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The following are the key elements of good corporate governance:
Independence of directors
If the directors of a company are also the owners and/or their family members, entrepreneurs appointed by friends, or individuals who are involved in the daily management of the company, the board is unlikely to be impartial. Having a majority of non-executive independent directors will help avoid prejudice and conflicts of interest between the board and the management. Independent judgement is almost always in the best interest of the company.
Separation of 'strategic planner' role from 'operator' role
For small companies that do not have a board of directors, it is a good practice for the strategic planner of the business to be someone other than the owner-operator. This frees the planner from attending to day-to-day operational duties and enables him or her to focus on long-term, strategic business planning.
An 'exit strategy' for company owners
Whether it is a succession plan for passing on a family business or a buy-sell arrangement, an exit strategy should be planned and agreed upon by all parties concerned (eg shareholders, family members) well in advance.
Reliable systems and procedures
Potential creditors feel more confident if they know that the company has reliable systems and procedures in place. Such processes enable smaller SMEs to operate in the owners' absence (eg due to illness) and allow for smooth handovers to other parties.
Credible accounts
Even for the smallest SMEs, credible accounts enable the entrepreneur to know what is going on in the business and instils confidence in lenders.
Key performance indicators
These indicators (eg financial strategy, marketing plan, product/operational goal) are used for measuring the performance of the company, its management and even the board of directors.
Remuneration and HR policies
Transparency in matters such as remuneration,
Independence of directors
If the directors of a company are also the owners and/or their family members, entrepreneurs appointed by friends, or individuals who are involved in the daily management of the company, the board is unlikely to be impartial. Having a majority of non-executive independent directors will help avoid prejudice and conflicts of interest between the board and the management. Independent judgement is almost always in the best interest of the company.
Separation of 'strategic planner' role from 'operator' role
For small companies that do not have a board of directors, it is a good practice for the strategic planner of the business to be someone other than the owner-operator. This frees the planner from attending to day-to-day operational duties and enables him or her to focus on long-term, strategic business planning.
An 'exit strategy' for company owners
Whether it is a succession plan for passing on a family business or a buy-sell arrangement, an exit strategy should be planned and agreed upon by all parties concerned (eg shareholders, family members) well in advance.
Reliable systems and procedures
Potential creditors feel more confident if they know that the company has reliable systems and procedures in place. Such processes enable smaller SMEs to operate in the owners' absence (eg due to illness) and allow for smooth handovers to other parties.
Credible accounts
Even for the smallest SMEs, credible accounts enable the entrepreneur to know what is going on in the business and instils confidence in lenders.
Key performance indicators
These indicators (eg financial strategy, marketing plan, product/operational goal) are used for measuring the performance of the company, its management and even the board of directors.
Remuneration and HR policies
Transparency in matters such as remuneration,