After more than 30 years of living in Tauranga, I still see many of the same faces and firms, working hard, enjoying our great lifestyle – and hoping that the next year will be better for business and careers than the past one.
But growing a business, whether as a sole proprietorship (Yikes! Don’t operate like that), a partnership (Oh no! This is even worse) or a corporation (Yup, this is the way to go), requires more than just our beautiful sunshine, an outlook from the Mount and catching fish off Papamoa’s beach. It needs a solid structure – a ‘good governance’. Governance is the special air that blows differently through each organisation, the ‘way we do things around here’.
Although we have some basic structures that are the same everywhere - who is allowed to what, who is responsible for what, who reports to whom, etc - governance is a tight glove that fits slightly differently in each firm.
Ah, ‘firm’, he said, ‘firm’. That means governance doesn’t apply in a charity, a hospital board or a council? Nah, governance applies everywhere, in any entity of any size. I can see the first question popping up in your heads now: Clearly, governance isn’t needed in a small three-person firm; it is only for large businesses, right? Wrong, bigly wrong!
If you have not much money but you want to make it big in car racing, you’ll take your 1974 Holden Kingswood station wagon to the V8 races in Pukekohe, and when you win, you’ll have enough money to buy a real racecar. Does that make sense? Clearly, you will never win, you will crash and lose your car, and you failed.
Especially in small firms, we need great governance. The distance between success and failure in small firms is much narrower: In time, in money, in likelihood to occur, than in large firms, so we need to be extra good at governance. A huge business like Fonterra can make several big mistakes, and still remain in business, but how often can a small business get it wrong – and still survive?
So, the foundation of good governance is the correct structure. A set-up that allows for good governance to guide the business. The hands-down ‘best’ set-up is to operate as a registered company in New Zealand. It automatically means you have a ‘board’ with ‘company directors’ (and no, those are not evil outsiders who will steal your business after wrestling you for control) and you have defined shareholders (only one required) and staff (employees). You only require one company director, who can also be the only shareholder and the only employee, but then you can look in the mirror to have a board meeting and that is quite boring… So, let’s assume that you do not want to be a sole proprietor (who goes to sleep every night feeling the burden of unlimited personal liability), a partnership (where each partner is burdened by any misdeeds of all other partners) but the owner and possibly operator, of a real ‘business’. Congratulations, smart thinking. Didn’t take you long to get here… Shareholders in a firm invest money to run it (and only lose that money in a failure, but not more than that).
Company Directors oversee the CEO/Operator (and now you know why it is not smart to only have friends or family on a board; they must like or love you regardless how dumb some of your business ideas might be) and have personal liability only when they allow the business to operate into debt. Operators work in the business every day, and usually don’t like anyone telling them what to do. In good governance, all these different wheels hum along nicely, are well aligned and propel a business forward.
This is structure, and next time, we’ll talk about how to make what everyone needs to accomplish at their level – to produce great outcomes.
Meanwhile, send your questions to firstname.lastname@example.org, and the best ones will get a reply here – and a free download link to a great business case book.
Dr Jens Mueller, MNZM, MRSNZ is a Tauranga resident and a professor at Massey University’s School of Management.