Govern to grow
How to set up business systems that help you hear the rumble of what’s coming, in time to take action
However, with firm guidance and an independent ear offered by a company board, their business could have a better chance of thriving, he argues.
Above all, the board can instil good governance which can protect the rights of both shareholders and stakeholders by, for instance, overseeing appropriate decisions about investment and deciding how directors should be remunerated.
Good governance increases accountability (by minimising corruption and improving financial performance), which leads to improved returns for shareholders. This has an impact on the way the market views the business, which in turn encourages investment. It’s a “game changer” for SMEs, which often battle to access capital, says Bates.
Far too often, boards fail to function effectively in SMEs when shareholder-managers are not held to account, rendering boards nothing more than a team of advisers.
But if the SME founders are willing to be held to account, governance could be a game changer for their enterprise.
He says independent directors must always remind themselves that shareholders are only one of the groups of stakeholders to whom a company is responsible and that the direcboard. tors’ sole responsibility is to the company itself.
To explain, he describes one tactic adopted by a family-run business where the independent directors worked hard to ensure that shareholder discussions remained outside the boardroom. This prevented shareholders from using the board as a platform for family politics.
In another example, the board instructed the chief executive to have discussions with shareholders separately and report back to the board when the issues of shareholder loan repayments and interest rates were being discussed.
A key theme for Bates is the value of having independent nonexecutive directors on the Too often SME founders are so closely involved in the business that they succumb to an operational mind-set at the boardroom table, he says.
Independent nonexecutive directors can see the business without emotional and historical filters that could cloud the view. This makes them vital for the growth of the enterprise.
But he cautions that it’s wise to avoid appointing an independent director who is a technical expert in the industry that the business is in, as the similarity focuses the board too much on the industry itself and not enough on the underlying business model.
What’s needed is a broad, strategic overview.
The whole process of company boards can initially seem overwhelming for business owners used to making snap decisions. To remedy this, a close working relationship between chief executive and chairman should be nurtured. And if the business is not yet ready for governance, the shareholders should prepare foundations for it through mentoring.
Governance is not a quick-fix solution — successful businesses are those that keep focusing on their vision and remain committed.
While Bates tries to liven the read up with analogies of past explorer expeditions through history, the book itself could have done with a more rigorous edit, as too many concepts are repeated unnecessarily.
Making use of case studies of real business owners to explain how they have implemented governance principles might have helped. After all, people relate better to others like them who have been through challenging times.
Yet despite this, Bates’ message is one which more SME founders should heed. The first step is acknowledging that they don’t know it all and then putting systems in place to support them.
To grow their company, business owners need to work more on their business than in their business.