Why SMEs need to consider their approaches to corporate governance

Corporate governance varies across nearly every organisation, regardless of its size, but smaller firms could benefit from a tailored approach.

According to the Association of Chartered Certified Accountants, many try to adopt a one-size-fits-all attitude, although this could be doomed to fail.

This is because the needs of a smaller company vary so dramatically from a larger one – meaning a diverse range of approaches are required.

The Governance for all: the implementation challenge for SMEs report suggests that larger firms tend to focus on ensuring that management act in the interests of shareholders.

For SMEs meanwhile, the focus is more on business performance and managing risk – especially given the numerous studies which suggest the majority of small firms fail to last for five years or more.

Poor management and bad decision making can leave companies in difficulty or even facing insolvency in more severe cases.

Contacting specialists and taking quick action is recommended in such instances to limit any negative impacts on the business.

The ACCA suggests that well managed governance can play a key role in overcoming potential barriers to business while creating an environment that is receptive to success.

Governance therefore has a vital role to play in driving business growth, but adopting an approach for a small firm that is similar to a multi-national is unlikely to work.

Instead, taking a tailored approach that takes account of certain management practices while ignoring others should be more beneficial.

These frameworks and decisions should then be more relevant, creating a business environment where every individual is aware of their role and of what is expected of them.

Having clarity relating to how decisions are made and controlled is essential for smaller firms, as the lines between business and personal can often be blurred.

In situations where good governance is present, high levels of visibility relating to key decisions and actions will exist, allowing more individuals to have an understanding of the working environment.

It also allows clearly defined targets to be set, while success can then be measured against such goals in the longer term.

By Phil Smith

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