How good corporate governance can help middle market businesses succeed

It is widely accepted that a corporate governance framework can effectively support the achievement of the long-term objectives of a business, regardless of its size and scale, but how best to create and implement a robust framework is not without its challenges.

There are various corporate governance codes and practices which are applied in the UK. These include the Combined Code, the QCA Corporate Governance Code, and the Wates Corporate Governance Principles as well as other governance codes for specific sectors or industries.

For those middle market businesses that are not required to apply a specific Corporate Governance Code or Principles, they should choose a framework that aligns with the nature, size, and complexity of their business. As businesses look for clarity and guidance on good corporate governance, let’s take a closer look at the benefits of adopting corporate governance practices and the steps your business can take to create an effective framework.

1. The key benefits of adopting corporate governance practices

Whilst certain companies are required to adopt and comply with a Corporate Governance Code or Principles, a growing number of businesses are choosing to put a governance framework in place to enhance their corporate reputation, making it easier to secure funding, attract and retain talent, build new business relationships, and retain existing customers and attract new customers.

Corporate governance is more than a compliance or tick-boxing exercise, it helps companies to:

• achieve their goals transparently and responsibly, enabling long-term stability, success, and viability;
• guide the board and aligns the interest of the organisation with its stakeholders;
• promote and supports positive behaviour and culture, enhancing the reputation of the business; and
• promote transparency in the companies’ policies by demonstrating that processes are in place to manage risk and opportunity, helping a business to remain resilient in times of adversity.

The impact of good corporate governance, appropriate to the size and scale of the business, often improves operational and financial performance and helps businesses to remain resilient should the unexpected happen.

2. One step at a time: how to create an effective corporate governance framework

Start by identifying any existing measures and practices that are in place and consider how, and if, these can be developed to implement a robust corporate governance framework that will support the desired behaviours for your business.

We have several tools to support the selection and development of a corporate governance framework, including our facilitated self-assessment workshops to enable companies to examine their compliance with governance principles and practices of good governance.

Once a corporate governance framework is established and implemented, the measures should be regularly assessed to ensure that they are effective in promoting the integrity, transparency, and corporate culture of the business. We can help your business to regularly assess its corporate governance framework, and areas where it can be further enhanced.

3. Be transparent: explain your governance framework to your stakeholders

Remember, it is important to explain the framework to your stakeholders, not only in terms of the practices and processes used to ensure good governance but to also provide insight into how it is implemented.

This leads us to the Strategic Report and Directors’ Report. These reports enable businesses to provide the level of transparency needed to explain their corporate governance practices and how they will be implemented across their organisation.

For large companies, there is a requirement to include a statement in the Directors’ Report on how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others and the effect of that regard including on the principal decisions taken by the company.

All large and many medium companies are also required to include a separately identifiable statement in the Strategic Report on how the directors have promoted the success of the company for the benefit of the stakeholders in accordance with Section 172.

Section 172 of the Companies Act 2006 defines success as ‘promoting the interests of shareholders while taking account of stakeholders.’ For those companies that are required to include a Section 172 statement, they should disclose meaningful reporting on their governance, and a governance framework can facilitate this.

Our dedicated Financial Reporting team has extensive experience supporting organisations in documenting the corporate governance principles they chose to apply. We work with management and the board to articulate governance practices and processes within the Annual Report and Financial Statements.

How RSM can help

If you would like further information, please contact either Karl George MBE, Lou Ward, or your usual RSM contact.

The Financial Reporting Council (FRC) has also recently published a myth buster to dispel common misconceptions about Corporate Governance and Stewardship.