Effective governance may sound like a dry topic, but not when it concerns the
management of risk. The global financial crisis a decade ago transformed the way we look at risk and to some extent produced a knee jerk reaction for more
compliance, governance and risk management as part of a defensive,
However this response ignores how governance and risk management can be used positively to create value. A robust, pro-active risk and governance strategy can enable boards to test boundaries more confidently and leave less value on the table. All too often, the commercial effectiveness of a management team or Board is compromised by too much focus on governance for its own sake.
Effective governance must fit the purpose of the company at a particular stage of its development. For example, an AIM-listed company we know has a Board of four, two of whom are executive. In governance terms, this Board is fit for purpose; to have it any larger or more complex would impede the nimbleness and responsiveness which this fast-growing, immature company needs.
However, as the company grows into new geographies and sectors, its Board fully recognises that its composition and way of operating will need to change. We have seen a number of small companies stumble because they put too heavy a governance architecture in place before growing the business, when the governance should instead be evolving in step with the business.