What is Governance Structure?
A governance structure is an essential foundation for how a company operates. It is a set of rules that keeps all decision-making processes transparent and matches the company's purpose.
This framework should outline important elements of the company, such as who has authority, how accountability is ensured, and more.
Read on to learn more about governance structure and how to set it up in your business.
What are the Governance Structure “Layers”?
A governance structure typically has five layers, and each one has specific tasks, although sometimes they can overlap. The layers are:
- Steering layer. Top-level authority resides in the steering layer. This layer focuses on tasks such as approving budgets, aligning operations with business goals, and focusing on the company’s main priorities.
- Strategic layer. This layer is responsible for shaping those goals created by the steering layer into performance targets and executing strategies.
- Managerial layer. Managers on this level will control teams to implement the company’s strategies.
- Operational layer. Staff in this layer work on delivering services and using workflows to execute projects.
- Oversight and advisory layer. This involves monitoring for risks and ensuring the company remains compliant. They will give the higher levels feedback to strengthen their compliance.
What are Benefits of Governance Structure?
A governance structure has a range of benefits for companies. These include the following:
- It creates fewer obstacles. By avoiding vague processes and strategies, this can enable fewer challenges for the company to overcome.
- It boosts trust from clients and investors. This, in turn, can reduce the risk of disputes.
- It increases the success of projects. By having clear strategies in place, this can create a more cohesive approach to achieving goals and completing projects.
- It keeps companies compliant. Ensuring that all federal, state, and other laws are considered and adhered to prevents companies from suffering legal and financial losses due to non-compliance.
- It outlines accountability. This is done across all of the company’s levels, which can prevent risks.
How Should You Set up a Governance Structure?
There are important tips to consider when establishing the governance structure of your business.
Collaborate
It’s essential for key members in the company to collaborate to find the right governance structure to benefit the company. These can vary in how formal they are.
To achieve this, members should discuss their expectations to decide on a structure together that fulfils the company’s goals.
Consider Your Company Mission
This should be the foundation of your governance structure. Think about the goals of your company, the roles and duties of members, and investor expectations.
Draft Clear Policies
Drafting well-written, easy-to-understand information policies will help you determine your purpose and implement the governance structure over time.
Set up a Compliance System
Rules and standards change constantly, so you want to ensure your company stays compliant by setting up a system that can monitor and adjust its level of compliance.
Identify Key Components
You need to clearly define your owners and shareholders who will invest assets and money, your board of directors who are responsible for strategies and guidance, and your executive management, which is responsible for high-level decisions.
Roles and responsibilities need to be defined clearly throughout all levels so that there is no confusion over who is responsible for what.
Set up Decision-Making Processes
Decide who has voting rights in the company and what your approval thresholds should be. In the case of disputes, you want to know that you have a system for handling disputes effectively so that they don’t hamper business operations.
Document Your Guidelines
You will need to draft important company documents that create a framework for your structure. These include Articles of Incorporation, Bylaws, and Partnership Agreements, but there could be others.
If you have these documents, you should get them legally reviewed so that you have peace of mind that they’re compliant with all laws, transparent, and free of vague language that can cause problems.
You can request a document review on ContractsCounsel, an online legal marketplace that connects clients with vetted lawyers who have experience in reviewing all types of governance structure-related documents.
To request a review, here are the steps to follow:
1. Post your request on the ContractsCounsel marketplace
2. Write some details about your project so lawyers know what you require.
3. Wait for lawyer bids.
4. Review the lawyers’ profiles, according to factors such as their client ratings, experience, and fields of expertise.
5. Choose a lawyer to work with.
Improve Your Accountability
To make people accountable across the levels of your company, you should set up regular meetings and reports on the financial and operational aspects of the business.
Internal and external audits can be used to ensure that performance and compliance meet all goals.
Start with Simplicity
If you make your governance structure too complicated at first, this could derail it. Start with simple, straightforward plans and remember to adjust your structure as your company grows so that you cater to its changing requirements.
Do You Need a Lawyer for Governance Structure?
Working with a lawyer to help you establish a governance structure is essential. Here’s why.
- They’ll ensure you stay legally compliant by following all regulations, laws, and industry rules. This serves to prevent you from having to pay penalties or end up in legal trouble.
- They’ll check all business documents so that they’re formulated in a clear, legally enforceable, and reasonable way.
- They’ll clarify all roles and duties, while guiding you on voting rights and approval thresholds.
- They’ll help you manage your risk and clarify dispute-resolution strategies to prevent operational challenges.
- They’ll build trust in the business. When you get your governance structure legally reviewed, it’s a display of credibility and professionalism. This will be appealing to investors.
Where can you hire a lawyer for governance structure?
It can feel overwhelming to establish a governance structure. Hiring a lawyer from ContractsCounsel can help you. All lawyers on the platform are vetted. They have years of experience, strong legal backgrounds, and expertise to assist you with all elements of governance structure to protect your business and prioritize its path to success.
