Corporate governance and the pains of growth

Entrepreneurs go through a painful period as their businesses are growing and they do their utmost to cope with the challenges of new clients, larger premises, new technologies, and the requirements of new financial capacity and the employment of people.

The transformation of an entrepreneur into a manager and a leader is a difficult one as the person learns to delegate, motivate and communicate with employees and move to more rational methods of decision making. The change from a one-person operation to an organisation with a proper structure and the introduction of method and formality can be traumatic for the entrepreneur who had enjoyed the freedom and liberty of creativity and innovation.

Probably the biggest pain and challenge is for the entrepreneur to distinguish the different roles of shareholder, director and manager. In the first stage of the start-up, the entrepreneur will not distinguish between these three different responsibilities and corporate viewpoints. The demarcation line between roles becomes stronger and bolder as responsibilities become heavier and more complex with different stakeholders clamouring for their own distinct needs and expectations. Employees need to be motivated and developed and adequately awarded. Banks need to be satisfied with the sustainability of the business. Suppliers need to be paid.  Clients are getting even more demanding.

Can the entrepreneur learn how to wear different hats? At what stage does the person realise that the needs of the shareholder are different from those of the manager? At what stage is it necessary to introduce independent directors who can look objectively at your business? Shareholders are seeking a maximum return on their capital and on their investment. Directors have clear obligations towards all stakeholders, but they also determine direction and risk appetite. Managers are there to implement and execute in the most efficient and effective way to achieve results and positive outcome.

At what stage in the growth of the business does the entrepreneur say… now is the time to start wearing a different hat?

About the author(s)

Joseph F.X. Zahra is a Malta based economist with over thirty five years of corporate leadership and business consultancy experience.