James Madison’s Wisdom For Your Business Documents
April 6, 2016 - Posted by: admin - In category:
As the Father of the Constitution, Mr. Madison might have a few insights he could share with you and me in general, including with regard to our business legal papers.
What did James Madison know that we don’t know? Ok, perhaps that would be a VERY long and complicated answer. James obviously knew a great deal more than most of us (perhaps a great deal more than the collective knowledge of most of us). But in the context of organizing and planning, what lessons can we glean from James Madison in his capacity as one of the leading figures on the formulation of the Constitution of our great land?
One of the main points of genius of our Constitution centers around the several “checks and balances” which are established and maintained under the Constitutional structure. Power is divided among a bicameral legislature, among three branches of the federal government and among the federal government and state governments. Not only is there a division of power, but there are also institutional controls spelled out in the Constitution which serve to “check” the power and control held in various parts of the government. Prudent business structures follow a similar approach and have various safeguards which are required by clear and customized written papers. What do we mean by these safeguards in the context of business operations? Great question.
First and foremost is the obvious point of having written policies, rules and agreements, emphasis on the word WRITTEN. We have covered this point previously, but it is so very fundamental that it is worth repeating, on an almost daily basis…:) Another critical safeguard is to have someone or a series of people who watch cash flow and general finances for the company. This is another “no duh” point, but you would be shocked to know just how frequent this is not followed. Far too often, we find that one person is given sole control over company finances and there is little or no review or safeguards over such person and the finances. Perhaps you are thinking that putting safeguards in place (whether with regard to finances or generally) is a sign of mistrust. Please don’t view it in that light, any more than you view putting on your seatbelt when you drive your car as a sign of mistrust of all other drivers on the road. Rather, being safe and wise is just that, safe and wise. What better reasons do you need?
Please remember that safeguards with regard to finances and any other aspect of your company not only protect you as the owner, but they also protect others within the organization, including the person who is primarily tasked with finances, for example. Consider how a situation where only one person has knowledge and decision-making with regard to finances could eventually lead to any number of potential problems, including where that person is put in a difficult position and/or where others may have reason to question such person’s decision-making or trustworthiness (rightly or wrongly). In contrast, consider a very different scenario where the controller of the company handles company finances on a regular basis, manages budgets, pays bills, deposits checks, etc. but there is a formal system in place for regular reviews of cash flows and true-up of accounting records. Here, the greater transparency is both actually safer and also makes everyone feel better about company operations. There is never any cause to have suspicions about who is looking after the money and what is being done with the same. In other words, there is both an actual and very practical benefit and safeguard and also an even greater perceived benefit (lack of suspicion).
Such safeguards and checks and balances relating to company finances are perhaps the most urgently needed and easy to implement. Even so, this is only one example of the concept of having formal protections place which share decision-making authority among several individuals or departments, and also share related responsibility and accountability, and thereby provide a better foundation for succession in the company, now and in the future. Does this mean that such things are applicable only for very large businesses with hundreds of employees and multiple departments and divisions? No, that is not the case at all. Rather, though different in scale and scope when it comes to smaller business enterprises, the same prudent concepts of formal checks and balances, division of decision-making and responsibility, are fully applicable to small businesses as well.
We will discuss more on this topic next time. In the interim, consider the wisdom of gleaning ideas from the likes of James Madison and the other brilliant leaders who formulated our miraculous Constitution, which has served as the foundation for our government and our great nation for more than 200 years.