Which is Better for Your Business? Lots of Rules or a Few Good Principles?

A_5Most of us are weighed down by compliance. Think of FICA, more onerous tax compliance, BBBEE, Employment Equity – the list is endless, more rules to deal with increasing complexity.

How does business manage its operations with all these external regulations?

The importance of strong leadership

Leadership plays a crucial part in any organisation and successful, sustainable businesses all have strong leaders. The example that leaders set filters down the business and becomes an integral part of the organisation’s culture.

To counter the increasing complexity of our times, many owners and senior managers use a decentralised structure to manage the business. In doing this, it is important to have the right people as managers. They need to be principled, self-motivated and prepared to be accountable.

In this type of structure, the owner or CEO sets out key principles for his/her managers to govern their sections. A key component of these principles is enforcing controls and acting when they either suspect or become aware of a breach in the company’s policies and/or controls. It is critical they follow the breach to its logical conclusion: either there is no breakdown, or commensurate action is taken against offenders.

Warren Buffett, for example, writes to his senior managers every two years stressing the organisation’s key principles and the importance of investigating any failures of controls or systems in the company. He also stresses these principles in meetings so that they become embedded in the organisation’s culture.

If breakdowns are not acted upon, an error invariably escalates until it is dealt with, by which stage it can have serious implications for the business.

Whistle-blowers – protect them

It is amazing how many people make use of hotlines or other whistle-blowing facilities.  It is relatively simple to set one up but even though the vast majority of items reported are insignificant, following up on potential frauds or other offences sends a powerful signal to the company. Staff understand their misdeeds are likely to be reported and investigated.

Whistle-blowers need to be guaranteed they will be fully protected and, if they wish, remain anonymous.

You can never discover all the breakdowns in a company but good leadership can detect most of them without loading your business with more rules, policies and bureaucracy.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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