We often say that the best companies to invest in are those that have good corporate governance principles but such measures need to be more than superficial gloss and need to be embedded in the organisation if they are to influence the bottom line. Listed companies are subject to detailed rules on corporate governance which requires significant resources to maintain. However, private companies which are not subject to these rules are increasingly embracing the governance principles as a means of demonstrating good practice to investors, customers and other stakeholders.
Appointing a non-executive director to the board may add £20,000 of cost to an SME but companies would not do so unless it represented value for money. The independent judgment that non-executive directors can bring to a Board can often help the management team make better decisions. This is particularly true where the non-executive director has skills or experience which are limited amongst the management team but required by the business. Non-executive expertise or experience in a particular industry sector, marketing, compliance or governance can make a real contribution to management decision making in the business. The introduction of good governance practices will also reduce risks to the business and make it more resilient. Reducing these risks will reduce the likelihood of litigation and the significant costs associated with dealing with such claims even when successfully defeated.