– Helen Clark, former Prime Minister of New Zealand.
This quote emphasises the importance of good governance in addressing the challenges of the modern world and it is a topic that every business owner should be aware of, regardless of size.
Good Governance refers to the process of managing a business or organisation in an ethical, transparent, and accountable way. It involves establishing policies, procedures, and guidelines that ensure the effective and efficient use of resources, as well as the protection of the interests of all stakeholders, including management, directors, shareholders, employees, customers, and the community.
In simple terms (and I like simple), it just makes good practical business sense. Plus, you don’t need to overengineer how you govern, you just need to make it work for you.
Good Governance is essential for the success and sustainability of any business. Here are some ways in which it benefits business:
Good Governance creates a positive image of the company, which attracts investors, customers, and talented employees. It also helps to build trust with stakeholders, who are more likely to support the company in the long run. At its very basic level, it is all about doing the right thing.
Good Governance ensures that the company operates in an organized and efficient manner, which leads to increased productivity, reduced costs, and improved performance.
Good Governance helps to identify potential risks and establish measures to mitigate them, which reduces the likelihood of legal, financial, or reputational harm to the company.
Good Governance encourages innovation and the exploration of new ideas, which leads to the development of new products, services, and markets, and ultimately drives growth and profitability.
The consequences of not having Good Governance can be severe and long-lasting, leading to significant financial, legal, and reputational damage. Here are some examples (albeit not from New Zealand, but the message is relevant here):
Enron was a company that collapsed due to poor governance practices. The company engaged in fraudulent accounting practices and failed to disclose its true financial position, which led to its bankruptcy and the loss of thousands of jobs.
Volkswagen was involved in a scandal in which it manipulated emissions tests in its diesel vehicles. The company failed to disclose this information to regulators, investors, and customers, which led to significant financial and reputational harm.
Wells Fargo was involved in a scandal in which it opened millions of fake accounts without the knowledge or consent of its customers. The company was fined billions of dollars and its reputation was severely damaged.
Here are some examples of Good Governance practices.
It is important to clearly define the roles and responsibilities of board members, management, and other stakeholders to ensure that everyone understands their role in the organisation.
Regular board meetings and reporting ensure that the board is kept informed of the company's performance, risks, and opportunities, and that decisions are made in a timely and informed manner.
Ethical behaviour and values are at the heart of Good Governance. Companies should have a code of conduct that sets out the expected standards of behaviour and the consequences of non-compliance – see my video above.
Companies should have a risk management framework that identifies potential risks and establishes measures to mitigate them.
Good Governance is essential for the success and sustainability of any business, regardless of your scale.
It helps to enhance credibility and reputation, increase efficiency and productivity, mitigate risks, and promote innovation and growth.
On the other hand, the consequences of not having Good Governance can be severe and long-lasting.
Companies should implement Good Governance practices, such as clearly defined roles and responsibilities, regular board meetings and reporting, ethical behaviour and values, and risk management, to ensure that they are operating in an ethical, transparent, and accountable manner.
Remember good governance practices can vary depending on the size and structure of the company, but the principles of transparency, accountability, and ethical behaviour remain constant.
