Governance – 5 things every EO business should know
Sound governance is the foundation of every well-run business, not just legally but commercially too. In unstable times it acts as a trusted bedrock for the way things are set up, accounted for and done.
But when you’re employee-owned – or transitioning to it – there’s a ‘double layer’ of governance to bear in mind. This is because of the additional checks and balances that employee ownership will bring.
So, as a founder / owner, what are the 5 things you need to know about governance if you want to equip your boards with the right framework of authority and accountability to be successful, both before – and after – your business becomes employee-owned?
Our ‘governance pro’ Associate Lisa Fryer shares her insight below.
1. The size of your board matters
Leading employee owners is different, so your executive / operational board should be well-prepared and structured to make the most of this opportunity – ahead of your EO transition. It must be agile enough, in size and nature, to support your company’s needs.
If your board is small, it can be especially useful to seek particular expertise in the form of a high-calibre Non-Executive Director. The challenge and rigour these ‘critical friends’ bring will ensure your directors have the insight they need to make the best decisions – and avoid unproductive ‘group think’
2. You need the right capabilities in the right roles
Does your board have the collective capability to operate your business effectively once it becomes employee-owned? If board members are long-serving, you should ensure their skills are still relevant or can be developed to support the next stage of your company’s growth.
Pre-transition (then every two years) your business should do a thorough skills audit to identify your board’s strengths and gaps. This will highlight development opportunities and when external expertise should be brought in. Individuals might feel vulnerable, but often transitioning boards are already composed of very talented and inspiring leaders. It’s why your company is successful.
‘Do a thorough skills audit… Individuals might feel vulnerable, but often transitioning boards are already composed of very talented and inspiring leaders. It’s why your company is successful’
Lisa Fryer, Associate, JGA
3. Clarifying your Trust Board’s role and responsibilities is important
Your Trust Board provides a vital extra layer of governance for your employee-owned business. Both Independent and Employee Trustees (if you have them) should clearly understand their role and responsibilities – and it’s important that the rest of your company understands them too.
Your Trust Board is not usually a decision-making body; it is your ‘conscience’. Its value lies in the independent perspective, insight and challenge it brings as it ensures your board is operating in line with your purpose and ethos – and in the best interests of your beneficiaries.
4. Identifying your purpose, vision and values is fundamental to future success
As founder / owner, you should clarify what matters most about the way in which your business will operate once it becomes employee-owned, and ensure this is referred to in some way in your Trust Deed and Articles of Association.
What is non-negotiable in your purpose, mission and values? Where are your red lines? Remember that these legal documents will provide a clear reference point for your boards as they navigate the path ahead. Use them, therefore, to specify what’s most important without being restrictively detailed to avoid undermining your company’s ability to evolve and grow.
5. Rigorous organisation and record-keeping underpins sound governance
It might seem tedious, but establishing a clear administrative process and diligent record-keeping is integral to the smooth running of your employee-owned executive / operational and trust boards. Setting a clear agenda for meetings, where each director, NED or trustee understands their purpose and the information they must bear in mind, is good governance.
Maintaining accurate records ensures that, if challenged, both boards will be able to clearly demonstrate what was considered, explain the reasons they signed off a particular decision and provide the assurance they were acting in the best interests of your beneficiaries.
What should you do next?
JGA is the UK’s largest independent multi-service provider of commercial, cultural and engagement services to the employee-owned sector – with a successful track record of working with founders / owners at all stages of the transition process. We also provide ongoing and expert people and governance support.
To find out how we can support you or your organisation, please get in touch here.