Is your business fit for the future?
Governance is currently on the management agenda of most professional services firms. Louise Fleming considers what we can learn from corporate governance and identifies 8 tests to assess whether your business is fit for the future.
Professional services firms regularly advise corporate clients on the latest governance requirements and how they should be applied, but we are not always so good at applying governance best practices in our own firms.
Corporate governance is defined as “the system by which companies are directed and controlled”.
We used to be able to avoid this subject by saying most professional services firms are not companies, but this is no longer true. Whether your firm is structured as a company or a partnership, all professional services businesses are currently facing significant market change and challenge. Whatever your ownership structure, now is a good time to review the ‘system’ by which your business is directed and controlled.
What the regulators say
In 2010, the ICAEW published its Audit Firm Governance Code to be applied to the top 8 accounting firms that together audit about 95% of the main market firms on the London Stock Exchange. This code sets out 20 principles together with provisions to help firms apply these principles. These principles cover leadership, values, non-executives, operations, reporting and “dialogue” (in essence firms should communicate with their clients about their own governance as opposed to just advising their clients on what they should be doing).
In 2011, the SRA published its 10 mandatory principles, including “you must run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles”. Further, in the section of the SRA handbook titled ‘management of your business’ the first outcome firms must achieve is “a clear and effective governance structure and reporting lines”. As yet, there is no formal guidance on what this should look like.
So governance is on the regulators’ agenda. It is also on the agenda of those considering multi-disciplinary partnerships and legal firms taking advantage of alternative business structure provisions. If it is on the agenda of your competitors and your regulators, it should be on the agenda of your management team.
Download the attached PDF for the 8 tests to assess whether your business is fit for the future.