Simple Ways SMEs Can Implement Corporate Governance Structures

Posted on August 12th, 2014

Simple ways SMEs can implement corporate governance structures

Corporate governance structures are as vital to SMMEs as it is for large corporations. Implementation of cost-effective and simple mechanisms and processes will establish structure, improve operations, contribute to business growth and ensure effective compliance with the law.

Generally, individuals who are entrusted to run a business, even a small business, have a certain degree of power and control over that business. This creates ethical responsibilities and behavior that may violate or fulfil those responsibilities, such as handling business finances or paying oneself a salary. This in-turn creates a need for warranting standards of ethics and integrity.

Here are some of the most common questions many business owners may have:

What is Corporate Governance?

Rules and arrangements determine what a business and its various stakeholders can and cannot do. These rules determine who controls what, and how controls are exercised. The objective of corporate governance is to ensure that individuals act with integrity and in the best interest of the business and its various stakeholders.

“Create simple internal policies such as a code of conduct that clearly sets-out duty of care, skill and diligence”

What does this mean for SMMEs?

If your business is a registered entity (company or CC), the law requires that you recognise and practice good corporate governance. According to the King Code of Governance Principles (King III), all businesses will ‘comply or explain’ non-compliance to governance legislations, which applies equally to corporates and SMMEsSMMEs can use the key recommendations of King III to improve their chances of success and ethical conduct.

What are some of the basic ways SMMEs can implement corporate governance

  • Create simple internal policies such as a code of conduct that clearly sets-out duty of care, skill and diligence.
  • Demonstrate effective leadership characterized by ethical values of responsibility, accountability, fairness and transparency.
  • Separate roles and responsibilities of the shareholder, director and manager to limit liability and ensure effective division of labour and function. Consider creating a small board of directors if you are a company or implement a management structure.
  • Do your bit for your local environment and community – nature, society and business are interconnected.

Read Also: Corporate governance framework: Does your SME have one?

How does technology, innovation affect corporate governance? 

With the new age of technology and the growing need for companies to adopt different technologies to run the business, governance of information technology must be implemented in a company, whether small or large.  IT is essential to manage the transaction, information and knowledge necessary to initiate and sustain a company. Leadership should be responsible for ensuring that IT governance framework is established and should include relevant structures, processes and mechanisms to enable IT to deliver value to the business.

About the author: Monisha Prem (BA  MBA) is the CEO and senior legal practitioner at Excelsur Legal Services. Monisha is an admitted attorney with over 10 years post-article experience in law.