Corporate governance, a system by which businesses are directed and controlled, is often frowned upon by small and medium enterprises (SMEs) owners due to its association with red tape. However if introduced successfully, corporate governance can in fact be a cost effective growth strategy for SMEs.
This is according to Christo Botes, executive director at Business Partners Limited, a specialist risk finance company for formal SMEs, who says that many entrepreneurs have the perception that corporate governance is unnecessary and costly, instead of thinking of the system as a guideline that will add structure to a business and assist the entrepreneur in steering the business in the right direction for growth.
“Entrepreneurs often feel that corporate governance takes up precious time and energy that they would prefer to put into running their business. However, without a structure in place and goals to work towards, this additional time poured into the business isn’t necessarily going to result in long-term growth.”
Botes says that often a business grows beyond the entrepreneur’s control, and often it is during this stage that mistakes creep in and losses accrue on projects, simply because the correct planning, coordination and governance methods were not used. “As a business grows more structure is needed, and eventually it is necessary for the entrepreneur to adapt and implement an organised structure within the business.”
He explains that a 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 will assist with transparency, accountability, ethical behaviour and ultimately profitability within the business.
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