Corporate Governance applies in all types of entities

Corporate governance is an important process for company directors of small/medium enterprises. 

corporate governanceWhether it's a better understanding of the corporate law or other business issues which relate to performing the duties of a company director.

Similar requirements also apply to those of you who are involved as committee members in not-for-profits, charities or sporting organisations.

Directors and committee members need to have an understanding of the legislation that applies to their organisation, to understand best practice relating to various business issues and to understand the ethics of running business entities whether they are companies, not-for-profits, charities or sporting organisations.

Directors are responsible for "setting the scene" for the development of the "corporate culture" for the organisation. An important role for directors is to plan the strategies for the business and then to appoint a chief executive officer or general manager to operate the business. However, it's very important that the directors or committee members implement policies and processes whereby they can monitor what is happening within the business.

One of the key lessons learnt out of the revelations that have been made at the Banking Royal Commission, is that there is an expectation that directors of companies and committee members of not-for-profits, charities or sporting organisations will implement processes whereby they're able to monitor the actual performance, not just accept without any independent review, what is being told to them.

This means directors and committee members need to develop an awareness of what is happening in all things legal, whether it's the Companies Act, the Association Incorporation Act, Taxation, Workplace Health & Safety Code, Fair Work Australia, Environmental Laws, Privacy Act or Overseas Workers Rules to work in Australia.

Directors also need to develop some "financial literacy"

Directors need to be able to read, understand and analyse the financial accounts that are presented to them if they're going to be able to adequately perform their duties.

Related reading: How a VCFO can help you understand your business financials

There is also a need for the implementation of appropriate systems so that the directors and committee members are aware of key issues relating to:

  • People – resignations, accidents, serious injuries or even deaths, warning letters issued to team members, complaints that have been made by team members to Fair Work Australia.
  • Workplace Health and Safety, monitoring any correspondence received from appropriate government agencies.
  • Monitoring Customers – "the life blood of a business", frequency of sales, average sales, complaints and compliments.

In the market, what is happening with:

  • competitors?
  • suppliers?
  • new technology?

Does the company have an innovation policy? Is research and development being appropriately recorded so that the research and development rebate can be claimed?

Is the intellectual property, that is being developed appropriately, protected?

These are the types of questions that directors should be asking so as to perform their duties and responsibilities.

If you have any questions relative to corporate governance, please contact Collins Hume's Business Advice team in Ballina or Byron Bay on 02 6686 3000.

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