Governance Isn't Just For Corporates - Scale-Up Businesses Need It Too

7th November 2016

Governance Isn't Just For Corporates - Scale-Up Businesses Need It Too | Clean Space Blog

I used to think governance was a dirty word. Something put in place by the powers that be to make sure corporate businesses behaved themselves.

Frankly, I thought it was irrelevant to entrepreneurial businesses.  Why would an entrepreneur put in place rules to which he or she would have to adhere?

But in the past couple of years, as I’ve been shaping my business to enable us to grow quickly, I realised many of the changes I have made essentially boil down to governance.

I now understand the word ‘governance’ to mean something completely different.  Something of value to any business – particularly one aiming to do great things.

What I used to think

In my mind, governance was only really necessary because someone has to keep an eye on fraudulent businessmen. Or make sure banks don’t help people they shouldn’t. ).  Or to check that when a food company sells beef burgers, they’re not actually made from horse meat.

I understood it to be external checks and balances in a world where shareholders are the public and any misbehaviour has far-reaching consequences.

But I didn’t see how it could apply to little old me and my business.  I count myself as one of the Good Guys who would never do anything scandalous (in business, at least).  I didn’t need anyone externally checking on the behaviour or me or my business.  I felt it would mean hoops to jump through and more admin.

It would slow us down.

But as I progress further along the scale-up stage, I see that governance is actually internal checks and balances to help the business succeed.

The definition of Governance

The OECD defines Corporate Governance as follows:

Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

Which all sounds very grand.

In my experience, governance creates a structure that ensures just three things:

  1. You are clear what you are trying to achieve and how you are going to do it
  2. Any big decisions are made thoughtfully, intelligently and carefully
  3. Everyone does what they say they’re going to do
How we did it

Putting in place the things needed to exert proper control over me and the business was, in truth, a kind of happy accident.  “Install corporate governance” didn’t feature on my to-do list at any point.

But if I were setting up another business it certainly would feature.  I’d want that governance in place from the start to give me the clarity, precision and focus we now enjoy.

Looking back, there are four key areas in which I made changes relevant to governance:

  1. Structure
  2. Agenda
  3. Decisions
  4. Power

Structure

The business had always had a reasonably clear structure for the day-to-day workings.  But there wasn’t anything sitting above the business keeping an eye on it (and me).  No one checking up.  In the OECD’s definition this role is played by a Board so that’s what I created.  In practice, I think that role could be played by anyone with a bit of nous.  As long as they’re independent and can hold the team to account.

business structure

 

Agenda

After creating the Board we then sat together and planned the agenda for the whole year – what we’d talk about in each of our monthly Board Meetings, the topics, what information would need to be collated, and what decisions would be made.  These topics are high-level things: risk, health and safety, business plan, budget, strategy, etc.

Each meeting also allows the Board to follow up with progress and hold others accountable if they have not followed through.

Having these items pinned down ahead of time means that we work towards them as a team but also ensures that they don’t slip meaning, for example, that every year we review our strategy properly.

Of course, we leave a bit of room in each meeting to cover off important stuff that has come up but even those items we generally have a few months’ notice.

Decisions

Not every decision needs to be checked and controlled by the Board.  A fast growing business needs to empower its staff to make decisions for themselves.

But only a certain type of decision.

The Board maintains control over only the most important decisions – those that incur significant cost; those that have legal ramifications, those that could impact our performance going forwards; those that change the mission, values and culture of the company and those that affect people.

Deciding where we go for our company away day: the team can decide.  Whether we employ another person or invest £20k in a new bit of kit: that needs to be checked with the Board.

In our business we have a list of decisions that everyone is empowered to make themselves, a list of those that need to be checked with their boss, and which need to be referred to the Board.  This clarity allows people to move quickly if they have the authority and provides guidance of how to get decisions made if they don’t.

Power

Previously, I had complete power over The Clean Space.  I could make and veto any decision and direct things as I saw fit.  That works well in a small business but there comes a point when that unilateral power is actually dangerous and counter-productive.

In forming the Board I also gave up much of this power.  The Board is currently made up of three people and decisions are made democratically.  I can be outvoted and do nothing about it.

Of course, as I have talked about before , this is painfully hard for a control freak entrepreneur.  I’ve seen many of my peers fail to make this change.

But it’s probably the most crucial part.  I believe business performs better in a democracy than a dictatorship.

Does your business need better governance?

I didn’t realise I needed governance until I had it.  I would never have set out to build it into my business but now I believe it’s a critical success factor.

Something important that never becomes urgent.

I’m not sure what I would say to the younger me to try to help him understand the benefits.  There’s a high chance he wouldn’t have listened.

But I would try to tell him it won’t stifle the entrepreneurial spirit of the business.  That the people in the business would flourish in ways he can’t yet see.  That he would finally make a decision on that big question.  That giving up the power actually isn’t the end of the world.

And that, in fact, spreading the load of responsibility would help him sleep at night.

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