Well-run businesses have processes that work. Those who run the company have put thought into the processes. They’ve studied them, documented them, and formalized them. They leave no doubt about who made each decision and when. They leave a trail of evidence that supports the reasonableness of each decision and the methods that the company used to come to the decision. These materials describe the company’s actions for anyone who might question or want to learn more about the company, whether it’s a creditor, investor, or a governmental agency.
Trust me when I say it’s far better to have these materials and not need them than to need them and not have them.
At the highest levels of the corporation, the name for the process of making and documenting important decisions is called corporate governance. It doesn’t have to be fancy. It doesn’t have to be expensive. But for well-run companies, it is a critical part of the business’s foundation.
If it’s your first time running a company, it’s important to be cognizant of the general hierarchy of a corporation. You need to know what kind of decisions trickle down from the shareholders, to the board of directors, to the officers, and then to the managers of the company. Even if you’re a small company and there are only a couple of people running the business, it’s still critical to make sure that the right people approve the decisions when acting in the right capacity.
Next, you need to know how the board of directors and shareholders document their decisions. Specifically, they document their work through minutes, meetings, and actions by written consent. It’s also important to keep a record of all of these decisions in one place. Finally, you should understand the basics of how a corporation comes to these formal decisions, and the process for doing so.