The Governance Myth: Size matters

Think for moment of the friends you know who run business – possibly quite successful and expanding one. Then reflect on the look they give you when the word ‘governance’ comes up in conversation. “Governance,” they say, “is for big business – I’m not running Telecom. It’s expensive, disruptive and unnecessary for smaller entities.” The thought processes are etched all over their faces.
Leading large and small business is, I think, little like flying plane. 340 Airbus flies itself, almost. As former pilot colleague and friend who captains one of these monsters on the Hong Kong to Auckland run admits – “it’s not much fun – just boring accounting work. The plane knows best how to fly itself.”
For the hobby pilot of Cessna, it’s different matter altogether. Flying at 10,000 rather than 35,000 feet, in bad weather and in an aged aircraft, requires very different skills and mindsets.
Like today’s monster aircraft, our largest organisations are equipped with formidable set of resources and management skills. When they require reality check, there are board directors, advisors, or dozens of bright senior management staff, who smell smoke before the fire takes hold. In most cases, they act to avert disaster.
For the business with four to 10 employees it’s harder. Everyone works hard every day. By the end of it, most bosses want to kick back, spend time with their family reflecting, if at all, that busy day means something has been accomplished.
Nothing, unfortunately, could be further from the truth. The thousands of small to medium size businesses (SMEs) that could but don’t grow from $1.5 million to $50 million, are this country’s greatest potential economic resource. And all most of them would need to grow is proper long-range plan and the support of knowledgeable and experienced board members or advisory board members.
I accept that in an owner-operated business it is hard to step back and look at its performance through the independent eyes of an outsider. Instead, these leaders excuse their own errors, explain their mistakes and go happily to sleep knowing they are good people and trusting that tomorrow will be better day.
The approach is not good enough. Owners and employers owe all employees, even those in the smallest firms on the highest mountains, the opportunity to grow and learn. They also owe themselves and their (family) shareholders the chance to sell the business at good capital gain in the future. And they owe the community the vibrancy of thriving business that teaches, consumes, networks and demonstrates community pride through success.
It is not really acceptable to simply circle the wagons around an internal resource. Isolationist strategies in the swirling world of power and knowledge reduce the firm’s ability to learn, chart course beyond the obvious and create greater than average value.
But how to cross the Rubicon? What might help SME leaders to move from believing they “don’t need an outsider to teach them to suck eggs” to feeling good about having range of “knowledgeable people around who constantly help shape my thinking”?
Resistance to change is more often than not rooted in myth. Myths about governance run particularly deep. Here are three of them.

1. Governance is expensive

It’s not. What can be expensive is not having the best advice. Everyone knows someone with superior and particular skills and who are not family or close friends. Generally they are happy and honoured to be asked to become members of an advisory board and chat every two to three months about the direction of the business. Money is seldom the issue. Being invited to join an advisory board is an honorific. It looks good on the CV and builds their skills too.

2. Outsiders take too long to learn the business

Of course – but they aren’t there to run it. They don’t need to know the details of your operation. They are there to ask questions and prompt new and innovative responses. They are there to help steer, not row the boat. Senior managers develop skills that are transferable. It’s about being interested and understanding the principles of running good business. It’s also about sharing valuable experiences.

3. The board might take over

Unlikely. Shareholders own the business and control the board. Directors serve on the shareholders’ invitation. Their presence is earned not gifted. But spirited debate draws out the best contributions from around the table. When the smoke clears, there is more often than not unanimous decision to move forward. Good people do not wake up every morning and think: “Whose life can I make miserable today?” They want to make genuine contribution and feel appreciated for their input.
Leaders who think they don’t need anyone from the outside to banter with, exchange ideas with or debate challenges, are telling both themselves and their stakeholders that they alone are the brightest individual in the universe. Maybe they are – but the odds are against it.
There are many capable people around willing to contribute for the sake of engaging. They are less concerned about creating personal financial windfalls. How hard is it really to harness this power and open the corporate door crack and let advice and commentary enter so that planning and forward motion accelerate?

Professor Jens Mueller is governance expert at Waikato Management School. He sits on the boards of several multinational firms and works with many New Zealand businesses to develop sustainable governance strategies. [email protected]

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