By Dr. David Demetrius
If you’re too small to worry about corporate governance, then you are a sole trader with no clients and no plans to ever have any. However, I suspect that you are slightly more ambitious than that, so maybe you should read on.
The financial newspapers and other media constantly refer to issues of corporate governance, but references are usually to large stock exchange listed companies. But this isn’t because governance is not an issue until a business gets above a critical size; it is primarily due to the fact that bigger companies make better news headlines.
Why does governance matter? Whether your business be tiny or a multinational giant, whether it be listed on the stock exchange or be operating as a sole trader, or whether it have 10,000 employees or be a one-man operation, you still have duties and liabilities with respect to all the stakeholders. Included in those stakeholders are not just any shareholders. You also have responsibilities towards your staff, your bank, your clients, your suppliers, the government authorities and all of the general public.
In many cases, your duties and liabilities are enshrined in law and failing to comply can result in significant penalties and fines (and, in some cases, even gaol). Many other duties, such as taking into account the environmental effect of your operations, may not currently be covered by law, but nevertheless failing to consider them can result in customer backlash and loss of business. Similarly, potential investors may well be put off if you show a lack of concern for such issues. Needless to say, any staff you have will also be much happier to work in a business that the can see takes its Corporate Social Responsibility (CSR) seriously.
To ensure adherence and the avoidance of penalties and fines, it is important that all reporting deadlines are met. In many countries, small companies are no longer required by law to have a Company Secretary who would as part of their duties ensure compliance. Not being required to have such a person does not remove the necessity to comply, so I would recommend that even small businesses should appoint someone (possibly external to the business) to take on this role. As the business grows, this role can be expanded to include other internal controls and internal audit, and probably the drafting of Standard Operating Procedures (SOPs) that will ensure all deadlines are met, together with a Code of Conduct for the business.
In summary, you are never too small to worry about corporate governance.
This and related topics are covered in our Directing Organisations module, part of our Certificate for Corporate Direction course – visit https://emadin.com/training for more details.
Dr David Demetrius is Founder and President of the Emadin Group, the one-stop shop for business & trade acceleration into – and out of – Europe (www.emadin.com) . He has over 25 years’ experience in the management, growth and sale of businesses of all sizes, across industries and is a director of several European companies. From 2000 to 2007, David was the Chairman for Continental Europe of the Institute of Directors and a member of the governing Council of the Institute in the UK. He is also an honorary life member of the European Foundation for Management Development.