Thriving in a recession through good governance

Erika Eliasson-Norris at Beyond Governance explains why governance shouldn’t be sacrificed in the face of recession cuts

 

How can businesses successfully navigate the impending storm?

 

With rising energy prices and a shrinking economy, many predict a recession is on the way, but what does that mean for UK business?

 

Many organisations have seen recessions before but may not have been in a position to proactively plan. To understand the actions needed to safeguard a business when the economy is spiralling down, the directors need to understand that governance is the lynchpin to survival.

 

Governance covers a vast and varied remit and done well, it’s far from bureaucracy, as many believe. Good governance drives culture, trust, and loyalty. It also safeguards, aligns and holds accountable the owners, directors, employees, suppliers, customers/clients and other stakeholders to the business strategy and purpose.

 

Governance during a recession

In a recession money becomes less free flowing and the pace and robustness of all decision-making must increase to align with the ever changing economic and external environment.

 

It may become harder to operate resulting in declining profits, it can take longer to get paid, and lenders may make their lending criteria more rigorous. Internally businesses may decide to reduce cashflow and cut costs.

 

To have fit for purpose processes and procedures means that the Board and senior management team must be aware and capable of advising under pressure. As such, the right people are talking at the right time about the right things with the right level of information to make a measured decision.

 

Governance ensures that the best decision possible was made by the right people at the right time whilst balancing opportunity and risk.

 

In a recession it’s likely that those managing the business will be focused on critical matters so it’s vital that good governance practices are in place early. These practices ensure more junior management and employees continue to trust management, love their work and act with integrity within clearly defined parameters.

 

Good governance creates a culture which drives amazing directors and employees to overachieve against their goals too and ensures that decisions are taken in the same way that they would, had senior management been in the room… every time.

 

Governance on a tight budget

Governance processes and procedures ensure that employees at all tiers of the organisations know what they are doing, work within set parameters, are held accountable and are incentivised in a way that promotes the right behaviours.

 

Three key documents every business should have, and review ahead of a recession are:

 

Articles of Association

The rulebook of the company. Over recent years many changes have occurred in Company Law which has allowed changes to be written into this document to make operating and managing the company more straight forward. It would be prudent to summarise the key elements of the Articles now to save time ahead of a crisis.

 

Matters reserved for the board (and terms of reference for board committees)

This document sets out the decision-making areas that the board cannot delegate autonomy on. This requires careful drafting as putting too much in will slow the decision-making process unnecessarily, but having too few points could lead to key decisions not reaching the board in time before disaster ensues.

 

Delegation of authority policy

This policy sets out who approves what level of financial investment and what type of document can be signed by whom. There should be approval limits for each key document/decision-making area of the business and details of escalation above set thresholds. All employees should have access to this document.

 

Governance: making your company more efficient

There are countless ways a company can be made more efficient through good governance. One such way is to reduce meeting time for directors and senior management. Another is the governance effect of reviewing and reducing the numbers of papers in board and management packs whilst increasing their quality.

 

It’s vital in a recession that these key decision makers can rely on the information they are given especially when making tough decisions and governance enables this. The three documents/policies set out above, when correctly written are the building blocks on which to build out a governance framework which fits the culture, size, sector, and approach of the organisation.

 

Bolstering business

Good governance brings a vast amount of value which can bolster businesses ahead of, during and coming out of a tough economic environment. It’s not about having more it’s about optimising and streamlining what you already have.

 

Governance is everything that influences good decision-making and accountability in business. It’s what creates the organisation’s culture, and it’s the way the board and decision-making structures work effectively.

 

Without good governance a company is unlikely to survive in the longer-term.

 

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Erika Eliasson-Norris is CEO of Beyond Governance

 

Main image courtesy of iStockPhoto.com