Eddie Bell, an Audit Director at Deloitte in South West and Wales, discusses the value of a governance model and some points for consideration.
A guide to governance
Most businesses face key moments that can alter the course of their business, from leadership transitions to external market forces beyond the team’s control. Manoeuvring through these challenges, mitigating risks along the way, and embracing new opportunities are at the core of a carefully designed and implemented governance model.
A governance model is a framework which outlines leadership accountabilities. A strong foundation of governance can help private enterprises make decisions in areas including capital needs, technology, leadership transitions, and incentive planning. With an informed perspective, business owners can set free the shared vision and values that inspired their business in the first place.
The important issues
One of the first steps businesses can take is recognising the important issues that could affect the shareholders and business over time. As businesses grow, they become more complex, and a need emerges to manage the varied perspectives that exist within the management team and the shareholders.
Furthermore, as organisations diversify into new businesses, geographies, and products, they may find themselves at a disadvantage if their governing bodies lack the discipline to adapt to these transitions. Governance helps leaders anticipate and address challenges by bringing greater discipline, transparency, and accountability to the issues that matter most.
Therefore, it’s helpful to decide what needs to be on the governance agenda. To be clear, the goal of a governance model is not to create administrative burdens and bureaucracy, but rather to provide input and oversight on the strategic direction of the business and steward an enterprising legacy for the future.
Agenda items may include expertise and guidance in functional areas such as mergers and acquisitions, marketing, international trade, or technology. Some companies may benefit from improvements in internal communication, while others can build more sophisticated processes to elevate from compliance to smarter governance, ultimately helping to ensure a more sustainable enterprise.
The value of NEDs
In order to develop these processes, it’s important to put a structure in place that works for each individual enterprise.
The addition of non-exec directors (NEDs) will bring fresh perspectives and insights. A well-functioning board offers diversity of thought, experience, and relationships to influence the strategic direction of the business. Boards are successful when they’re accountable to shareholders and stakeholders in delivering the vision, strategy, values, and culture set by the owners. What’s more, skilled and objective NEDs help expand management and shareholder perspectives, serving as a source of encouragement and supporting informed decision-making.
It's individual
Where governance models are concerned, one size does not fit all because every business has its own set of goals and objectives. It’s also multifaceted so if you change one part it will impact another. But what it does do is lay out the process for how the board and the management team will operate. It will foster inclusion, best practice and trust.