Proactive governance through a company's growth journey

Proactive corporate governance is the cornerstone of a company’s sustained success, particularly as it navigates the complex landscape of growth and development. As organisations evolve from nascent start-ups to established industry leaders, the role of robust governance frameworks becomes increasingly critical. 

What is corporate governance and why does it matter?

The phrase "corporate governance" refers to the system of rules, practices and processes by which a company is directed and controlled.  The board of directors, executive management, shareholders and other stakeholders all play a role in providing that governance. Corporate governance ensures that company objectives are met, decision-making is responsible and effective, and the interests of all stakeholders are considered.  

It also ensures that ethical standards, strategic oversight and stakeholder interests are meticulously balanced, fostering an environment where transparency and accountability thrive. By anticipating challenges and instituting best practices early, companies not only safeguard their integrity but also enhance their competitive edge, ultimately driving long-term value creation for shareholders and broader societal impact. 

Good corporate governance is fundamental to a company’s health and success, influencing everything from operational efficiency to public perception and investor trust, and is one of the key factors that institutional investors and funders look for when reviewing investment and financing opportunities.  

How can boards of directors implement a flexible corporate governance framework that grows with the business?

Board composition and decision-making

A company’s board should be proactive, diverse, accessible and challenging. In recent years there has been a growing demand for boards to assume a more active role in corporate activities, and for board members to be accessible to other stakeholders and employees in the business. 

Board members should be of diverse genders, ethnicities, ages and socio-economic backgrounds, with a diversity of skills, perspective and experience; this helps to ensure a diversity of opinions around the table, and in turn, decision-making that considers the needs of an increasingly diverse range of stakeholders. Appointing a non-executive director can bring yet more experience and different perspectives to the table.

Investors often appoint their own director(s) to the board of a portfolio company and introduce investment documents which ensure investor consent is needed for certain key strategic decisions, particularly on the company’s approach, compliance and strategy on ESG (Environmental, Social and Governance) issues.  

Improving company performance on ESG issues is high on the agenda of many businesses, driven by increasing regulation, the needs of their customers to seek partners who perform well on ESG and the wider cultural shift that places greater value on ethics in business as well as profit. Some companies are appointing a "Nature" director, who is responsible for ensuring that board decision-making doesn’t focus solely on shareholders, but instead aligns the interests of the company with wider society and the planet.  We talk about this more here.

Committees and communication

Larger groups often set up board committees (for example, audit, remuneration and ESG committees) enabling senior employees to pool their day-to-day knowledge of what is practical for the business. 

When a company establishes subsidiaries and becomes a larger group, good communication and reporting flow should be established between the parent company board and its subsidiary boards – particularly if a group has overseas subsidiaries as corporate governance failings often arise from breakdowns in communication across a large group.  

A framework setting out key decisions reserved for parent board approval or investor consent is typically a valuable part of a corporate governance toolkit and a useful "check and balance" with the agenda depending on the size of the business and its appetite for risk. 

An evolving corporate governance framework

Fast growing companies need to remain agile so it’s important that they review their corporate governance strategies regularly to make sure they strike a balance between facilitating fast growth and ensuring that directors are complying with their duties.

Supporting best practice by improving governance 

Companies wishing to attract institutional investment, or implement best practice, should consider complying with a recognised corporate governance code.  In the UK, there are two formal codes: the UK Corporate Governance Code and the Quoted Companies Alliance (QCA) Corporate Governance Code.  

The QCA code is more appropriate for smaller and mid-sized private businesses, and offers a "comply or explain" approach which means companies do not have to comply with all aspects of the code as long as they can demonstrate that they are considering and taking governance and reporting seriously.  The QCA recently released an update to this code and we have captured some of the key practical guidance provided by the QCA on ESG in this summary.

Large private companies can also refer to The Wates Corporate Governance Principles, which enable companies to implement the principles in a way that works for them and helps to deliver their purpose.

Note that private companies of a specified size are already required to disclose their corporate governance arrangements in their directors' report and on their website, including information on whether they follow a formal code.  This guidance was published at the time of the new regime being introduced and provides more detail around sizing thresholds and specific reporting obligations.  

In March 2024 the UK Government published the results of responses it received to a request for views on the existing non-financial reporting requirements of UK companies. In light of the UK's recent general election, how they plan to move forward with this feedback is not yet clear but it may well inform the future scope of reporting obligations and company size thresholds.

In summary

Establishing a corporate governance framework reduces risk for businesses, helps deliver better operational outcomes and, in turn, leads to stronger financial outcomes and opportunities.

We recommend implementing a corporate governance code sooner rather than later, so that the framework can evolve with the business and support its aspirations and growth.  At TLT, we advise companies through all stages of growth – from inception, through different fundraising rounds and ultimately, in some cases, to initial public offering. We regularly work with our clients on their corporate governance frameworks, whether as part of a recognised code, to comply with disclosure obligations, or simply because the company recognises that establishing a framework is the right thing to do as a matter of best practice.  If you would like to know more, please get in touch. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.