The term corporate governance is one usually associated with large, established businesses but is a concept that growing and high potential small businesses ignore at their peril. This danger is probably less in not complying immediately to standard business practices than it is in lost growth and investment opportunities. Allon Raiz, CEO of business incubator Raizcorp, explains in this two-part series the types of challenges corporate governance hold for the entrepreneur, and how to prepare mentally for the changes.
The benefits to small businesses doubtful One of the reasons small companies are able to skirt around corporate governance rules is because their structure, ownership, and needs don’t yet require such complexity. The need for corporate governance in larger firms is to promote accountability. The benefits to these larger organizations are more substantial and a key ingredient in securing the right partners, financiers, and board members. The drivers for corporate governance are two-fold: internal and external. Internally, company growth demands clarity and consistency in how the business is conducted and managed. External drivers are more focused on the requirements of doing business, such as meeting legal obligations (such as BEE compliance and the Occupational Health and Safety Act).
Entrepreneurs have an innate tendency to buck ‘The System’ The above drivers can often be viewed by entrepreneurs as stumbling blocks that do nothing but get in the way of getting things done. Entrepreneurs, by their very nature, resist systems and processes, and this could well be the reason the businessperson took the risk of operating outside constricting corporate rules.
The board: who needs it? As mentioned above, entrepreneurs are not used to being held accountable for the decisions they make. They view their business as their personal property and feel no need to justify or explain these decisions. The appointment of a board of directors can seem an invasion of authority and strategy, even of the entrepreneur’s business acumen and leadership.
The costs of implementation Going through the process of becoming compliant with accepted governance standards can be a burden on small business. Drawing up strategy documents, policies, procedures, and codes of practice as well as employing company directors could be detrimental if the business is not sufficiently stable to accommodate these changes.
Probably the highest ‘cost’ to the entrepreneur is that of time. This is a precious commodity for small business owners, who often work non-stop to make measurable progress.
The next article in this feature Corporate governance (Part 2 of 2) examines how you can reconcile your free-wheeling, creative, unaccountable nature to the needs for corporate governance.