Does Corporate Governance Impact Business Value Growth and Transition Success?
How Necessary is Good Corporate Governance to Business Value Growth and Business Transition Success?
Answer: Very necessary! It is not a stretch to suggest that for privately-held companies it is a fair generalization to suggest that business value growth and business transition success on the one hand, and corporate governance on the other, are interdependent. Further, at any given point in time assessing the veracity of a company’s corporate governance is fundamental to developing either its notional value or negotiating an open market price for all of its outstanding shares.
Commentary: We live in a business and social environment evermore influenced by continual transitioning globalization factors, central bank policies, government-related business and societal uncertainties, ongoing technological advances, and ongoing business combinations activity. It follows that Implementation and ongoing compliance with superior corporate governance practices are increasingly important to promote ongoing viability, value growth and successful ownership transition in individual private companies. See related blog posts Business Transition – General: The Right Overview Question and Recession Impact by Industry and Business is a ‘Right Question’! .
Why a Chrysalis -> Butterfly image?
Question: Why a chrysalis -> butterfly image as a lead-in to a discussion of corporate governance?
Answer: We live today in a world of continual transition on many important fronts. If the butterfly does not react to climate change and hence does not successfully transition from its chrysalis state, it will not survive. Parallels in this regard between the butterfly and a privately-owned company are very easy to identify.
What is Corporate Governance?
Answer: Corporate governance is a term used to describe the system of mechanisms and processes by which a business is controlled and directed. Broadly, a corporate governance system:
- details the rights and responsibilities of the board of directors, members of an advisory board if one exists, owners, executives, managers, and other employees.
- establishes and continually adjusts the rules, practices, and processes:
- that influence and appropriately align and balance the mutual and individual interests of all stakeholders.
- for making business decisions.
- that collectively coordinate and monitor the company’s objectives through strategic plans, business plans and forecasts, and the like.
- Ensures all of those things are complied with on an ongoing basis through a continuous monitoring process.
Corporate Governance Initiatives. Which Should Private Company Owners Prioritize?
Answer: If corporate governance excellence is absent in their company, business owners should:
- consider engaging an independent, objective consultant with experience in their industry to conduct a detailed Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of their business.
- based on that SWOT analysis, decide whether the business:
- is likely to be viable as a going concern In the long-term, or
- should be organized for sale to an arm’s length purchaser.
- if the business is assessed as likely to be viable as a going concern in the long-term:
- identify recently retired (preferably same-industry) executives or other qualified people and invite them to join the company’s board of directors.
- alternately, establish an advisory board of such arm’s length people if candidates are not willing to accept the fiduciary responsibilities director’s shoulder – or if an advisory board is a preferred course.
- If a family business, elect a non-family member as Chairperson of the Board or Advisory Committee as the case may be.
- make that Chairperson responsible for developing, implementing, and thereafter monitoring, a sound corporate governance system for your company going forward.
Important Corporate Governance Comment
There are advisors, be they directors, business advisors or professional advisors – and then there are advisors. A business owner should only engage advisors where mutual respect and trust exists, and where the advisors ‘speak truth to power’ – and are listened to and not resented for doing that. I am particularly emphatic on these things in the case of family business owners who employ family members.
Receive email notice of new blog posts. Add your email address in our blog's right navigation. You will receive an email from WordPress asking you to confirm your signup.
Ian R. Campbell has provided business valuation and transition advice to business owners and advisers for 50 years. See Profile.
In his retirement from active practice he:
- Advises a limited number of business owners with respect to valuation and their business transitions.
- Works to provide business owners and their advisors with thought-proviking business value and transition commentary.
Disclaimer: Blog content ('Content') does not constitute individualized business valuation, transition, economic, technology or investment advice. The ideas, views and opinions expressed in the Content are solely those of the author. Provided 'as is', Content is general in nature and may not be relevant to individual business facts and circumstances, may change without prior notice, may be incomplete, inexact, or incorrect for jurisdiction-specific or other reasons. Content is used at the reader's own risk.
© 2019 Transitus Corp. All Rights Reserved.
RSS - Posts