A Wall Street Journal piece by John Bussey (“Governance Grows Up”, October 11, 2012) indicated trends in corporate oversight have improved over the last decade. While that view may correctly reflect conditions in large corporate America, the observation may less accurately describe smaller business conditions. And this seems surprising, since according to countless research studies, proper corporate governance leads to better performance and higher profits.
So what makes for good corporate governance, and how strong is it at your business? A couple of additional questions might help provide an answer:
- Does an informal advisory group or true board of directors meet regularly to review performance and provide strategic direction (and publish minutes)?
- If so, how many members are independent, providing objective perspectives from different vantage points? And is the Chairman somebody other than the President/CEO?
- If no board exists, what checks and balances and other assurances exist to optimize corporate performance when conflicts or issues arise among management, shareholders, and other stakeholders? This one seems tough to answer, but we’d welcome any perspectives you’d like to share!
- Finally, are key company policies and procedures written, reviewed and approved by the board with specific, delegated authority? Or does ‘tribal knowledge’ and ‘it’s always been that way’ reign supreme for critical matters ranging from human resources, to capital budgeting, R&D, and other risk management concerns? It’s pretty clear which scenario leads to stronger performance.
In our experience, small business tends to short-cut matters when it comes to corporate governance and oversight. Case in point: how often is the Secretary & Treasurer a spouse or other relative? This is a natural and understandable occurrence as companies are created. Unfortunately, while seeming satisfactory for smaller, family-owned companies, a lack of diverse perspectives and critical feedback can impede long-term growth and overall corporate health.
It often is said: “Success starts at the top”. In the case of business leadership, however, enduring success is more frequently found one level up from the vaulted corner office.
The implementation of good corporate governance practices – including a strong corporate board – is one way Progress Capital helps to create value and grow small business..