, suggesting that this alone will foster responsibility and accountability on their part. It takes a lot more than that to run a business though. If you want to make your customer feel comfortable with you, you have to oversee the formalities of your business and make sure that everything is running smoothly. These are things that can easily fall through the cracks, says Will Stafford, Managing Attorney at Stafford Law Firm PLLC.
“The number one mistake I see business owners, especially small business owners, make with respect to their corporate governance is failing to maintain their corporate formalities. By corporate formalities, I mean things like (a) properly registering their entity with the state, (b) adopting (and following!) Bylaws or an Operating Agreement, (c) properly appointing in writing managers and/or officers to run the business, (d) holding any required annual meetings, (e) maintaining proper books and records, and (f) maintaining banking and credit accounts for the business that are completely isolated from their personal accounts.
“If these corporate formalities are ignored, the business owners run the risk of losing the limited liability protection from the entity they created, which was a large part of the reason they created it in the first place”
Accountability can make or break a business. Organizations need to develop strategies that focus on ethics and accountability in their place of work. This includes establishing rules and regulations, identifying red flags that may indicate a conflict of interest, and mitigating or completely preventing financial loss.