John Merrigan, Senior Advisor at Nestor Advisors returns to our pages this month to highlight practical actions to reflect upon to improve your business governance and long-term success

As we look forward to 2018, I am reminded of the lessons we can reflect on from the wonderful book: “A Christmas Carol”, by Charles Dickens. Dickens takes us through a journey to understand how the central character Ebenezer Scrooge became what he is, and how he understood the need for change to bring meaning and purpose to his future life.

So it is with corporate governance for your business. The secret of success is to make a realistic assessment of where you are today, and then make real changes to determine the future course of the business. In this review, I want to talk about some choices businesses should consider in 2018 in three specific aspects of good corporate governance: Risk Management, People Management and Key Contract Reviews.

GOOD RISK MANAGEMENT

Stepping back to review the critical internal and external risks in the business is often neglected because of the daily pressures we all face. Consider the current and future uncertainties facing your business: Brexit, changing consumer habits, and new technology to mention but a few. These trends challenge all business owners and their boards to understand the impact on the company plans, and to take the necessary steps to protect shareholder value. With this proactive approach to risk comes peace of mind, knowing that major events that can impact your business are on the radar, and steps to mitigate them are well defined.

List the Primary Risks

My advice is to start off simply and build on this as the needs of the business change. I suggest assessing business risk under the following headings: Operations and Safety, Competition, Laws & Regulations, Human Resources & Succession Planning, Intellectual Property & Trademarks, IT Systems, Working Capital Management, and finally Legal Structures of the company.

Frame the Risk and Define Mitigation Actions

Describe the risks under each heading, define the potential impact on the business and accordingly rank the risks by relative importance. Start to develop mitigation strategies (perhaps involving outside assistance or expertise) and allocate ownership of the actions to the management team.

Draft the Risk Register & Review Regularly

Bring this together in a single document, the Risk Register, which should be reviewed monthly by senior management and at all board meetings as a set agenda item. Formats and detail of the Risk Register will vary but all should contain these core elements:

  • Category: Define which category of risk applies.
  • Description: Describe the risk clearly and its impact on the business.
  • Mitigation: Define a realistic mitigation strategy to manage the risk.
  • Priority: Assign a priority.
  • Owner/when: Defne who in the business is accountable and the action date.

Building this process will bring sharper focus on the key corporate governance gaps in the business. 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 to lend or partner with you in 2018.

MANAGE & RETAIN KEY PEOPLE

Retaining key employees and putting in place processes to do this is at the very heart of good corporate governance. Typically, many organisations have an over-reliance on a relatively small number of key employees for their success. They are usually trusted, reliable and aligned to the vision of the owners as a result of years of dedicated service. They often have a key skillset, connections and vital experience. And, most likely in recent years, they have shown loyalty and personal sacrifice through difficult times. As you and the board set the plans for the business for the New Year, they too will be setting their personal goals and aspirations. So, here are some suggestions to consider to retain and motivate your key people:

Share the Vision

Owners and senior managers must share their vision of the business for the next 3 years with key staff. You cannot expect people to follow you if you do not tell them where you are going. Write down the final vision on 1-2 pages, and share the relevant elements with the key staff as appropriate.

Define Accountability

Sit with your key staff and work together to define their job description and / or update the older draft to make sure it properly reflects reality. Unless this is done, key staff will be frustrated and unclear what you expect of them. Agree and jointly sign off.

Assess Market Rates

The cost of living will likely increase as will the family pressures on your employees. A proactive salary increase now, may prove to be a wiser course than a larger reactive increase when the key employee comes to you with a competitor offer letter.

Implement a Performance Management System (PMS)

Based on the company vision, job description and the business plan, put in place a fit for purpose PMS. At its simplest, this comprises writing 5-10 company and personal objectives for the next 12 months, and a formal progress review at least twice in the year.

Be Visible To Key Staff

Make a commitment to spend extra time with your key staff and to listen to them in the New Year. Expand conversations to sincerely understand more about their personal challenges. Often, you can do a lot without a lot of cost, and this connection makes a huge long-term impact.

KEY CONTRACTS ANNUAL REVIEW

Management is accountable to ensure that the terms and conditions of the contracts and agreements in any business are up to date to reflect the reality of operations. The distractions associated with unwanted contractual and legal disputes are draining not only from the time wasted but also in terms of unplanned costs and potential damage to company reputation and stakeholder relationships. The systematic review of contracts in the business will ultimately save you time and money, keeping you focused on building a sustainable enterprise.

Client / Customer Contracts

Often, client (those who buy services) and customer (those who buy products) contracts have not been updated on company documents to reflect changes in the business for the New Year. Basic contract elements must be accurate, including any new payment terms, bank details, company information, delivery terms / conditions and the like. The gaps in this critical information can give rise to delays in payments, disputes and loss of business.

Supplier Agreements

It is a vital task to ensure that discounts, payment terms, service levels and other long-term arrangements can be assessed, formalised, and critical gaps addressed. The resulting proactive discussions to negotiate the best possible terms will ensure continuity of business and help to keep your input costs under control.

Employment Contracts

Frequently, the terms of employment contracts, especially pertaining to long-standing key staff, do not reflect changes that have occurred in their terms and conditions. Critical terms such as job titles, salary and benefit conditions, annual leave, sickness policy, pension provision, termination and probation among others should be actively updated to reflect the current legal requirements.

Insurance Contracts

Ensure that insurance contracts provide adequate and up to date cover to protect key risks in your business. This includes buildings and contents, third party liability, professional indemnity, vehicle cover, health insurance cover and other specific risks that may apply. The levels of cover you currently have in place may not reflect the actual operations which may affect the validity of cover.

Office & Factory Contracts

The terms and conditions associated with office and factory rentals / leases are critical for the continuation of all business. In the context of the significant changes in the market rates and regulations, long-standing lease contracts should be proactively reviewed to ensure that the contract provisions are favourable and protect you over the term duration.

Document Safe Keeping & Storage

Ensure that all the above documents are kept safely in secure storage so they can be easily accessed and produced when required. Start to compile a register of key business documents and regularly review it so it is up-to-date.
Build the action list arising from the contracts review, using this simple approach:

• Validity: Make a note of the renewal/expiry dates in 2018.
• Accuracy: Check the key information and conditions are correct.
• Relevance: Check the contract terms are relevant and reflect the business needs.
• Accountability: Clearly identify who is tasked to take the action and set milestones.
• Professional Legal Advice: Seek advice on the major contract changes that may arise.

John Merrigan

PARTING THOUGHTS

“A Christmas Carol” gives us valuable lessons on how we need to change to be successful, based on a thoughtful assessment of where we are now. It is a timely and timeless reminder about key choices we face as we move into an exciting 2018 and beyond. Unless you as business owner make those future choices, the choices may be made for you – a scary prospect, perhaps just like being visited by a ghost. There is real opportunity to stand apart and succeed in the market, for those who take these governance challenges, carefully and with real commitment.

For further information, please contact John Merrigan at jmerrigan@nestoradvisors.com

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