A Flexible Corporate Governance Framework can Boost Efficiency and Performance for Small Business

A new report issued by ACCA, states that use of same corporate governance codes for all corporations including SMEs will not be useful as their requirements are majorly different from larger corporation.

Main challenge for implementation of corporate governance in SME is its establishment. In large organization it is mainly based on ensuring that management acts as shareholders’ agent, while for SMEs it focuses on managing risk and improving performance of the business.

Rosanna chair of global forum for SME, reacting to the report said that Small & Medium Enterprises need to realize the expected benefits of establishing corporate governance rules in their business. But at the same time government, stakeholders and advisors need to consider that corporate governance rules have been mainly structured by keeping large organization in mind. Such codes and framework might not represent the true picture of running an SME.

It is difficult to implement these codes in those organizations where power is mainly distributed among family members and those where owners are also acting as mangers of the business. Depending on the size of business, corporate governance should establish separate rules and responsibilities for every person and individual.

The main points of this report are as follows:

- The code should clearly define the responsibilities, rules and limits of every individual’s job and at the same time present to the board an equilibrium position of the organization including risk and reward.

- There should be clear communication pattern at all levels from board to managerial and staff levels regarding issues like expected behavior and strategic goals

- Appropriate and sufficient controls should be implemented relating to important risks

- Any incentives and bonuses are in line with supporting strategies of the business.

- There needs to be proper reporting guidelines and clarity regarding the way risks are managed and decisions made.

He concludes by arguing that, corporate governance needs to be more diverse to work in small organizations because they do not follow the same running pattern.