In today’s episode, Kristian talks about the importance of good governance and the impact on high growth firms along with the rights, roles, and responsibilities of directors.
He gives guidance on how to be sure you understand and meet director responsibilities and outlines the serious consequences associated by not meeting these responsibilities.
As always,
Live with purpose.
Welcome to Business Growth Mindset podcast. I’m Kristian Livolsi, and I’m super excited to share this episode with you. To all the business owners and entrepreneurs—the crazy ones, the believers, the doers, the clever makers, the action takers and everyone else in between—this podcast was designed for you.
Why Good Governance Matters
Good governance isn’t primarily focused on compliance with formal rules and regulations. Instead, consider it a framework for policies and processes that add value to your business. These frameworks help build reputation, manage risk, and establish long-term permanency and achievement.
Most small business owners have little, if any, governance frameworks in place. From my observation and experience, this is often because they don’t understand what it means or how to implement it. Many believe it’s complicated and reserved for big businesses only—this is incorrect.
Understanding the Governance Framework
Governance encompasses four key areas:
1. Rules
- Internal: Board charter, constitution, and values guiding decisions
- External: Corporations Act, Competition and Consumer Act, Work Health and Safety laws
2. Systems
- Delegation of authority
- Assurance mechanisms
3. Processes
- Performance management
- Risk management
- Compliance procedures
4. Relationships
- Interactions between shareholders, managers, and directors
The Journey of Governance in Small Business
Governance isn’t a one-size-fits-all approach. It’s a journey that evolves over time, starting with:
- Understanding governance basics
- Establishing structure
- Determining director duties
- Identifying benefits
- Redefining goals and strategy
- Creating implementation plans
- Identifying and managing risks
- Allocating resources and budgeting
- Implementing monitoring tools
Director Responsibilities and Types
According to the Corporations Act 2001, a director includes:
- Persons appointed as director or alternate director
- De facto directors (acting without formal appointment)
- Shadow directors (whose instructions directors typically follow)
There are three types of directors:
- Executive Directors: Work in the business
- Non-Executive Directors: Don’t work in business but have connections (often shareholders)
- Independent Non-Executive Directors: No connection to company and don’t work in business
Essential Director Duties
The four basic director duties are:
- Act with care and due diligence
- Act in good faith and in company’s best interest
- Not improperly use position for advantage
- Not improperly use information for advantage
Additional duties include:
- Managing insolvent trading
- Maintaining financial information
- Keeping good records
- Reporting and disclosing interests
- Lodging information with ASIC
- Ensuring continuous disclosure
The Mindset Required
Management Mindset:
- Action-orientated
- Resource focused
- Operations driven
- Leadership and team management
- KPI focused
- Managing multiple stakeholders
Director Mindset:
- Leading through direction and clarity
- Judging and mentoring
- Collaborative
- Decision-making focused
- Communicative
- Reflective
- Sensitive to conflicts of interest
Building Your Governance Framework
To strengthen your governance:
- Build a team of professional advisors
- Explore professional governance organisations
- Consider appointing an advisory board
- Join relevant mastermind groups
- Appoint directors based on skills needs
- Seek external perspectives
Moving Forward
If you’re a business owner, understanding governance isn’t optional—it’s essential for growth and protection. Good governance practices will safeguard your livelihood and investment for years to come. Consider factors like:
- Business size
- Profitability
- Ownership structure
- Industry maturity
- Growth objectives
Remember, governance is a team game requiring management and directors to work together effectively. The right framework enables you to transition from day-to-day management to strategic growth.
As always, live with purpose.
Kristian Livolsi
Need help implementing effective governance in your organisation? Contact us to learn how we can guide you through this crucial journey.