Business Governance in Private Firms: An Essential Guide

When people hear the term “business governance,” it often evokes images of large, publicly traded corporations with boardrooms, stockholders, and layers of regulatory oversight. However, the principles of business governance are equally important, if not more so, for private firms. So, what does business governance mean for a private firm?

At its core, business governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It encompasses the balance among an organisation’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community. For private firms, which often lack the external checks and balances of public entities, strong governance can be the compass that keeps the business on its intended course.

Here are some reasons why private firms should care about business governance:

  1. Transparency and Trust: Strong governance mechanisms ensure transparency in operations, fostering trust among investors, stakeholders, and employees. This trust can be especially crucial for private firms seeking to attract external investment or contemplating succession or a future exit (read more about exit planning here).
  2. Succession Planning: Many private firms are family-owned. Effective governance structures help in smooth succession planning, ensuring that the company’s legacy is secured for future generations (read our article on Succession Planning for more information).
  3. Risk Management: Robust governance practices help in identifying, addressing, and managing potential risks that could derail a company’s objectives.
  4. Performance Monitoring: With clear governance structures, performance metrics and benchmarks can be set. This allows management to measure growth, analyze profitability, and ensure that the firm remains competitive and delivers adequate returns to shareholders.
  5. Stakeholder Relations: For a private firm, relationships with stakeholders, be it suppliers, customers, or financiers, are vital. Clear governance can lead to better contract management, dispute resolution, and stakeholder communication.
  6. Owner Accountability: Private firm owners, much like in the public sphere, need to be accountable for their decisions. Business governance provides a framework that ensures decisions align with the firm’s vision, values, and long-term goals.

Incorporating effective business governance is not about adding bureaucratic layers or hindering agility. It’s about creating a solid foundation that ensures a private firm can thrive in a competitive landscape, adapt to changes, and achieve its vision while maintaining the trust of its stakeholders. Whether it’s through an advisory board, regular audits, or clear internal policies, embracing robust governance practices is a forward-thinking move for any private firm.

The Board Associates team specialises in right-sized governance for small and medium business.  To discuss how an Advisory Board can help you put the right governance practises in place to fuel strategic growth, contact us here.