Does good governance matter?

9 September, 2016
by: Cripps Pemberton Greenish

When it comes to understanding good governance, giving an example of poor governance may help to explain its importance.

Cripps Pemberton Greenish was recently instructed to change the share structure of a federation to give more voting weight to the smaller practices involved.

Creating two classes of share and increasing the share capital proved to be the easy bit. However during the process it was discovered half the shareholders had left their practices in just 18 months, which started a lengthy process of trying to track down the original shareholders to transfer their shares to a current partner to carrying out the share re-organisation.

This issue prompted several questions: When was the last time a quorate shareholders’ meeting was held? How many resolutions were passed incorrectly, so putting the federation at risk of being challenged in the future? If money needs to be borrowed from a bank, will it question the current position of the company as it has failed to follow its procedures?

All of these questions illustrate how a slip in governance can lead to issues becoming a problem later when it is most important to have everything in the right place.

Governance is about establishing an organisation which is efficient and well run, which has certainty of purpose and production emanating from the board throughout the organisation, so giving confidence to employees and its members.

At the corporate level, this includes matters such as checking that your company registers are up to date? Are the appropriate company records filed at Companies House? Are you complying with company law requirements, such as having a register of Persons with Significant Control (which came into force in April this year)?

Do you run the organisation in accordance with your constitution? For many organisations we develop a corporate handbook which goes beyond the statutory articles of association, and sets out the roles and responsibilities of both the chair and individual directors (by name), as well as committees and how they interact to ensure appropriate communication and decision-making.

In federations, one of the temptations has been for all the directors to be doing similar things because that is what they are comfortable with, as they are all from similar backgrounds (GP practices). As they have similar skill sets, the same work can be duplicated while other areas get forgotten or left. This raises two questions: has the board got the right skills, or should it be recruiting from outside? Secondly: do the directors know what their roles are, and are they carrying them out?

Working through these, and many other issues at our workshops, we empower board members to strive for and achieve so much more by putting good governance on the agenda and helping the board to work as an effective team.