Can too much corporate governance stifle SMEs?

Corporate governance has been a major topic in recent years following the economic crisis and various financial scandals.  For companies it is important to have corporate governance in place to ensure that the management team operates the company in the best interests of shareholders and other stakeholders – for listed companies there are detailed rules to follow. 

For small and medium sized enterprises (SMEs) corporate governance may not feature as highly with the management and owners often being the same.  However, as SMEs develop and grow corporate governance also rises in important as banks and other financial institutions are called upon for capital.  Having robust corporate governance arrangements in place ensures that everyone in the company makes decisions in line with shareholders’ and stakeholders’ interests.  Companies that are committed to good corporate governance often offer the best opportunities for investors.

The introduction of external Board appointments can help a company develop its corporate governance.  Non-executive directors sitting on the Board can help in management decision-making particularly where they have market, business or governance experience.  This can be challenging for owners in particular who will previously have made all the decisions without much external input. 

Corporate governance
Boardroom leadership in health and safety management

Proportionality is key when implementing corporate governance arrangements in private companies.  Too much and it can reduce efficiency, delay the decision making process and be costly in terms of resources.  SMEs often fear governance systems will tie them down in processes and procedures.  A balanced approach will be rewarded with the benefits of good governance whilst still allowing innovation and market responsiveness. Assessing the value of the Board including any non-executive positions is vital to good governance.  Non-executive directors must bring real tangible value to the company if such appointments are part of a governance strategy.