Episode 8 - Governance Doesn’t Make You Money... Or Does It?

Governance is often viewed as an overhead: something that costs money, adds process and doesn’t directly contribute to the bottom line. So why should business owners invest in it?

In this episode, Lisa and Adam explore the commercial value of good governance and challenge the perception that governance is simply about compliance, policies, meetings and bureaucracy.

They unpack the hidden costs of poor governance, from delayed decisions and unclear accountability to founder dependency, leadership confusion and missed opportunities, and explore why these costs rarely appear neatly on a profit and loss statement.

They also discuss the difference between investing in governance artefacts and building genuine governance capability, why growing businesses can outgrow the structures that once served them, and how good governance can create the conditions for better decisions, greater clarity, sustainable growth and long-term value.

Because perhaps the question isn’t whether governance makes you money.

It’s what poor governance might already be costing you.

Transcript

SPEAKER_00 0:05

Well, hi everybody. Uh welcome once again to Off the Record, a podcast full of governance conversations that we're going to make at the minutes. I'm Adam Coonan, and as always, I am here with my good friend and co-collaborator, co-conspirer, Lisa Colletta. We are both governance consultants. I don't mean to sit make that sound dull. It's sometimes exciting. But betinas, we bring different lenses to governance. And in this podcast, we explore what really drives decisions inside boardrooms, not just the structures and frameworks, but the dynamics, tensions, and the conversations sitting underneath them. Everything we share is drawn from our experience working with boards, their chairs, and executive teams. It's important to say, though, that these are our perspectives and experiences only and do not constitute legal advice or formal governance guidance. So the formalities out of the way once again, Lisa, today's topic is one we've both heard countless times. Governance doesn't make us any money. Or perhaps why would I invest in governance when I could invest that money into growing the business? That second one, in my experience, is usually delivered with the same conviction as a teenager, explaining why they don't need travel insurance. Nothing has gone wrong yet, so clearly nothing ever will. Maybe that's showing my age. Anyway, Lisa, um, do you think governance has an image problem in this context?

SPEAKER_01 1:34

Oh, Adam, yes, that insurance, that important insurance. Look, short answer, yes, I do. And I actually think it's it's kind of understandable. If you experience if your experience of governance is policies, board papers, compliance meetings, and reporting, then governance naturally feels like an overhead. It feels like something you have to do rather than something that helps you and positions you for success and succeed. Um, most business owners don't really wake up thinking they need better governance. They wake up thinking they need more customers, more sales, better margins, stronger cash flow or greater people. Um and that's that's kind of the commercial reality, isn't it? Um so perhaps the question isn't whether governance makes money, perhaps it's whether we've been explaining its value in the wrong way. Because for me, governance was never designed to generate revenue, it was designed to improve the quality of the decisions that determine whether revenue is actually created, protected, and sustained.

SPEAKER_00 2:35

Yeah. Well, like that that that to me is linear in so far as one begets the other, but but but let's keep let's keep the debate rolling. I mean, interesting because every business invests in things that don't generally generate income. Um legal advice, maybe they put legal advice in the same category, but they they pay for it. Accounting, insurance, back to the old insurance, uh cybersecurity, big topic at the moment, uh, particularly with the crossover with AI. Uh but in that same vein as uh what you were saying and people's separation of these things, none of those functions sell your product either. Oh, my tax law colleagues would argue that they they do, but that's that's another one. Very few business owners would question whether they're necessary, though. That I guess that's where I was was going with all of those examples. And here's my theory views on governance are you know market cut neatly in half to some degree. The people who see it purely as compliance are, in my experience, almost without exception, people for whom nothing governance-related has ever gone wrong. Um and the other half, again, half's probably a big generalization, but the other half have the foresight or the scar tissue to see it as necessary and a strategic value add. It's remarkable how quickly uh a skeptic converts after one uncomfortable phone call, particularly from a regulator, I've uh found again in my experience. So why do you think governance is viewed differently?

SPEAKER_01 4:15

Yeah, look, it's a good question. Um, I think partly because good governance, great governance, it's often invisible. You don't necessarily notice it when it's working well. You notice it when it isn't, when accountabilities become unclear, when decisions stall, when founders become bottlenecks, when leaders pull in different directions, even when opportunities are missed because nobody was quite sure who should decide. So forgetting, of course, that not making a decision is a decision. And that's how they miss those opportunities, of course. So governance rarely announces itself by saying, look what I've just achieved, look at me, look at me, look what I've done. Instead, if it's working well, it quietly creates the conditions and the environments for better judgment, clearer accountability, and stronger decision making. And the irony is that organizations often invest heavily in fixing the symptoms while overlooking the governance issues, the cause sitting underneath them or beneath them.

SPEAKER_00 5:24

Yeah, I hear you. So in some respects, you could say the bigger issue isn't governance itself, it's the perception that governance is just bureaucracy, you know, policies, committees. Ticking the boxes, you know, the template. Um I once read a board charter so long it probably needed its own charter, I guess is the way that I look at it, and and possibly even its own subcommittee. But um have have we as a profession, as you like, um unintentionally contributed to that perception through through all of this?

SPEAKER_01 5:58

Look, I think sometimes, unfortunately, we have, because governance isn't a framework. It isn't the board charter, it isn't the delegations policy. Uh, you know, those things all matter, but they're simple tools, they're mechanisms. And the value of governance doesn't sit in the documents. The value sits in what the document enables. It enables better conversations, it enables better decisions, clearer accountabilities, constructive challenge, and healthy oversight. And I think Adam, perhaps most importantly, the real confidence that it gives to make decisions without everything depending on one person is something that's really underplayed, especially and most particularly relevant in those founder-led businesses that we've spoken about before. Because yeah, because I found that many founders have built incredibly successful organizations through instinct and experience and hard work. But as organizations grow, complexity grows with them. In fact, it's revenue, risk, and complexity that tend to grow together. And those decisions become bigger, the risks, the risks themselves become much broader, there are more people involved, and eventually the governance model that supported a $5 million business may no longer support a $50 million business. And that isn't really a failure, it's it's growth, Adam. And I think that's you know, it's important to consider.

