Strengthening governance in entrepreneural firms

As entrepreneur organisations grow in size, it is often very difficult for the founders (who are often owners) of the business to ensure every part of the firm is giving them the right level of returns and aligned with the right set of objectives.

Increasingly more so, there is a need to rely on professional managers specifically and employees in general to carry out their tasks in line with the founders’ expectations.

Thus there is no choice but to institute the appropriate level of governance with the simple purpose of ensuring the firm and its management are aligned with the founder and owners’ strategic objectives; that the firm has the right people; and that the firm is giving the right level of returns for the investments made.

However, there is also a need to ensure that governance does not handicap the firm’s dynamic entrepreneur spirit; or worse still result in paralysis.

To address this, there are three vital elements: (1) clarity and maturity of roles of the parties in the governance process; (2) transparency of decisions and information flows to enable self-management and fewer suffocating processes; and (3) human capital emphasis and alignment of purpose, values and goals – which is rigorously implemented from point of people attraction & recruitment, right up to development & leadership successions.

Let me expand a bit on each.

Roles and responsibilities in governance

It is primarily important to clarify the roles of the governors of the business (directors) who need only focus on strategy & capital use, human capital, and performance & outcomes.

This should be distinct from the managers of the business who have the freedom to do whatever that is needed within the boundaries set by the governors. Ultimately the managers are accountable for fulfilling the organisational purpose, values, strategy as well as the business performance, outcomes and returns.

For this to work effectively, the governors need to divorce themselves from operational decisions, sentiments and apply objective judgment on key strategic matters. The management should be given the freedom to execute operational decisions, and ultimately be held accountable to achieve the objectives set by the governors.

Keeping the roles of governors separate from the managements ensures that there are checks and balances, and thus enhances the governors’ ability to hold management accountable for the results of the business.

Transparency of decisions & information for self management

In order to avoid layers and extensive need for processes, the most effective form of governance is transparency of information and decision. With a high level of transparency, decisions can be open to review by a wider group of people and thus ensure sufficient rigour in the decision making process. The level of transparency ensures that softer issues such as integrity and moral issues are considered and thus creates a more ethical enterprise. This avoids the need to establish committees upon committees and several decision making layers.

To further assist in the self management (and thus reduced bureaucratic infrastructure): information transparency particularly with regards to performance, data for analysis ensures that the firm’s employees are provided with all the relevant information to form their own analysis and thus carry out decisions. Once those decisions are made, the transparency of the outcomes ensure that there will be checks and balances which will keep the persons accountable for those decisions “honest” in driving the right results. Thus, this avoids the need to have several performance review committees and meetings used to hold management and decision makers accountable for results.

Transparency of decisions and information ensures a more efficient way of driving the right decisions and accountability for performance.

Alignment of employees to purpose and values

Last but not least, an uncompromising emphasis on organisational purpose and values is vital to ensure that the two forgoing aspects of governance are doubly effective.

Be very clear that these are not complex rules that limits freedom and is difficult to understand and cascade through the organisation. Organisational purpose and values are a set of concepts that provide employees with “true north” and guidance for their daily actions. It is important that the firm constantly emphasises purpose and values throughout and at the same time involve employees in dialogues on these matters to develop greater buy-in and clarity without creating too many rules.

By having clear and uncompromising set of purpose and values, the organisation can there for ensure stakeholders act in the right manner in relation to their roles in governance, and how they use information and decision making transparency.

To implement this, it is necessary to have the methods to assess and communicate these values and purpose at the point of recruitment and throughout the employees’ life cycle within the firm. It is important to internalise these concepts and ideas within the firm through staff reviews – but be careful not to use it for the purpose of rewards, but use it as a recruitment, development and a tool for career progression.

Beyond Budgeting as a model for greater empowerment and innovation

empowerment

 

i would like to share with you my personal journey of the beginnings of the transforming an organisation from a traditional top-down command & control hierarchy based organisation into a desired empowered organisation where employees at the lowest team levels are empowered to serve the customers better, create more value and drive better organisational performance.

i was working with a large local organisation with a long history.

as with many local corporations, its management model is very top down, and hierarchical. this perhaps stems from our culture of respect for elders and obeying orders from the top.

initially when i join, i felt quite important when people took instructions without much of a debate. however when the organisation faces very tough challenges, waiting to issue instructions without having “ground zero” visibility is a very risky affair to say the least.

these are times when i wished that the many people in the organisation would be able to make the right decisions to face the turbulent times.

unfortunately, the reverse has happened. the turbulence can be said to bring paralysis.

in amongst these challenges, i faced people who are doing things for their own self. these self serving needs gives me a picture of detachment between the customer and organisational issues from the employee issues.

much of this i found was due to the personal targets set to these employees – which ultimately determine their year end bonus and career progress.

individual goals were thus incongruous to the customer and organisational goals.

the immediate solution was to fix these goals. or as consultants would say: “align employee goals to corporate strategy”. sounds easy. we attempted this. but how do you ensure that all employees are aligned – especially in a large organisation? a fraction of misalignment could cause a significant drag and worse, drive an organisation off course. this is further complicated when the business environment the company operates in keeps shifting and changing: despite the external changes, our employees are given targets that are fixed and fast outdated.

the first step to fixing this was to look at how targets were set.

typically many organisations follow a very traditional target setting process. the annual plans are converted into targets and budgets and then “cascaded” to every individual in the organisation as personal targets which are tied to year end bonus payouts.

no matter what initiative and improvement programmes we ran – the benefits were often diluted by the employee links to their fixed targets and bonus.

this was the root cause.

we came across the idea of beyond budgeting. actually, it is a misnomer as the concept had very little to do with budgeting, but more of the whole end to end management model which includes the values, team accountability, planning, performance rewards, and leadership aspects of the company.

we found that the beyond budgeting model had some principles to address these common issues with the traditional management model. on top of this, it was a model that heavily promoted front line empowerment and transparency that drives inescapable accountabilities. it also emphasised the use of intrinsic peer-driven motivation as opposed to individual incentives. all this would operate in a budgetless, the absence of fixed targets in a dynamic control environment centred around values and transparency.

we are convinced that this was the right model for the organisation.

in the past year we did many leadership and employee engagement sessions, and have so far received many positive feedback. the team shall soon be working on the implementation in the coming months.