When governance in business hits the headlines it is often prefixed by the word ‘corporate’. Corporate governance is seen as an essential as it helps to protect the rights and interests of shareholders and, increasingly, those of other stakeholders, providing a framework for effective monitoring of management actions and performance and for encouraging better business results.
This might lead you to think it’s not a big deal for a small business. The challenge for SMEs is that established corporate governance frameworks have been developed with large, listed companies primarily in mind. Such frameworks and codes may not reflect the characteristics of the SME, where owners may often be its managers as well, or where company ownership may be shared across family members.
Corporate governance applied to any business has to be fit for purpose, which includes being appropriate for the size and maturity of the business. In general, a robust and effective corporate governance framework includes a number of features and characteristics:
• Clear reporting lines and clarity about how decisions are made and risks controlled, and about other matters that need to be brought to the governing body* attention (or the attention of committees) for review or approval.
• The framework should promote understanding of roles and responsibilities and limits of authority and set the balance the governing body’s wants to see between, for example, acceptable risk and reward.
• Any incentives for staff need to be supportive of governing body’s strategies.
• There needs to be clear communication (of strategic goals, expected behavior, etc) by the governing body to management and staff.
• Appropriate internal controls should be established, related to key risks.
• Governing bodies need to have good visibility of management actions and decision-making, which includes the provision of high-quality information on business performance and risk management.
SME’s general face general challenges to implement improved corporate governance such as:
• difficulties in interpreting an expression of need
• lack of awareness of need
• lack of standardization
• problems with understanding the changes needed
• cost concerns
We assist SMEs by allaying these concerns and advise on how to gain a range of benefits from establishing appropriate corporate governance in their businesses. These include:
• less risk of conflict between family members or other owners who are actively managing the business and those who are not
• Informed decision-making
• faster business growth
• greater resilience to fraud, theft or other financial costs due to poor internal controls.
• Improved resilience and sustainability.
*Governing body includes board, governors or owner managers