Boost efficiency and performance for small businesses
A one-size-fits-all approach to corporate governance for SMEs will not work because their needs are vastly different to that of bigger corporations, says a new report from ACCA.
The report, Governance for all: the implementation challenge for SMEs, establishes that while in larger organisations corporate governance is primarily tasked with ensuring that management acts as shareholders’ agents, for SMEs it is mainly about improving business performance and managing risk.
Reacting to the report, Rosanna Choi, chair of the Global Forum for SMEs, said:
‘SMEs need to realise the potential benefits of implementing corporate governance within their businesses. But equally, governments, advisers and other stakeholders need to realise 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 realities of running a small business.
Governance issues are nevertheless of critical concern to small businesses, where owners may often be its managers as well, or where company ownership may be shared across family members. Sometimes the line between business and personal interest can be blurred. Corporate governance should establish clear roles and responsibilities for each individual and as such is relevant to businesses of all sizes.’
There should be clear reporting lines and clarity about how decisions are made and risks controlled, and about other matters that need to be brought to the board’s (or committee’s) attention for review or approval.
The framework should promote understanding of roles and responsibilities and limits of each person’s job, as well as show the board the balance of an organisation such as risk and reward.
Any incentives for staff need to be supportive of board strategies.
There needs to be clear communication by board to management and staff about issues such as strategic goals and expected behaviour.
Appropriate internal controls should be established, related to key risks.
Boards 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.
Rosanna Choi concludes: ‘For corporate governance to work in small businesses the framework needs to take into account the diverse needs for them – they are not all run in the same way.
‘Advisers and international institutions, such as ACCA, need to also help by campaigning for the cause of why corporate governance matters to SMEs – this is vital for creating a receptive environment and overcoming barriers to action.’
The report details why corporate governance matters for SMEs; how good corporate governance looks for these businesses and how they can benefit from them; the value and impact of boards; the triggers of change and the challenges of introducing corporate governance.
The global body for professional accountants canvassed views from members of its Global Forum for SMEs for the report, which also incorporates discussions held during a seminar held by the Economic and Social Research Council (ESRC).