The way a company directs itself is based on its corporate governance, which is composed of a set of rules, processes, practices and procedures. Corporate governance is essential to ensuring that the company’s many stakeholders, such as investors, shareholders, employees, customers, partners and the community, all have their needs and interests met. The seven principles of corporate governance can also be applied to small businesses.
Clear Strategic Objectives
The most important characteristic for successful corporate governance is a clear business strategy. It’s important for the business to identify a niche for its products or services. In addition, businesses should establish their target audience and the problems they are trying to solve. The business needs to identify a strategic plan that will enable it to meet the goals of the target audience with its products or services.
Organizational and Procedural Discipline
In order to run a business successfully, there need to be effective polices, procedures and processes in place. These help the business to reduce downtime, increase efficiency and meet its strategic objectives.
The company also needs to be committed and disciplined in order to follow its own processes. Discipline needs to be part of the organizational culture so that employees at all levels feel a sense of duty to follow the processes that are put in place for each business activity.
Effective Risk Management
Risk is an inherent part of any business. While following an effective business strategy and established operations procedures can help companies to mitigate risk, businesses still require a risk management plan. Customers can flock to a competitor, or investors can pull out funding at the last minute. As a result, a business needs to have a plan in place that helps it to operate successfully in the face of risk.
Fairness Toward Employees and Customers
One of the key objectives of corporate governance is to act fairly toward all stakeholders. Building an organizational culture of employee engagement helps businesses to create loyal and dedicated employees. Companies that treat their employees unfairly with low pay and high demands often see a lot of turnover.
On the other hand, companies that treat their employees well increase their retention. Customers also require relationship building, especially if businesses want to see repeat purchases. Offering strong customer service and high-quality products are part of being fair toward customers.
Internal and External Transparency
Transparency is key to building trust within and outside of the organization. Sharing company information with employees builds morale and encourages dedication and commitment. Similarly, being open with customers about strategic objectives helps to build credibility and reliability in the public eye.
Features of corporate governance include self-evaluation and continuous improvement. It’s vital to review products, processes and company policies to ensure that they remain effective and relevant. Some of the ways businesses can improve is through sending out employee and customer surveys to learn about how others perceive them. Some organizations also hire external consultants to come in and review their business, strategies and processes.
Corporate Social Responsibility
An important characteristic of corporate governance is to be mindful of the impact of the business in the community. In order to be a good citizen and a valuable member of society, businesses need to ensure that their practices do not cause harm to their surroundings. Businesses that focus on corporate social responsibility often volunteer in the community, provide complimentary services and products to specific groups of people and use environmentally sustainable business practices.
Apply Attributes of Corporate Governance to Your Small Business
While corporate governance is used in large organizations, the principles can also be applied to small businesses. Conduct a review of your business to ascertain its strengths and weaknesses. Apply the characteristics of good corporate governance to improve areas where your business is lacking.