Let’s start with a review of what types of companies primarily drive the American economy. We know that there are about 16,000 publicly traded companies represented on the NASDAQ, NYSE, and AMEX. The key economic driver in the US is the 27 million small businesses. The Small Business Administration’s 2008 President’s Report on the Economics of Small Businesses clearly communicated that “the economy added 1.1 million net new jobs in 2007. In the first quarter of 2007, 74 percent of the net new jobs were in small businesses with fewer than 500 employees, and 22 percent were in businesses with fewer than 20 employees.” However, the vast amount of attention in the media and the federal bureaucracy is focused on what is happening in the Markets. This is understandable with the dollar volumes in transition in this public environment. The economic recovery program is not addressing the core of the economy, small businesses. More than ever, the public market environment is being questioned about corporate governance. The new legislation being considered for public companies has sections that may very well leak out and require small companies to adhere to similar, if not exact, rules on Corporate Governance.
A simple definition of Corporate Governance for small business:
Corporate governance simply refers to the set of internal policies, rules, and procedures that a company follows on a regular basis to ensure that it operates fairly, equitably, and appropriately for the benefit of the company, its management, and its shareholders. A corporation typically has a senior “C” level board of directors and management team. Most small businesses do not have these clearly defined and functional organizational entities. For private companies that are registered as a corporation and have investors, different states require these entities to have a governing board. However, many small businesses incorporate for tax reasons and do not necessarily pay attention to corporate governance concepts.
How does Corporate Governance apply to small businesses?
All businesses need to look at their organizational structure and continually assess what will allow the business to perform optimally. The easiest way to implement this is to have an advisory council. The advisory board is made up of unpaid individuals with specific business or industry backgrounds who can contribute ideas or guide management. In more formal and traditional cases, a small corporation has a board of directors made up of the founders, a spouse, an employee, and maybe, just maybe, an outside director. The focal point of corporate governance within small businesses is that all businesses should set strategic business goals, provide the leadership to implement them, oversee the management of the business, and, if the business has shareholders, report to shareholders on his administration. . For those small companies that do not have the hierarchical structure to implement formal corporate governance plans, it is recommended that regular company self-assessment be the starting point for accountability, to improve performance, grow the company and contribute plus. strength in the economy. At the end of the day, if you follow a set of policies and procedures and report your management of the company to someone, even if it’s your dog, then you have a responsibility that is key to corporate governance practices.
Will the government impose its will and definition of Corporate Governance of the public markets on the environment of small businesses?
This government imposition of public market companies on private companies is making its way through the halls of Congress. One idea that is included in current legislation is to extend Sarbanes-Oxley to private companies. Anyone who knows anything about SOX is aware of the high cost of implementing documentation and reporting processes. Reducing this to the small business environment would be cost prohibitive and slow economic growth. The general policy of mandatory corporate governance is to wait and see how new legislation will affect the small businesses that power the American economy.
As a final note, every company, regardless of its size, will see the positive effects of implementing corporate governance principles. The facts remain that there are over 27 million small businesses in the US that are the job creators and drivers of the economy. The greatness of American business is that it works best when people come together in a free market environment to meet the needs of the economy and society. In the end, corporate governance best practices can be freely implemented to benefit the company or corporate governance can be instituted by the government, which can cost more in resources, planning, and profits. Take the time to assess how your small business views corporate governance and how this will enhance your growth in the marketplace.