Phillip Gallo, was the keynote speaker at ICCI's February Industry Update Breakfast. The topic of the meeting was the Importance of a Corporate Governance Strategy.
2. ‘The importance of a Corporate Governance
Strategy’
Phillip Gallo
Managing Director
Gallo and Associates
Level 40
140 William Street
Melbourne
Mobile: 0433388237
Email: Phillip@galloandassociates.com.au
www.galloandassociates.com.au
3. 1. What is Corporate
Governance?
2. What Role does Corporate
Governance play?
3. Why Corporate
Governance is important
for companies?
4. Principles of Corporate
Governance
5. Good Governance— The
SME Journey
4. Let’s start a conversation
about Corporate Governance
5.
6.
7.
8. What Role
does
Corporate
Governance
Play?
• As a business owner/director of a small to medium business, it is important
to understand your role in the growth of the business and the positive
impact that good governance contributes to this growth.
• As a business owner/director you are probably making these assumptions:
• “governance creates more work”
• “it’s going to cost a lot or take too much time”
• The basic principles of good governance are fundamental to the
sustainability of all businesses whether they be small, medium, large, family
owned, private or public companies. The creation of a business place,
building appropriate financial acumen, risk management, succession
planning and ensuring there is accountability and transparence to owners
are just a few of the vital components of a successful enterprise.
• Corporate Governance is pivotal in establishing a framework within which
problems regarding the separation of ownership and control are mitigate.
The main aims of corporate governance is three-fold;
1. To help drive enhanced organizational performance;
2. To meet the reasonable expectation of investors; and
3. To aid conformance with various requirements. These include
“internal” requirements such as policies and controls and
procedures and “external” regulations and laws.
9.
10. Why is Corporate Governance important?
Business Growth
There is a strong link between governance the bottom line. Good governance practices encourages
growth in the following ways:
1. Increased business performance: good advice, be it from advisors or a well structed board,
contributes to the performance of the business and thereby increases the value of the company by
developing better strategy, advising and mentoring the owner or management, and providing the
business with vital contacts and resources.
2. Raising Capital: A good track record of governance practices can be critical for attracting investors.
Practicing good governance provides confidence to investors, financial institutions and venture
capitalists.
3. Financial Control: managing the company’s finances, including cash flow and debt management are
critical factors for a growing company
4. Accountability: The separation of management from control fosters accountability and is in the best
interests of the company.
11. 5. Building Relationships: A strong track record of fair and transparent governance can also
attract and retain good customers, suppliers and employees.
6. Competitive Advantage: Good governance practices help build sustainable competitive
advantage and can give your company an ‘edge’
Performance Management
Building a strong foundation from a ‘people perspective’ and setting up the appropriate
mechanisms to monitor and manage performance – particularly senior managers – ensures the
owner/director’s strategic intent is effectively translated into practice
Risk Management
Failure to identify and mitigate risk can have a significant legal and financial impact on your
business.
Compliance
Your company must comply with the rules and regulations required under the Corporations Act.
Practicing good governance will ensure you have adequate processes in place to comply with all
legal an accounting requirements, and that you have an understanding of your legal and financial
obligations as a business owner/director.
14. Good Governance – The SME Journey
There is no universal formula for successful corporate governance. Businesses vary in size, complexity an
ownership structure. As the business grows from a small to a medium business, the structure will need to
evolve with your changing business needs.
STAGE 1 INCEPTION:
Governance begins when you incorporate your business under the Corporations Act (2001). At a minimum
you must consider:
• Being a director – understand your role, responsibilities and risks – do not add family members as
directors to reduce risk.
• Indemnity and Insurance
• Set up business planning: create a simple business plan
• Build measurement: build a simple set of Key performance indicators
• Identify risks: analysis business risks and create a basic set of policies to mitigate these risks
• Engage external advisors
• Develop reporting requirement
• Create a succession plan
15. Stage 2: Early Growth
Your business has now grown either in
employees or revenue and you want to
grow over the next 3-5 years:
• Set up formal structures – formal
accounting systems, HR policies,
remuneration frameworks and policies
for purchasing and sales
• Raise funds
• Develop strategic partnerships to access
new markets
• Create growth strategies – a detailed 3-5
business plan and annual review
• Enhance your measurement: using a
number KPI and budgeting systems
• Institute a formal system to manage risk
• Establish an advisory board – for
independent business advice and
strategy
• Increase your reporting requirements:
create a system to share the company's
financial with all concerned
• Institute performance management –
provide key players and managers with
direction and accountability
• Develop succession planning – involving
formal business agreement.
16. Stage 3: Established Growth
Your business has several
shareholders, investors and partners.
You now require a more robust system
of practices that should include:
• Create a board – set goals and
strategies for the company
• Appoint external directors to the
board
• Establish a mechanism to ensure
board performance
• Build an extensive network of
policies, measurement and
reporting systems
• Increase reporting requirements:
ASIC reporting. SRO reporting etc
• Develop an established model and
history of good governance.
17. Stage 4: Exit Strategies
You have now developed a comprehensive governance practice
with your business and now it is time to sell. In an attempt to sell
the company, investors and buyers will look for a well organized
business model. A company without up to date books and registers
is unlikely to attract the finest buyers. Companies are becoming
increasingly aware of their public image and the need to behave
ethically. By employing good corporate governance the public and
investors and buyers will feel that the company and brand can be
trusted.
18. 12 Essential principles for SME’s while on the
journey
1. Shareholders should establish an appropriate governance framework for the company. The
process and the governance requirements will develop with the growth of the company.
2. Family companies should establish family governance mechanisms which promote
coordination among family members and organize the relationship between the family and
business.
3. It is important to establish an effective board which is collectively responsible for the long-term
success of the company – establish an advisory board of management.
4. There should be a clear division of responsibilities at the head of the company between the
running of the board and the running of the company’s business. No one individual should
have unfettered powers of decision.
5. All boards should contain directors with a sufficient mix of competencies and experience. The
size and composition of the board must reflect the scale and complexity of the company’s
activities.
6. The Board is responsible for the risk oversight and should maintain a sound system of internal
control of safeguarding shareholder’s investment and the company’s assets.
19. 7. Dialogue should be encouraged between the board and the shareholders on the company’s
strategic objectives.
8. A stakeholder engagement process should be established, ensuring that the board always
presents a balanced assessment of the company’s position and prospects.
9. The Board should be supplied in a timely manner with appropriate information and should meet
regularly to comply with its duties.
10. All directors should receive induction training on joining the board and should regularly update
and refresh their skills and knowledge.
11. The board should undertake regular appraisals of its own performance and that of each
individual director.
12. Levels of remuneration should be appropriate to attract, retain and motivate executive and non-
executives of the quality required to run the company successfully.
20. CONCLUSION
Corporate governance has earned it place as an essential tool in the
management and growth of companies and will continue to grow in
importance as time goes on. It is advisable that all companies take
steps to increase the quality of their corporate governance system in
order to improve the functioning of the business.
Remember as the owner you want:
