The art of good governance

In this second episode of a three-part series, podcast host Bryan Ferrari talks to three guests about governance. Stéphanie Damgé is the Director of Entrepreneurship at the Chambre de Commerce, Tom Wirion is Director General of the Chambre des Métiers and Marco Rasqué Da Silva is Secretary General at Spuerkeess.

Why is good governance so important? What kinds of governance exist? And what are the risks if governance is not taken seriously? The experts answered all our questions.

Bryan Ferrari (Host): Governance. What is it really, why do we need it and where does it come from?

Tom Wirion: Traditionally, governance is often associated with large listed companies. It encompasses the structures and processes by which decisions are made and control is exercised. Today, however, it extends to all companies, whether small, medium-sized or public. It's everybody's business.

Bryan: When you set up a company, you have to make sure to have good governance. But it's not the first thing you think about. When you start out in your garage, you have other problems besides that…

Stéphanie Damgé: It's important to ask yourself these questions and put procedures in place in good time, even as a start-up. For example, if you set up a company with three people. Who contributes how much capital? Who works full-time? Who works part-time? What are the different roles and responsibilities? As a start-up, it's crucial to grow quickly, which means that governance needs to maintain a degree of flexibility while putting in place the right procedures and asking the right questions.

Marco Rasqué da Silva: What's interesting is that the bigger the company becomes, the more necessary the internal system becomes, everything that works from top to bottom. It starts with a board, a committee, where you need to have different independents overseeing the internal workings. It goes from decision-making right through to what we call in our banking sector the first line of defence, where controls are put in place, which are themselves already supervised by certain control functions, to ensure that there is also protection for the interests of all stakeholders.

Tom: In practice, governance is practised without really knowing it, especially in start-ups or small companies. So it's crucial that business leaders formalise this over time. Governance is not limited to formal bodies such as boards of directors, but also includes informal aspects, especially in small companies. There is no single model; governance must be adapted to the size and nature of the company. Governance means planning ahead. And I don't think that applies just to politics, but especially to companies, whatever their size.

Stéphanie: It's a philosophy. It's a culture that needs to be put in place. I think that as a manager, that's where it starts. You have to put all that in place, and you also have to be accessible. You have to have open communication with your employees, transparent communication. These are values that you put in place.

Bryan: It sounds simple, but I imagine there are often tensions. If you have an old-style board of directors and a young manager who wants to change the governance, for example…

Stéphanie: The transfer of a business is a time when it's particularly important to have governance in place. You have to work together, find a consensus and get people involved. As a company director, you can wear several hats, but you have to be careful about potential conflicts of interest. It's crucial to define roles clearly, for example through a family charter, to avoid risks and ensure a smooth transition.

Marco: I think that if you explain to people where everyone's interests lie, both internally and externally, you will also get people to buy into clean governance and control mechanisms, by also showing them where the risks really lie. And risks are also changing with the fast-paced, complex world we live in, and with digitisation and technology.

Tom: These aspects are important. But in the craft sector, 70% of businesses have fewer than 10 people. Often, the manager is also the shareholder or owner. That's not to say that there aren't opportunities for governance, but you have to find nuances and other means. Companies are aware of the issue, but they are still somewhat helpless. They need support to succeed in putting this governance in place. But the good news is that if you look at other countries, small and medium-sized businesses don't see governance as a negative issue, but rather as a very positive one.

Stéphanie: It's important to find the governance that suits you. Not a copy and paste from someone else. No matter the structure of de company, whether it is a small one, a craftsman, a retailer or a start-up, it's important to put in place the governance you need, and that it evolves too. It has to be continually adapted. That's the challenge.

Tom: Investors have been mentioned. We have successful companies that are doing well in their field. Then when they go to the banker for a larger investment and the banker asks the following questions: Who are the key people? Is there an organisation chart? Is there a succession plan? That's when companies realise that they still need to work on themselves.

Bryan: It's rare to hear anything positive about bankers. The problem of governance is also only growing because there are more and more demands. Do people realise that this is all about reducing future risks?

Tom: On the one hand, it's about making decisions and putting controls in place. On the other hand, what you're mentioning are all these obligations and reports, sustainability, that fall on companies. It's a question of administrative burden, and that's not positive. It's extremely difficult. I doubt that small and medium-sized companies can do everything. No one is supposed to ignore the law, that's the principle… but in reality, with so many increasingly complex rules, businesses definitely have a problem. If we don't get to grips with this, we'll be at a huge disadvantage in Europe compared with North America and Asia.

Stéphanie: We have to ensure that our companies remain competitive. Business must continue. This is a major challenge for many companies. We need to react and simplify this together as Europe.

Bryan: You can certainly say that in all business associations, the ABBL for us, there is a platform for exchanging best practice. It's not that everyone turns to their respective federation, but there are places where people exchange with each other..

Tom: Absolutely. That's where you see good practice and that there's no one-size-fits-all model. Once again, I'm talking about small companies; larger companies find it a bit easier or have other means of implementing this. But that applies to all subjects. When it comes to cyber security, I would say that small businesses are less well protected than larger ones. Sustainability is also more difficult. This means that we need to exchange ideas, see how we can organise ourselves, how we can use artificial intelligence. Asking the right questions.

Bryan: I've been looking for the basic principles in terms of governance and, really, it's just common sense. Perhaps you can comment… The main principle of good governance is transparency.

Marco: For us in the banking sector, this is of course imposed by the regulatory framework. We have a whole series of reports that we have to publish. Not just the annual report. In the financial sector, banks are required to publish a whole range of information to the public, also to create credibility, to show how stable the bank is, how credible its activities are.

Stéphanie: In state or para-state organisations too, this is extremely important. It doesn't just concern the people who work there, but also the general public. You have to communicate very transparently.

Bryan: Other principles that also seem obvious are responsibility, inclusiveness and participation, and something extremely basic, respect of the legal framework.

Tom: Yes, that should be a requirement for companies. But I'll say it again: I'm not at all sure that this is possible with the number of obligations in a framework that has grown so much over the last ten years. My personal view is that there are a lot of companies that unwittingly have one foot in prison, because they can't implement all the rules. It's simply not possible. If politics at European and national level doesn't rethink this, then it must also go one step further and say that we don't want any more small and medium-sized companies. You can't have a carpentry business with 10 people where 4 of them are trying to cover all the different areas. Politicians are a bit like the three monkeys, they don't see properly, they don't hear properly and they put their hands in front of their mouth.

Stéphanie: And companies still have many other challenges to face. The economic situation is not ideal. Regulations like these really don't help. It takes a lot of resources. It costs money. A lot of prices are going up. It has a big impact. How can they still meet these regulations, these criteria that are required? We have to change something.

Bryan: Tom, you talk about grey areas. Do you have any examples of companies where governance was difficult at one point and then things went better because they took the time to put things right?

Tom: I think the positive thing we're seeing is that companies that have governance, where it's clear who takes what decisions, where, in the case of a family business, we're already looking proactively at how the transitions are going, have a huge advantage when it comes to getting investment. It's a bit of a black box for investors and bankers. It's one of the guarantees of a company's success. Because if you don't, you can't go any further, and if you don't, you can't move on to the next stage. You can start off more informally, with the boss being the company and vice versa, but that only works at the beginning.

Stéphanie: Recently, we had the last edition of our Entrepreneurs' Days, organised by the House of Entrepreneurship. We heard from a number of companies who talked about how they'd put this in place. This means that there are a number of companies where it's working really well. It's important to have this exchange. What's also interesting to know is that Luxembourg is in fifth place in Europe for the quality of governance. It's a figure that shows that we have a lot of companies that function well. But of course, there's still room for improvement

Bryan: So it's at the very latest when they're looking for investments that managers say to themselves 'OK, now I've got to get my act together, I've got to do this properly', because you don't get new capital if that's not in place.

Stéphanie: Exactly, and investors look at that. And also the other way round. It's important: it's better to do it yourself than to let someone else do it. You know your business, you know what you want to achieve.

Tom: That's true, and you have to constantly maintain your governance. I can never say to myself that, well, I've got to this point and I can move on to the next stage because the investor has invested in me. There are always new challenges. The path is the goal.