Lack of Governance is What is Keeping CEOs up at Night

by Startacus Admin

Erika Eliasson-Norris, Founder and CEO of Beyond Governance shares insights on why investing in governance from the off is so important...

Being a startup CEO is tough, you’re balancing driving the business forward with the operations, HR, finance, legal and administrative aspects of running a business. There are so many demands on your time.

Now, we’re often asked, what is the root cause of the unnecessary ‘noise’ around the CEO and what can we do to fix this? Is the problem HR? Legal? Finance? 

Well, yes… all the above, but the main problem at the root of it all: governance.

Bad governance breeds agitated investors, resignations from key employees, unaccountable managers, employee favouritism for your competitors working environment and poor decision making, sometimes by people who shouldn’t even have the power to make them.

But when you have good governance, it enhances your reputation and that of the company; it’s the cornerstone to fast growth. There’s no hiding from it, it’s visible to everyone both inside and outside the organisation, and all business leaders need to give it due attention. If you have investors, good governance practices will make them trust you more and be less vocal, leaders and employees will love their work and act within clearly defined parameters, and you create a culture which drives amazing directors and employees to you so hiring is easier and decisions are taken in the same way that they would, had you been in the room… every time. Good governance supports people to perform at their best, be that employees, suppliers, investors, leadership, or others. It’s the cornerstone to fast growth.

Investors care about governance as it’s an indicator to judge a business’s sustainability and the ability of leadership to build a strong, trustworthy business. As a result of being a well-governed organisation companies ‘insulate’ themselves with stakeholders as well-intentioned but sub-optimal decisions as their behaviour is rarely seen as reckless due to their high governance standards.

Maximising the change of success with your growth plans requires strong governance backing, something often overlooked by entrepreneurs. Future international expansion, disposals, seed investment, bank loans, and increasing headcount all require governance to make it work effectively and efficiently and to reduce stakeholder resistance to the changes it will bring. You’d be foolish to grow without a finance person and it’s the same for governance as it’s an area that is always on show to your stakeholders. 

Often entrepreneurs don’t have good governance on their radar as many associate the term with ‘big corporates’ or believe it creates bureaucracy and slows operations; this is not true. It’s only bad governance that will drain the energy out of an organisation. It’s also not just for big corporates; far from it.

The fallout from a large corporate collapse is epic; widespread job losses, sole suppliers potentially going bust not to mention the general public’s savings and pensions pots that are wrapped up in many of these companies. To mitigate this risk of collapse the UK Government recommends that all London Stock Exchange listed companies increase their level of governance through compliance with a voluntary corporate governance code. In 2018 another code was introduced, the Wates Principles, which then gave large unlisted corporates a voluntary code too.

So how does it work? Governance is the written and unwritten rules, frameworks, systems, and processes that map out ‘how things get done around here’, what decisions should be made where, by whom, and with what level of consideration for risk. It gets you thinking about how you want to govern your organisation, the effectiveness of operations and processes, when to introduce a board and/or executive team, what decisions should be documented and how, and how to protect directors and the board from personal or company litigation. Governance covers areas such as law, compliance, finance, risk management, human resources, board dynamics, reputation management, strategy, investor relations, health and safety, and stakeholder management to name but a few. Governance considerations start pre-incorporation when key decisions are made on equity holdings which affect decision-making powers and potentially the value of the business to the founder on an exit. 

Governance creates a culture where stakeholders are reassured that the organisation is being run effectively and efficiently and appropriate action is taken to mitigate risk. As you might expect, leadership is often a key cause of bad corporate culture. CEOs and leaders set the standard and unless they live by those standards a toxic culture will form. We live in a time where good people have choices and won’t tolerate a dysfunctional culture.

In conclusion, governance is everything that influences good decision-making and accountability in business. It’s what creates the organisation’s culture, and it’s the way the board and structures work effectively. Without good governance, a company is unlikely to survive in the longer term and retain a competitive advantage.

ABOUT THE AUTHOR

Erika Eliasson-Norris is the Founder and CEO of Beyond Governance, a multi award-winning full-service governance consultancy. Erika became a part of the C-suite at just 32, becoming the UK’s youngest FTSE 250 board governance adviser.

 

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Published on: 15th August 2022