What is governance?
Governance means thinking about strategic issues, rather than the operational day-to-day running of the business. Governance applies to all organisations, including start-ups, SMEs, larger public companies and not-for-profits.
What does governance really mean?
When people talk about governance they’re usually talking about the role of the board of directors. Boards exist to ensure an entity is well run, and well governed so that shareholder and/or stakeholder value can be maximised.
Governance often begins when an owner or manager steps outside of their operational role and seeks help from a trusted advisor. They begin to realise the value of this external perspective and as the business grows, they seek to formalise this into a governance structure of a board or advisory board.
Good governance helps an organisation:
- Improve performance
- Have a defined vision for the future of the organisation
- Take a big picture view of the organisation separate from the operations
- Ensure there is accountability and oversight of operations
- Manage risk
- Find the right balance between making short-term gains and building long-term prosperity.
What governance options should I consider?
Many organisations already have trusted advisors. At critical points organisations often turn to experts for advice in such areas as setting strategy or business planning. All organisations need advisors and specialists, from time-to-time. However advisors are not the same as board members. Directors/trustees are more committed to the longevity and future of the organisation– a very valuable asset.
Many founders/owners get to a critical stage where their knowledge, passion and skill get stretched. The organisation may be:
- growing and needs to find new ways of running the organisation that rely less on the owner’s personal involvement
- facing opportunities that are outside the current owner’s knowledge and experience
- in need of profiling itself to investors, bankers and other important outsiders
- wanting to grow and prosper in the future without the owner’s input
- wanting a fresh perspective on issues free of any emotional bias.
- being readied for sale.
In all these cases, it’s time to look at a more formal structure of an advisory board or a board of directors/trustees.