Corporate governance is the set of methods by which businesses direct and manage their behavior. The rules of corporate governance allow companies to balance their profit motive with their ethical responsibilities. While large corporations have numerous staff members to oversee corporate governance issues, small-business owners must take care to exercise their own "corporate" governance in their daily operations, whether incorporated or not. In recent years, several new strategies for developing and enforcing corporate governance have been developed.
Constructive Criticism Meetings
Companies that practice strong corporate governance do not strictly operate from a "top-down" hierarchy. Owners, managers and workers must feel free to have frank and honest opinions about the company's direction. These meetings can engender discussions on how to improve internal processes, how to enhance customer engagement, and how some executive decisions may show a lack of proper foresight. After the concerned parties have aired their issues, they can work together to develop and implement solutions.
Lead by Example
The best way for small-business owners to ensure that employees and managers are complying with corporate governance guidelines is to provide sterling examples. Companies take on the personalities of their leaders. If the employees of a small business witness the owner cutting corners on projects or dealing dishonestly with customers, those employees will start to believe that the company finds such behavior acceptable. When employees follow such unethical examples, the entire company culture is at risk.
Personalities and Teamwork
Corporate governance is not a task that a small-business owner can handle alone. Partners and managers must work together to develop the company culture with a mix of personalities and experiences. If the company has too many young, aggressive decision-makers, any rash decisions could lead to legal, ethical and moral dilemmas. If the managers and owners are too conservative and risk-averse, the company can miss out on opportunities for rapid growth and higher profits.
Recent changes in tax codes, health care and financial reform have led companies of all sizes to reconsider many of their options. Small-business owners seldom have the time or resources to devote to studying government regulation. Companies that are affected by these regulations may consider hiring a compliance expert to review their practices. Just as a trained accountant can find ways for companies to save money and avoid tax issues, a compliance expert can ensure that the company follows good corporate governance practices and avoids legal entanglements.
- Management Study Guide: Corporate Governance - Definition, Scope and Benefits
- The Economist: Corporate Governance The New Strategic Imperative
- Abbott Laboratories: Corporate Governance
- Indiana University: Five elements of corporate governance to manage strategic risk
- International Finance Corporation: New Corporate Governance in the Post-Crisis World
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