Top tips on getting governance right

What does good governance look like and why can these structures be so pivotal to your social enterprise's success? Investment associate at Numbers for Good Sarah Chu explains all.

What do you think when you hear the word ‘governance’? For many social entrepreneurs it can inspire feelings of frustration, boredom and even feel like a barrier for getting things done. If you’re truly committed to growing a successful and accountable social enterprise it’s vital. For investors, the strength of an organisation’s governance, management team and reporting structures is a central consideration.  

Why do they care? Firstly, they are keen to understand what controls are in place to ensure that their investment will be managed appropriately, and that they will get their money back. Investors are pragmatists, understanding that even the most brilliant business plans can become victim to changes in external factors. Good governance will prove to an investor that if the business winds change your organisation can still cope.

A strong board is a considerable advantage when seeking investment and will help drive the success of a business generally. A board should reflect diverse but relevant skills with predominantly external representation.

The set of skills present on your board should complement those of senior management; perhaps you don’t have a policy specialist in house but are able to access expert advice from a non-executive director. Some investors may also want to add representatives to your board; so if you do have an expertise gap this is an opportunity to fill it whilst also meeting investor interests. 

Governance structures should not be a barrier to entrepreneurialism but an enabler

The senior management team will be critical in securing social investment and again, a balance of skills is key; if you have a particularly creative CEO do you also have an operational manager who is able to execute ideas? As your organisation evolves and takes on social investment, the skills required from your management team are likely to evolve.

For example, a management team that is well equipped to deal with the challenges of a start-up enterprise may not be well suited to, or interested in, managing a more mature organisation. How does your senior management team set the tone for, and interact with, the rest of the organisation? Management structures may be formal – for example monthly reporting on financial targets and social impact – or informal – for example opportunities to share knowledge across teams.

There are clearly some operational elements where formal processes are necessary, such as financial performance. In other areas however, strong cultural influences may mean that formal processes aren’t appropriate or necessary; one example may be in gathering collective input when establishing your organisation’s Theory of Change. This may be through defined contribution process or by naturally gathering input if the organisation has a collaborative and open culture.

I’ve talked a lot here about how external stakeholders, like investors, may view your organisation’s governance structure. But it’s critical to ask what works for your organisation. Governance structures should not be a barrier to entrepreneurialism but an enabler.

Numbers for Good is currently working with Food Nation through the Big Potential programme to help the social enterprise become more eligable for investment, which includes strengthening its governance procedures. Founder James Sadler explains why good governance is essential: “Food Nation is an ambitious organisation that wants to grow. We want to improve our existing services and develop new and innovative solutions to food related issues and further our social impact.

"We recognised that a stronger board would improve our ability to do this and increase our likelihood of securing an investment to help us scale up. This meant recruiting non-executive directors (NEDs) to help oversee the organisation.

"The NEDs will be separate from day-to-day operations but maintain a high level of knowledge about Food Nation. This will allow them to challenge our thinking and ask tough, objective questions. We don’t think this will always be easy, but it will make us stronger and we expect our NEDs to support the development of partnerships that will help us grow." 

Excellent governance and management structures won’t necessarily mean you’ll have an excellent social enterprise; a strong board won’t compensate for weak demand for products or services, or a lack of demonstrable social impact. Nonetheless to grow a successful social enterprise it is essential, whether you’re seeking social investment or not.

3 top tips for building good governance structure:    

  • Be honest about your management’s strengths and weaknesses, how can you balance these through your board?
  • Think about where you want to be in 5-10 years time and whether governance and management structures that exist now will be fit for purpose
  • Consider how governance and management structures can complement (the positive parts of) your organisational culture

 

Photo credit: Dennis Hill