The Benefits Of Good Governance

By Nicholas Falzon

28 March 2020

Last year I watched with interest the fluctuating fortunes of WeWork and pondered the importance of companies transitioning from start-ups to mature businesses. This is a very challenging process and seldom handled perfectly. I find it one of the most interesting times in a business’ life cycle and the WeWork scenario is especially so.

Over the break, I enjoyed reading quite a bit of commentary and analysis about the rise and “fall” of the company and its founder Adam Neumann. I put fall in inverted commas because although there has been significant scorn heaped on the company and Mr Neumann, this is still a very large business and I understand he received over $1.5 billion for his shares in the company. So, he couldn’t have been all bad as some people appear to make out.

WeWork is a classic example of an organisation transitioning from purely founder-led or director-driven operations to well-rounded, balanced businesses where management and ownership are appropriately separated. This is fundamentally important, but once committed to the change how to effect this transition is the multi-million (or in the case of WeWork multi-billion) dollar question. Every business is different, and this oversight, accountability and support need to be tailored for each specific business. However, the principles apply universally and really do add enormous value.

These actions could be simple, such as ensuring all revenue is included and only genuine business expenses deducted in your Profit and Loss Statement. Perish the thought that not all businesses do this, but ATO audit statistics suggest many don’t. This may result in extra (well, the proper amount of) tax being paid, but means the financial statements show a true position of the profitability of the business.

In the medium term, this will increase the value of the business. For those who don’t follow these simple rules of good governance, it creates complexities in making the transition and can significantly decrease the value that is realised.

When choosing non-executive directors and/or advisory board members, do you genuinely seek out people who will challenge you as a business owner? Will you listen to them and take their advice even if you don’t like what they are saying? The answer should be a resounding yes to both questions.

Do you really understand the profitability of your business? How closely do you monitor your numbers? How important is making a profit to you? Do you make excuses when you make a loss? And how closely do you engage with your advisers and accountants to truly understand the real financial performance of your business?

As they say in sport, here if you need.