Corporate governance is often seen as an issue to be dealt with by large organisations only. This is no longer the case. The current King IV Report contains principles for corporate governance that can be applied by SME's as well. The report includes a sector supplement to guide SME's in the application of the principles. Where SME's are not able to implement the above principles in full, for instance due to the nature of the SME, it is recommended that these principles be implemented on a proportional basis.
Here are three advantages to sound corporate governance:
Strengthens your reputation
A corporate governance programme can boost your company's reputation. If you publicise your corporate governance policies and detail how they work, more stakeholders will be willing to work with you. This can include lenders who see you have strong fiscal policies and internal controls, businesses you might partner with to promote your business, government agencies, employees, the media, vendors, and suppliers.
Creation of an ethical culture
King IV requires the governing body to set the example for ethical and effective leadership by leading in a responsible, transparent and fair way. The composition of the board of directors should ensure it has the skills and independence of thought to effectively manage, control and report on its performance.
This ethical behaviour trickles down the organisation and encourages members at any level to behave with the same level of responsibility and transparency.
Improved stakeholder relationships
Principle 5.1 of King IV states that, as part of its decision-making in the best interests of the company, the board should ensure that a stakeholder-inclusive approach is adopted, which takes into account and balances their legitimate and reasonable needs, interests and expectations.
Principle 5.2 of King IV further states that the board should ensure that the SME responsibly exercises its rights, obligations, legitimate and reasonable needs, interests and expectations of the holders of the stakeholders in the company.
Application of these principles can lead to improved stakeholder relationships as decisions making is made considering stakeholder needs, interests and expectations.
Good corporate governance can unlock opportunities for SME’s in the form of access to finance and markets. It can further assist in setting up leadership and other structures and processes to position the SME for optimal growth.