Principles of Corporate Governance

Every company has a corporate culture—it manifests itself in the behaviour, thinking and presentation of its members, both internally and externally. Your leadership reflects how sustainable the corporate culture is. How you divide the work plays a big role in this. Give your employees a clear area of responsibility that they can work independently on the basis of their competencies. You have to regulate what needs regulating—but not any more than that. In this context, define a clear personnel policy and be clear about your management strategy.

Ask yourself the following questions:

  • What should characterise the atmospheric image of my company?
  • How do I implement this specifically?
  • Which management strategy and personnel policy would I like to pursue?
  • What are the medium and long-term goals of my company?
  • How do I control the achievement of these goals?
  • How do I prevent excessive dependencies on individual customers and suppliers?
  • Who makes decisions in my absence or when I am ill?

Personnel policy

People are the most important capital of a company. You will only be able to assert yourself permanently on the market if you have qualified and motivated personnel. You should therefore attach great importance to careful personnel selection right from the start!

It is advisable to maintain a clear personnel strategy and a specific philosophy in dealing with employees. This includes not only the delegation of responsibilities, but also the tone. Many entrepreneurs have little experience here. Always have an open ear for the concerns of your employees. If possible, respond to individual needs and ensure a good working atmosphere.

Employee management checklist

Many founders overlook an important wisdom of life: Functioning communication is (almost) everything. It is not easy, but always try to strike the right note when dealing with employees. However, be aware of the consequences that communication problems can have for your business:

  • information deficits, uncertainty, and frustration
  • decreasing commitment and poorer work results
  • employees work without coordination or even against each other
  • elevated sickness rate
  • increasing fluctuation

All this will eventually prevent an optimum workflow and can drive young companies in particular into a serious existential crisis. So prepare yourself for your leadership position when you start your own business. Practise talking to employees, get advice if necessary and do not shy away from constructive criticism. After all, nobody is born a boss!

Employment contracts

Many gaps in your knowledge can cost you dearly in an emergency. This applies, for example, to legal issues relating to employment contracts. In principle, no specific form is prescribed for an employment contract. It should, however, be in writing—not only to prevent misunderstandings in the event of a dispute. After all, in the end, you can only enforce what can be proven by being in writing.

You will find assistance in drafting employment contracts in the course unit “Law”.

Collaborations

If you do not have the capacity for certain measures (such as an expansion of your business), you have to bring external employees on board. These can be individual freelancers or entire companies with which you enter into a partnership for joint projects. Such business cooperation can take many different forms: from the exchange of information between two managing directors to the creation of a company for a specific purpose. Advantage: The partners pursue a common goal, remain legally independent and profit economically from the cooperation. In addition, processes in the company can be rationalised, synergies between the partners involved can be exploited, resources can be bundled, and risks can be distributed or reduced. Possible drawbacks: (partial) abandonment of independence, longer and more complicated coordination, additional workload, no exclusive use of product and process innovations, sharing of profits, cutbacks in one's own corporate philosophy.

Future planning

The essential element in the management process is planning. It is already part of the business plan and determines the orientation of your company. Planning is never finished—the market is in constant motion, new competitors appear, customers change their requirements. Always review your strategy anew and adapt your business plan to a new situation if necessary.

Corporate targets are usually set for a period of five years. Founders and small entrepreneurs should plan for a shorter period (maximum one year in advance). Planning should focus on medium and long-term aspects. “What will I do tomorrow, what will I do the day after tomorrow?” Update your planning regularly. Important: Make a conscious decision for the weighting of interests in strategic planning (e.g. greatest possible financial success or average income with little work).

Planning process

  • Understand the initial situation
  • Define targets (characteristics of targets, target formulation)
  • Develop measures to achieve targets
  • Compile the necessary resources
  • Prepare implementation
  • Formulate results

Success control

The results are reviewed at the end of the planning period. The decisive question: Do the measures achieve the desired effect? An important prerequisite for this is that the corporate goals can be verified at all (operationalisation). The turnover and market share, financial profit and the fulfilment of the company's values and objectives must be reviewed. If you find deviations, you should analyse the causes. This helps you with future planning processes. The basis of your analysis is the initial planning. Were the goals realistic at all, were the assumptions correct? Were the appropriate measures selected and the funds used optimally? Were tasks allocated appropriately or were there personnel weaknesses in implementation? Have unpredictable external effects impacted the results? Find answers to these questions and take appropriate action. This results in a permanent cycle of planning, evaluation, and updating of planning.

Crisis management

Very few founders think about potential crisis situations before starting their own business. But company crises can occur even in times of good economic activity—up to and including company collapses.

Corporate crises are not only caused by external factors, they are often homemade—by mistakes in corporate management. The most common reasons are:

  • poor decisions when filling management positions
  • mistakes in the design of the product range
  • poor decisions with regard to technological equipment, securing raw materials, location, financial equipment, and operating procedures
  • shortcomings in planning and information

You must recognise such crises as early as possible and then react quickly. You should seek immediate advice when the first warning signs appear (decline in sales, liquidity bottlenecks). The most important contact in the event of a crisis: the bank. Be sure to take the first step. Those who wait for the bank to contact them are often at a strategic disadvantage. Leadership also means preventing crisis situations in good time.

Crisis management in the early stages: Options for course correction

In the event of a crisis, there are various ways of countering it. Check carefully which one will help you the most. The most important ones are:

  • Task strategy
    Downsize: Uneconomical product or market areas that endanger the success of the company must be identified and rejected. This applies above all to obsolete product groups, not only in shrinking industries. Check all business areas and assess the viability of every single one. Do not be afraid to slaughter even “holy cows”. A service with which you successfully started as a founder may be outdated by now. You should also check personnel and material resources and make the necessary changes.
  • Consolidation strategy
    Save: With this strategy you ensure that you survive in the (remaining) existing markets—but at significantly lower costs. For this purpose, check all expenditure items and search for potential savings. Even in young companies, experience has shown that there are many areas in which financial expenditure can be optimised. Important: Do not sacrifice anything that matters for the future of the company.
  • Crowding-out strategy
    Outdo: The aim of the crowding-out strategy is to maintain or expand the company's capacities in its traditional business areas. This strategy is based on an aggressive marketing concept. With a radical price war and/or a consistent quality competition you can try to assert yourself on the market or establish yourself permanently. To outperform your competitors, it is often necessary to spend more resources at short notice—in order to do so, you might have to convince financiers of your strategy if things get serious.
  • Expansion strategy
    Grow: The goal of the strategy is to reach more customers. On the one hand, you can do this by expanding your product range and opening up new markets, for example, as a snack bar owner by also offering organic products, because this is currently en vogue. On the other hand, you can secure your existence through new business areas—and in this case supplement your snack bar with a delivery service. Such diversification makes the company less susceptible to crises, but is usually initially associated with investments.

References and reading tips on this topic can be found in the corresponding course unit.

Sample text: Principles of corporate governance
We will cultivate an open, modern and uncomplicated corporate culture. We two founders will strive to work together as partners. The areas of responsibility that can later be transferred to our employees will emerge over time.