Understanding Corporate Governance As A Small Business Owner

Corporate governance is the means through which the interests of a business’s various stakeholders are balanced and addressed. Though corporate governance is a topic that has been greatly discussed over the past several decades, it remains both misunderstood, and often, under or inappropriately utilized.  

Nevertheless, it is broadly agreed that corporate governance is an important consideration for businesses of every size. In this article, we take a look at what this means for small businesses. 

Why Small Companies Need Corporate Governance

The words “startup” and “corporate governance” are not immediately associated in the minds of most people. It’s difficult to imagine a hipster CEO of a newly minted tech startup stepping out of her garage office to take a call from the board. 

The truth of the matter is that good corporate governance can have a role in any business, regardless of its size, its scope, or even its age. 

Working at its best, corporate governance provides an objective filter for ideas that lacks the personal biases and blindspots of management working on the front lines. A well-conceived board might consist of individuals with backgrounds and expertise that differ from those managing the company. For example, a tech startup might have management that knows a lot about software development, but not so much about finance. A well-chosen board can compensate for these deficiencies. 

For the small/family business, a well-chosen board with an objective perspective can also provide peace of mind. Parties with vested interests in the business—often friends or family members, can be comforted both by the enhanced level of expertise that the board provides and by the organization it can instill. Boards can, for example, create succession chains describing what qualifications someone must have to operate in management, thus eliminating the threat of nepotism present in many smaller businesses. 

Creating a Roadmap for Your Business

Good corporate governance can also help businesses of any size create a roadmap that will lead them down a path of sustainable growth that has a positive impact both for the company, the stakeholders, and the environment as a whole. 

From an ecological perspective, a well-versed board can help a company reduce its carbon footprint, waste, and water usage. Socially, they can help create a company culture that at once fosters the needs of employees while also promoting a positive public image (in fact, nearly half of all job seekers state that they actively factor a company’s culture into their decision-making). 

Thirdly, a well-rounded road map will also address a business’s financial needs. By having clearly defined values, a business is able to direct its spending and investments towards ends that directly align with its beliefs. 

Of course, businesses can only reap these benefits by selecting the right board members. Often, it’s all too natural for small businesses to seek input from friends, associates, or even family members. However, by selecting members with specialized backgrounds and a willingness to provide candid, unbiased feedback, the small business positions themselves well for future growth.