Corporate governance and small businesses
Let’s start with a review of what types of companies primarily drive the US economy We know that there are about 16,000 publicly traded companies represented on the NASDAQ, NYSE, and AMEX. The key economic engine in the US is the 27 million small businesses. The 2008 Small Business Administration Presidential Report on the Small Business Economy clearly communicated that “the economy generated 1.1 million net new jobs in 2007. In the first quarter of 2007, 74 percent of net new jobs were in small businesses with fewer than 500 employees and 22 percent were in businesses with fewer than 20 employees. ” However, the vast amount of attention in the media and the federal bureaucracy is focused on what is happening in the markets. This is understandable with the dollar volumes in transition in this public environment. The economic recovery program does not target the core of the economy, small businesses. More than ever the public market environment is questioned on corporate governance. The new legislation being considered for public companies has sections that may very well leak and require small businesses to adhere to similar, if not exact, rules on Corporate Governance.
A simple definition of Corporate Governance for small business:
Corporate governance simply refers to the set of internal policies, rules, and procedures that a company follows on a regular basis to ensure that it operates fairly, equitably, and appropriately for the benefit of the company, its management, and its shareholders. A corporation generally has a board of directors and a senior “C” management team. Most small businesses do not have these clearly defined and functional organizational entities. For private companies that are registered as corporations and have investors, the various states require that these entities have a board of directors. However, many small businesses are incorporated for tax purposes and do not necessarily pay attention to corporate governance concepts.
How is corporate governance applied to small businesses?
All companies must look at their organizational structure and continually assess what will allow the company to perform optimally. The easiest way to implement this is to have an advisory council. The advisory board are unpaid individuals who have specific business or industry backgrounds who can contribute ideas or mentor management. In more formal and traditional cases, a small corporation has a board of directors made up of the founders, a spouse, an employee, and maybe, just maybe an outside director. The focal point of corporate governance within small businesses is that all businesses must establish strategic business goals, provide the leadership to implement them, oversee the management of the business, and, if the business has shareholders, inform shareholders about its management. . For those small companies that do not have the hierarchical structure to implement formal corporate governance plans, it is recommended that the periodic self-assessment of the company is the starting point for accountability, to improve performance, grow the company and be a major contributor. strength in the economy. At the end of the day, if you follow some set of policies and procedures and report to someone from your company management, even if it is your dog, then you have a responsibility that is key to corporate governance practices.
Will the government impose its will and definition of Corporate Governance from public markets to the environment of small companies?
This imposition of government of the companies of the public market to the private companies makes its way in the corridors of the congress. One idea that is included in current legislation is to extend Sarbanes-Oxley to private companies. Anyone who knows anything about SOX is aware of the high cost of implementing the documentation and reporting processes. Bringing this into the small business environment would be cost prohibitive and hamper economic growth. The general policy of mandatory corporate governance is to wait and see how the new legislation will affect the small businesses that power the American economy.
As a final note, all companies, regardless of their size, will see the positive effects of implementing corporate governance principles. The facts are, there are more than 27 million small businesses in the US that are job creators and drivers of the economy. The greatness of American businesses is that they perform best when people come together in a free market environment to meet the needs of the economy and society. In the end, best corporate governance practices can be freely implemented to benefit the company, or the government can institute corporate governance, which can cost more in resources, planning, and profits. Take the time to assess how your small business views corporate governance and how this will enhance its growth in the marketplace.