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.

A blown tyre and a ride with Kah Beng

A bit of an eventful day today.

Caught the first half of the Germany vs Costa Rica match and did not wake up in time to make my way towards Sepang for the 2nd High Performance Challenge structured track day event.

I got up realising that I had to rush to the sepang circuit. I suppose in the rush I picked up a puncture (on my right rear) along the way to the Sg Buloh toll plaza. Once on the highway, the puncture got worse and resulted in a tyre blow-out. Luckily I was driving within the speed limit, and the bimmer was well within its limits.

The blow out was a bit of an inconvenience. I had to replace the shredded tyre. The spare was not of the right size. Potentially, I had to replace both rear tyres if I could not get the same model. It turned out I couldn’t… not without waiting much longer. So… two new tyres today.

The new Dunlop Direzza’s do not seem as firm as the old Yokohamas. A little less surefooted around the fast corners. Well, I’ll use it for a while and try other tyre models when it is time.

Got to the track at around 12noon. The orphans from two foster homes had already arrived (invited by RMCC – Ronald McDonalds Childrens Charity). The kids had a lot of fun being taxi-driven around the Sepang Circuit in a variety of cars ranging from the Lotus Elise (driven by the always fearless Kah Beng) to an Opel Zafira.

I got my chance later in the evening to hitch a ride with Kah Beng (pic above – wearing cap) and to observe the man at work. The amazing thing about the Elise is the braking point… which was some 75m from the entry into turns 1 and 15. He would drive the elise very close to the limits of adhesion with many opposite lock corrections. Spun once. Interesting to note his line through turns 13 and 14. I would like to see a slightly different line through that complex to see how the exit into the back straight would be like. Also took a ride in Luen’s track car (a bare bones Satria). Good stuff all round.

For more information about the High Performance Challenge, please do visit the website… and also help contribute towards our Racing For Children initiative.