Corporate governance framework: Does your SME have one?
Many entrepreneurs believe that their company may be too small to introduce a corporate governance framework. Others may argue that it would mean even more red tape to cut through, taking attention away from their main focus which is building a successful business.
Christo Botes, Executive Director at Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SMEs) says this need not be the case. He says a framework creates discipline within a company and ensures a formal business structure which helps with steering the business in the right direction for growth.
Corporate governance framework is the set of policies, rules and procedures put in place – agreed upon by the business’ main shareholder, most likely the entrepreneur – that Botes says, will assist with transparency, accountability, ethical behaviour and ultimately profitability within the business. It’s as the company grows that most businesses are most in need of some kind of structure.
“Corporate governance is a natural progression and while the full structure may not be suited to all businesses, a certain degree of structure needs to be implemented”
He says many business owners occupy all the roles in the business which is not always ideal. “Often the entrepreneur plays the role of sole shareholder, director and management of the company and differentiating between these roles can become blurry. This results in the entrepreneur running from day-to-day and job-to-job, and letting other aspects of the business be overlooked, such as budgets, returns and employee structures.”
Botes says the common misconceptions among SMEs is that they believe they can’t afford to implement a framework. It’s important, he says, that entrepreneurs start small management teams. This can include themselves, a mentor and perhaps a spouse or manager or team leader.
“This team will be responsible for the different areas in the business. Regular team management meetings should then be held where progress is reported. The mentor will be responsible for overseeing all such meetings to ensure sufficient progress is being made” he says.
As the business continues to grow, and generate more money, a board of directors can slowly be introduced, says Botes. “Corporate governance is a natural progression and while the full structure may not be suited to all businesses, a certain degree of structure needs to be implemented in order to ensure business growth. Corporate governance enables entrepreneurs to grow their business and turnover without taking on more risks, and rather grow organically through efficient planning and management of the company’s workforce,” he says.
Important ways a mentor can assist in building your corporate governance framework:
– They can provide guidance for entrepreneur.
– They are able to ask the right questions e.g what are the business’ goals are for the next one to five years, whether the budgets have been drawn up and whether the business should be sharing more or less risk.
– They can provide a helicopter view of the business, while an entrepreneur may just be looking internally.