The ASX has defined corporate governance as “the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimised.”
The ASX goes on to provide that “good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, development and exploration) and provide accountability and control systems commensurate with the risks involved”. The release of the 10 principles provides general guidance on this issue.
An outline of the 10 principles follows.
- Lay solid foundations for management and oversight – Recognise and publish the respective roles and responsibilities of board and management.
Most small businesses are not large enough to warrant a board, and management consists almost solely of the owner. However, the owner can lay these foundations, by ensuring that sufficient strategic guidance is provided to the business. This can be achieved by utilising external experts, and by consulting his staff for assistance and in generating ideas for the future of the business. By encouraging the ‘team’ to have a vision, a common goal and unity can be built helping to build a foundation for the future of the business.
Structure the board to add value – Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.Although this guideline is aimed at ensuring the board are effective in executing their duties, the ASX further explains this guideline by providing for management to have a “proper understanding of, and competence to deal with, the current and emerging issues of the business”.
Promote ethical and responsible decision-making – Actively promote ethical and responsible decision-making.Under this guideline, the ASX is looking for businesses to “clarify the standards of ethical behaviour required – and encourage the observance of those standards”. This is more specifically achieved by having a written code of conduct and established ethical standards. However, many small businesses will have an unwritten code to achieve the appropriate standards required of that business.
Safeguard integrity in financial reporting – Have a structure to independently verify and safeguard the integrity of the company’s financial reporting.Although this guideline points more specifically towards having financial records reviewed by an audit committee and an independent auditor, the ASX has also specifically referred to the responsibility of management to ensure the integrity of the businesses financial reporting.
This can be achieved by having a trusted and forward thinking external accounting team working in conjunction with the business owner.
Make timely and balanced disclosure – Promote timely and balanced disclosure of all material matters concerning the company.Specific disclosure must be made of particular information to shareholders and investors of a publicly listed company, and there is no exception for small business. This type of disclosure can refer specifically to timely presentation of accounts and tax information to the Australian Taxation Office and full disclosure of all relevant information to your accountant.
Respect the rights of shareholders – Respect the rights of shareholders and facilitate the effective exercise of those rights.This can be broadened to include other stakeholders of the business. Business owners must keep team members informed of all relevant decisions to ensure they are moving towards the vision and continue to be willing participants in the business. Other stakeholders can include external advisors, relevant community organizations, the local press, regulatory bodies such as the ATO and the ASIC.
Recognise and manage risk – Establish a sound system of risk oversight and management and internal control.Although most business owners are experts in their industry, most don’t have the ability to think outside of the square at times in relation to more specific risks. Seeking the advice of an external consultant can help identify the risks.
Encourage enhanced performance – Fairly review and actively encourage enhanced board and management effectiveness.This guideline goes to the core of recognising the limitations of an individual. Continually seeking to self improve by attending relevant seminars, reading of other successful business managers, accepting criticism and learning from mistakes are some of the keys to enhancing managerial experience and effectiveness.
Remunerate fairly and responsibly – Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined.Look after your team! It’s as simple as that. To ensure that your team feels valued and loyal to your business, they need to be looked after. This doesn’t mean paying exorbitant salaries and packaging expensive items, but it does mean allowing some freedom to develop themselves, paying salaries at market rates, listening to suggestions, and involving them in the development of the business does promote a more united, happy team.
Recognise the legitimate interests of stakeholders – Recognise legal and other obligations to all legitimate stakeholders.Often business owners can get caught up in the day to day activities of the business and forget that there are other parties that have a legitimate interest in how successful his business is. Two very important stakeholders are his customers and his employees. Both groups can be difficult to retain, and can make or break a successful business.
Consideration of the relevant stakeholder groups, and the impact they can have on your business can be one of the most rewarding aspects of growing your business.