Boards

How to achieve best practice corporate governance – tips for SMEs

User-01Corporate governance is no longer just a nice-to-have. Transparency, ethics, compliance – these are the yardsticks clients and prospects use to measure your firm against its competitors.

For small businesses, though, the costs associated with corporate governance can seem prohibitive. Although with our recent blog concluding that the cost of non-compliance can be higher than that of compliance, the investment may well be one that’s rewarded.

Here we look at some of the ways small businesses can embrace good governance cost- and time-efficiently.

Why governance matters to small businesses

Quoted in an article in Director magazine, Estelle Clark, executive director of policy at the Chartered Quality Institute, states her belief that ‘Governance is about making sure you comply with the rules that mean you can be in business and you can articulate what you are trying to achieve...That is as relevant for a company of five people as it is for 5,000’.

With – as the article claims – SMEs now accounting for 99.9 per cent of the UK’s 5.5 million private sector businesses, their approach to governance plays a key role in the ethical performance of UK plc.

What is good governance?

So, if we accept that good corporate governance is a must-do for any business, what can smaller organisations do to ensure they measure up?

  1. Meet regulatory requirements.

This is non-negotiable. Failing to meet your requirements around legislation or industry-specific regulation can at worst prevent you from operating. As the board, a large part of your role is to ensure that your organisation’s strategy is in line with local laws and sector rules.

A report last year suggested that many boards are complacent about compliance, and with complacency identified by the BBC as one of the deadly business sins, this isn’t something you should risk.

As we’ve noted above, the cost of compliance can be dwarfed by the cost of non-compliance if you get it wrong. So even for smaller businesses with constrained budgets, the need to meet your regulatory obligations is clear.

  1. Ensure your approach meets the needs of all your stakeholders.

Slightly ironically, there is a danger that in today’s governance-heavy environment, some directors focus too much on potential risk and not enough on success.

You need a strategy that addresses all aspects of your operations, and delivers for all your stakeholders (shareholders, employees, customers, community). Bear this in mind when making operational, investment or commercial board decisions and you will deliver the type of transparent operation that forms the basis of ethical businesses.

  1. Have the right people in place

Making the right decisions means having the optimal mix of directors on your board. This can mean getting the right gender balance, and identifying and putting in place the ideal mix of views in your boardroom, perhaps by examining the attributes shared by the most successful directors.

What might hold you back?

If these are the steps to take, what’s stopping you? For smaller businesses, with limited resources, there may be a few potential stumbling blocks:

Lack of time

If you’re an SME, there’s every chance that your people wear a number of hats, and time to address governance issues is in short supply. Our tips for CEOs on best managing their time might help.

Use findings from research to help you maximise your board effectiveness, and read our suggestions for making your board more efficient.

Lack of money

This may also be a concern for smaller organisations – although, as we mentioned above, non-compliance can often cost more than meeting your obligations. Treat investment in governance as an investment in the future of your business. Compliance and brand are intrinsically linked; you can’t afford to underestimate the impact any failing in governance might have on your commercial performance.

Unsure on the benefits of technology

Often, innovation is the solution to a lack of time or money. But you may be unsure as to whether there are solutions that can improve your governance. If this is the case, you might want to read our blog exploring how you can improve corporate governance with a board portal.

Corporate governance is as vital for smaller businesses as it is for their larger counterparts. Although it may seem a more ambitious aim when you have fewer people and smaller budgets at your disposal, it is possible to deliver on your governance goals, as we’ve hopefully shown.

To read more about the benefits – governance and otherwise – that a portal-based approach to board packs can offer, you can download a copy of our whitepaper, Board portals – what’s in it for directors? It’s free and you can get your copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

New Call-to-action