In our previous posts on the Legal Service, we saw that regulatory compliance starts from business processes, and that the right question to ask is: ‘What risks do I face if I don’t comply?’
We also announced that we would examine the regulatory requirements that truly impact business management. Before getting there, however, it is worth looking at an aspect that often stays in the shadows: the rules a company sets for itself.
Not just the external side
When we think of the legal service, we almost always consider its external side: contracts with customers and suppliers, relations with the authorities and litigation. It is the side that involves third parties, and for this reason it is the most visible. But there is also an internal side. If an SME sets some rules of good conduct that also apply to relationships between the people who work there, it makes a qualitative leap. External rules protect the company in its dealings with third parties. Internal rules protect it from role confusion, from decisions made by a superior who bypasses those directly involved and from responsibilities that no one feels are their own.
The lines on the pitch
In an SME, the process of delegation is part of everyday operations. The business owner cannot decide everything, and should not even try. The same applies to the other managers in the organisation. But delegating does not mean letting people do as they please: it means giving a responsibility together with the boundaries within which the person can act.
It’s like a football pitch. The white lines do not limit the game – they make it possible. Within those lines, every player is free to be creative, to try a move, to take the initiative. Without lines, every action would become a reason for argument.
A practical example: the signing authority procedure
The simplest tool for drawing these lines is a signing authority procedure, which states, for each activity, who is responsible and up to what amount they can commit the company. For example:
- purchase orders, signed by the purchasing manager up to a certain threshold and, above it, also by the director;
- quotes and contracts with customers, the responsibility of the sales manager within standard price and payment terms;
- payments to suppliers, made by administration only against invoices with a verified purchase order and goods receipt;
- hiring and pay changes, reserved for the business owner.
One or two pages are enough, yet the effect is remarkable. Everyone knows what they can decide on their own and when they need to involve someone else. Paperwork no longer sits on the CEO’s desk. And people feel valued, because the trust placed in them becomes explicit.
There is also a direct link with the external side. An order signed by someone without the authority to do so can still bind the company to a supplier acting in good faith. Establishing who can commit the company, and up to what point, is therefore also a way to reduce risks starting from processes.
Rules that apply to everyone
The value of rules lies in their scope. If they apply to everyone, they carry weight; if they allow exceptions, they become weak. And this also applies to the business owner. They are the boss, and no one questions that. But let’s go back to the pitch: if the referee allowed the captain to play outside the lines, the rest of the team would soon stop respecting them. In a company there is no referee: the example must come from whoever set the rules. When the business owner tells their team ‘I respect them too’, and proves it by signing according to the procedure like everyone else, the process of delegation, the sense of responsibility and attachment to the company become much stronger.
One piece, not an isolated chapter
This topic is part of the face of the Rubik’s cube dedicated to the Legal Service: one of the six major areas that make up sound SME administration. External rules and internal rules are not two separate worlds, but two faces of the same organisation: the former protect the company in its relations with third parties, the latter shape the way people work together.
In the next post, we will see how the Pareto principle applies to the legal service: a few standard contracts that cover most relationships with third parties.
In your company, do the rules apply to everyone, even to those who set them? Leave us your comments, and follow us on LinkedIn @Pietro Cavalli so you don’t miss the next piece of the journey.
Kenning Consulting accompanies small and medium-sized businesses in building a growth plan supported by management control tools tailored to their development stage.