It is clear that good Corporate Governance is in the best interests of shareholders of public companies, but how can it benefit shareholders of private companies and other business owners?
Will a good system of corporate governance increase the bottom line?
One of the elements of a good system of corporate governance is ensuring that the role, and the boards’ expectations, of management are understood.
Separation
Separation of the board and management is often lacking when it comes to small medium sized enterprises. Often senior company managers are also members of the board, hence the board may be deprived of one of its most critical roles, the ability to review and direct.
It is this element of corporate governance, through use of independent directors, that can help a business improve both its corporate governance and profitability.
Influence
The influence that a board has on an organisation is dependent both on the skills and knowledge of the directors and the role that the board chooses to take.
Inevitably a board of well chosen directors will add to a company’s focus and create additional business opportunities.
Three roles
Generally there are three generic roles which boards tend to take:
The Watchdog - total supervisory role
The Trustee - evaluation of business and guidance
The Pilot - actively directs the business
As there is no "one size fits all" solution to corporate governance business owners need to consider their current situation before embarking on structural change in the name of Corporate Governance.
Independent directors
The appointment of independent directors to a board will often involve a shift in thinking for many small businesses operators but it is important to explore some of the benefits which independent directors may bring to a business. These usually include:
- Generation of new ideas - Signal to external parties that the business is becoming investor ready - Renewed focus on strategic business issues.
It is through such advantages that the business may benefit both internally and externally from the improved Corporate Governance that will inevitably follow.
Joe Kaleb is a Chartered Accountant in Australia and the CEO of http://www.australianbiz.com.au, a website providing tax and management tools for small business owners and their advisors.
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