John Merrigan, Senior Advisor, Nestor Advisors
Is there a simple definition of corporate governance?
A key problem with the concept of corporate governance is that it conjures up images of bureaucracy and administrative burden that generally succeeds in creating misunderstanding, fear or just plain resistance.
My grandfather was a master carpenter and he lent me one phrase that I use every day in my advisory business: “Measure twice, and cut once.” Amongst all the definitions of corporate governance, this for me captures the essence and is most understandable.
Measuring twice as much as you act is a sound ratio to take profitable actions in your business. Corporate governance simply ensures that there are procedures, policies and controls in the business to create the “second” measure, both written and more importantly culturally, like the habits of a skilled craftsman.
How can corporate governance help me to manage business risks?
Stepping back to review the critical internal and external risks in the business is often neglected because of the daily pressures we all face. The ability to show a prospective investor, bank or supplier that you have focused on risk management is proof of strong governance and gives them confidence.
I suggest assessing business risk in the following areas: Operations, Competition, Laws & Regulations, Human Resources & Succession, Intellectual Property & Trademarks, IT Systems, Working Capital Management, and finally Legal Structures of the company. Describe the risk of each, define the potential impact on the business and accordingly rank the risks by importance. Start to develop mitigation strategies (perhaps involving outside assistance or expertise) and allocate ownership of the actions to the management team. Bring these elements together in a single document – the Risk Register which should be reviewed monthly by management and at every board meeting.
John Merrigan, Senior Advisor