Company SecretarialGeneral

Can a private company learn anything from the new QCA corporate governance code?

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Essentially good corporate governance is about having the right people working together in an ethical manner to deliver shareholder value over the short, medium and long term. Shareholder value largely is derived by making good strategic decisions.  To make good decisions the board needs to be balanced between experience and skills.  The board should also be able to manage risk, understand the strategy and effectively debate. For private companies that might be looking to be acquired or that might be looking to raise funds having good corporate governance in place will add value, will provide acquirers or investors comfort that the business is well run and will ultimately aid with the transaction. The QCA principles are listed below and against them are potentially what a private company could seek to do:
Principle Private company may choose to do:
1.    Establish a strategy and business model which promote long-term value for shareholders The company should have a defined strategy and business model, that can be understood and explained to those that need to know.
2.    Seek to understand and meet shareholder needs and expectations Where there are various shareholders.  Whether family members, friends or external investors.  Seek to understand what each wants and where possible seek to consider this in medium to long term planning.
3.    Take into account wider stakeholder and social responsibilities and their implications for long-term success The board need to understand a wide range of stakeholders expectations, from staff, suppliers, clients, regulators and others.  Their concerns, objectives and feedback should be considered.
4.    Embed effective risk management, considering both opportunities and threats, throughout the organisation The company should maintain a risk register and monitor this regularly.  Focusing and prioritising tasks according to their risk profile will help the company make sensible decisions.
5.    Maintain the board as a well-functioning, balanced team led by the chair The board needs to be well balanced.  If practical having a non-executive director will assist with this. Specific tasks might well be delegated to committee and this will allow those with relevant experiences and skills to carry out those tasks.
6.    Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities It is important that the board’s skills and experiences are reviewed and compared against what the business is likely to need. Bringing in external consultants to fill the gaps might be an option.  Training might be plausible.  It might also suit some of the board to sit on other company’s boards to get a new experience.
7.    Evaluate board performance based on clear and relevant objectives, seeking continuous improvement The board and its committees should be reviewed in terms of their effectiveness to make good decisions for shareholder value. This might be possible to be done internally.  There are external consultants who offer this service.
8.    Promote a corporate culture that is based on ethical values and behaviours The board should promote a positive culture with ethical values and behaviours. This culture needs to be seen and recognisable by the rest of the company and be able to trickle down.
9.    Maintain governance structures and processes that are fit for purpose and support good decision-making by the board As the company grows or changes direction it needs to continually look at its structure. The role of the board, the chairman, the non-executives and the executives needs to be defined.
10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Let stakeholders know how the company is governed.  Especially staff. Staff who are working for a well-run company are more likely to remain loyal to that company.
Wisteria act for many family run and owner managed companies. Corporate Governance ought to be on the agenda. If you have any questions or queries about this article please call us on 020 8429 9245 or email us at [email protected].

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