SPEAKER_00 7:27

Yeah, yeah, no, I think that's right. I it it's an important distinction. Um needing um corporate governance isn't a sign that that something has gone wrong. Sometimes it's a sign that that uh a business has become more successful than the system supporting it. It it's some, I guess, uh as another way of saying it, it it hasn't been uh uh front of mind before, it hasn't been as important. You know, even if we talk about collective forums like a like a board, uh in the beginning it was just just the founder to examples you see often. And so some of these things have not been thought about. And if you like that success that's measured the number on the um on the PL that says we've sold so much and and this is this is what the business is all about, that's that's running way ahead of um of of you know I guess good corporate governance oversight systems processes. And then to your point, it's not all about the documents, those things actually working.

SPEAKER_01 8:25

Um I think that I think that's right. I think exactly. I think one of the biggest shifts I see is when business owners stop viewing governance as a compliance function and they start viewing it as a decision infrastructure. You know, good governance doesn't slow decisions, poor governance does. Good governance doesn't create bureaucracy, poor governance creates confusion. That confusion costs time and it costs money. Good governance doesn't remove entrepreneurial thinking, it gives entrepreneurial thinking somewhere safe and sustainable to actually operate. Because the organizations, and I know you've seen this as well, the organizations that benefit most from governance are rarely the ones that are in crisis. They're the ones that are actually stepping up and preparing for what comes next. They're investing before complexity overtakes capability. And I do from time to time also see um, you know, clients who that complexity has already started to overtake their capability and they're still balking at that investment of the cost of governance. So ideally, you know, that ideal world is that for those um those environments that can recognize that they're investing before complexity ever takes capability, they see that they're building governance that grows with the organization instead of trying to bolt it on after problems have already emerged. And that's a very, very different um approach and a really, really different conversation as well, I think, Adam.

SPEAKER_00 9:56

Yeah, and not surprisingly, I agree. Um, but let's get practical then, because uh I can already hear someone out there who may be listening to this opening a spreadsheet to model the return on all of this. You know, hold that thought. We'll come back to why the spreadsheet is quietly lying to you. But for organizations listening today or people from organizations at various stages, um, how do they know whether they're underinvesting in their corporate governance? What what what should they be looking for?

SPEAKER_01 10:26

That's a really great question, Adam. I think that a few things tend to appear. Um, if the founder becomes involved in almost every important decision and um like the leadership teams aren't completely clear who's accountable for what, um the board meetings, those higher order meetings spend more time reporting than actually thinking, strategically thinking. Um, decisions get revisited because people leave the room with different understandings, and it's almost like herding cats to get everyone on the same page again. Uh, important conversations happen in corridors instead of informal governance forums. Um and growth starts placing pressure on people and systems that were never designed for the organization's current level of complexity. And um, I think that perhaps the biggest indicator I see is when governance is purely viewed as a cost rather than an enabler for better decision making. Because governance doesn't create value by existing, it creates value by improving the quality and the rigor of the decisions that shape the future of the organization and the future of the business. So, yeah.

SPEAKER_00 11:46

Yeah, yeah. Well, again, I again we we know we've spoken about it before, it's that link, right? Um and so perhaps the question isn't uh does governance make money, perhaps it's what is poor governance already costing us? Absolutely. Because the um the cost the cost of um uh unclear accountability or uh delayed decisions, founded dependencies in uh in a uh a fast-paced environment and and missed opportunities uh is often far greater than the investment required to strengthen the governance of the organization in the first place. Um Yeah. I look what one final word on cost, because I said I'd come back to it and we really probably should finish soon. But um the people in that compliance camp I just described earlier, they can't have it both ways. You you can't insist governance is a mere compliance and then haggle over what compliance is worth. The the market sets the price in a way, you know. If someone offers to do it for less, uh, the amount you think it's worth, if you like, it's either it's either a lost leader or it's not being done sufficiently. I think that's something that people should keep in mind when they balk at what something costs when they don't really know it's just their perception. Um but for those who see governance in the strategic range, price is relative. Um, and you know, without being too corny, because I sometimes do have that tendency as listeners will know, some might even say, in the spirit of the old MasterCard campaign, that it's priceless. Um and for anyone determined to value governance thinking and support with a financial model, as I mentioned, accept at the outset that that's um uh the wrong measure of value, or at least building in the variables that recognize value well beyond cost have to be the focus of your model. Otherwise, the model will faithfully give you the wrong answer to two decimal places.

SPEAKER_01 13:45

Oh, look, absolutely. I couldn't I couldn't agree more, Adam. And for me, good governance isn't just an expense because someone told you it's best practice, it's an investment in decision quality. And over time, better decisions influence strategy, culture, leadership, performance, resilience, and sustainable growth. Not because governance creates revenue itself, but because it helps organizations make better decisions about the things that do. And perhaps that's the real return on investment. Because while governance may not directly make you money, poor governance can certainly stop you from keeping it. And I've seen this time and time again where there are uh organizations where you know I step into some of these environments and I can see very, very clearly that there are a number of really fundamental um, you know, better practice and governance failures that are costing governance, it's costing dollars right now that are um walked past without actually considering that there's a cost associated with it. But Adam, knowing that this is the case, um these are the exact kinds of governance conversations that really make the minutes.

SPEAKER_00 15:01

Um point well made later. But thank you everyone for joining us again on off the record.