Small business: Governance

Governance can be a scary word for business owners.

But when you actually hear about some of their experiences of governance, they speak of it in decidedly approachable terms. 'A sounding board', 'a trusted outsider', 'an interested yet independent voice' are some of the ways they describe it.

Liz Wotherspoon - director of growth, coaching and advisory at The Icehouse, who is also leading the business growth centre's 'Undressing Governance' regional roadshows - says governance in the context of small business can encompass everything from advisers to advisory boards, to independent directors and full boards.

"Simplistically, governance in the small business context is advice on matters the owner knows little about but which have the potential for significant consequences on the business," she says. "It is about having an individual or a group of people who have specific and complementary skills and independence of thought."

Wotherspoon says what kind of governance option a company opts for can depend on a number of factors including the size and stage of the business, the kind of input it requires and the nature and level of risks in the business.

Many of the companies that share their stories this week talk about progressing through a number of different governance arrangements to suit their differing needs over time.

Because governance is journey, as exemplified by the experience of Ian Kuperus, founder director of Auckland-based tax pooling firm Tax Management New Zealand, which started 11 years ago.

"Our governance and management structure has evolved through three phases: from just an advisory board and myself as managing director; to a general manager with myself as the sole director; to our current structure with a CEO, Chris Cunniffe, and a board of three directors," Kuperus says.

According to a description on the Institute of Directors' website "governance means thinking about strategic issues, rather than the operational day-to-day running of the business".

Having the opportunity to work on the business and being accountable to doing so is one of the major benefits of governance cited by many of the small business owners interviewed this week.

Ivan Seselj is a director of cloud-based business process management software company Promapp, which now has a board made up of two executive directors and two independent directors, with one nominated as chairman.

"It's been about tracking our progress against the big-picture goals rather than always getting caught in that 'I'm so incredibly busy running the business' mentality," says Seselj.

"Also, we wanted sound advice to develop and challenge our whole strategy. We've made some big calls in recent years that have thankfully paid off for us. When we were without a good a governance team, we talked about these kinds of decisions but didn't act on them as readily - especially those tough decisions about things like our people, products or entering or leaving markets."

Governance: Liz Wotherspoon, The Icehouse

Liz Wotherspoon is director of growth, coaching and advisory at The Icehouse business growth centre in Auckland. She is also leading The Icehouse's Undressing Governance regional roadshows.

What exactly is governance in the small business context - advisers, advisory boards, an independent director, a board of directors, all of the above?

All of the above really. All of these can be an excellent source of much needed advice and support. Deciding which option is most appropriate can depend on the size and stage of the business, the input that is required and the nature and level of risks in the business.

Simplistically, governance in the small business context is advice on matters the owner knows little about but which have the potential for significant consequences on the business. It is about having an individual or a group of people who have specific and complementary skills and independence of thought.

In our Owner Manager Programme, when we initially introduce the subject of governance we actually substitute the word 'governance' with 'advice'. What we are encouraging owners to do is surround themselves with people who can help in areas where they don't know what they don't know. What advisers cannot or should not do is make decisions for the owner but they should save the owner valuable time. They are there to help identify opportunities and risks and determine how to manage both of these. They should work with the owner to get a very clear steer on where they want the business to be and how they are going to get there, assisting them to get a clear view of the big picture.

Why is governance important for small business owners to consider?

More than 300 businesses have now completed our BIQ Barometer - a tool The Icehouse has developed to help businesses assess areas of strength and areas for improvement. On an aggregate level governance is the area with the lowest average score of just 20%. So clearly, governance needs to be put on the agenda of SMEs in New Zealand.

We want to see SMEs go beyond their accountant or lawyer or another family member when they are looking at establishing or building a board. For many owner managers in SMEs, governance implies a loss of control and a loss of power; that they will be accountable to someone other than themselves. But, no matter how capable an owner is and how successful the business is, eventually there comes a point at which the owner feels the isolation and pressure of not having a sound source of advice.

An adviser or a board is there to help not hinder the owner. Some of the things an adviser or a board can do with the SME is see the big picture; manage succession planning; improve access to capital; transition from family to professional management; fill experience or skill gaps; expand networks and improve management accountability.

Where do you find good, independent directors, or trusted advisers?

Obvious answers are organisations like the Institute of Directors and Appoint Better Boards. IoD has both a Director Vacancy Notice Board and a Director Search service.

Using networks is also a smart and viable way of finding the right person or people. The Icehouse is one of those networks. We used to pander to the owner's view that the best fit for an adviser or director is someone who comes from the SME world - someone like them, who's been there done that. We now believe that while empathy for the world of an owner manager and an understanding of and passion for the SME sector are critical, a good adviser or director must have had experience with much bigger, more complex businesses.

What I can say is there is no shortage of capable and willing wise individuals out there who can bring invaluable input and support to SMEs.

What are your three key pieces of advice for a small business owner starting out on their governance journey?

1. Be clear about why you are looking to institute governance and what success looks like.

2. Work out what you are looking for. What 'wisdom', industry experience, functional skills, specific networks do you and the business need?

3. Remember that conditions change and when they do you can and should look at changing your adviser or board. You are not stuck with them forever.

Coming up in Small Business: Running your own business can be all-consuming, but if you're not physically in shape it can be harder to keep up. So what are some of the different things small business owners do to keep themselves well - and what effect does that have on their business? If you've got a good story to tell, drop me a note: nzhsmallbusiness@gmail.com.