The benefits of governance in New Zealand
You may already have a team backing your business - whether it's your staff, accountant, lawyer, or business banking partner. But perhaps importance now lies in the broader experience and big picture thinking of the future of your business - especially if you're focused on achieving high growth, exploring new markets or changing direction.
That's where setting up good governance for your small or medium-sized business might produce the outcomes you're looking for.
Governance explained
Governance applies to all organisations. However, governance in NZ primarily refers to the practice of appointing one or more people to help you as the owner grapple with and manage the long-term view of your business, rather than only its operational day-to-day running. These people are often called the board of advisors to differentiate them from employees or other professionals (like the accountant).
Advisory boards could give you feedback, advice, and recommendations on exploring new markets, switching business models, strategic partnerships, re-structuring your balance sheet, scaling up, or developing new products and services.
They wouldn't necessarily tell you how to go about the tactical implementation. Instead, with their skills, resources and knowledge, they would suggest how to build extra capacity in your organisation but leave it to you and your staff to focus on making informed decisions.
It's critical for the process that governance advice doesn't drip down into managing the business, as governance focuses more on outlining the structure for work without getting involved in the day-to-day operations. Where management needs to concentrate on organising and monitoring that work.
Benefits of boards
- They can assist your small business with processes helping to grow and develop at a pace that suits you as the owner, either by staying inside the speed limits or accelerating to full throttle.
- Many New Zealand companies have already discovered a board is a valuable and powerful tool for business sustainability and growth.
- As organisations grow, structured governance through a more formal board of directors across the company might enhance your business' credibility and performance, accelerate growth, manage risks or build confidence with investors.
Is an advisory board right for you?
From start-ups to businesses in high growth sectors, all companies can benefit from guidance.
- Receive expert advice without the formality or legal obligations associated with a more formal board of directors. This can be used as a business development tool and adjunct to strategic planning.
- Unlike governance boards, these members are not directors and owe no duties as directors of the company. They offer advice but are not involved in decision-making processes. As a result, they can provide businesses with external expertise while you retain full powers of control and decision-making.
A flexible first step
An advisory board may be a useful and flexible first step before your business creates a governance board, or board of directors. For example, you might initially appoint two to four people. Then, they bring their specialist, industry, scientific or technical knowledge and skills to your company - or perform a mentoring function.
Some advisory boards meet only occasionally through the year or whenever you need them. Advisory board members may have been recruited over a cup of coffee or casual drink, sometimes even voluntarily.
The difference between board members and directors
Suppose your board members are also appointed directors of your organisation. In that case, they will have added legal, regulatory and ethical duties of responsibility and accountability to keep the business financially on track and solvent. While governance boards within organisations focus on the oversight of operations and dealing with risk management, they can be liable for business failure (where a non-director board member isn't).
Directors can also take ownership of the vision and long-term goals of the organisation, including the strategy to achieve that vision, monitoring its implementation and managing risk. In addition, they play an important role in ensuring the organisation is well-governed and complies with all necessary legislation and remains financially solvent and may be needed if you're seeking capital.
Going in a new direction
A decision to simply keep doing what you've been doing or to change direction might be one of the most critical decisions you make in the near future.
There's no substitute for experience, and that's when you can use your advisory board or board of directors as a sounding board or for guidance.
Next steps
- The Institute of Director's Governance Services' team can help you find suitable candidates to suit your business or industry.
- The Advisory Board Toolkit includes some valuable tips, tools and templates.
- Here's what you should know about Setting up an advisory board, how it should operate, and what you might pay its members.
- Get in touch with ASB by enquiring online, visit a branch, call 0800 272 222 or contact your banker (who may have contacts you can use).