A tailored governance approach best for SMEs, say ACCA

A ONE-SIZE-FITS-ALL approach to corporate governance for SMEs is doomed to fail as their needs are dramatically different to that of bigger corporations, says ACCA in a new report.

Its Governance for all: the implementation challenge for SMEs report, charts that while in larger organisations corporate governance is primarily tasked with ensuring that management acts as shareholders’ agents, for SMEs it is primarily about improving business performance and managing risk.

Rosanna Choi, ACCA’s chair of its Global Forum for SMEs, said: “SMEs need to realise the potential benefits of implementing corporate governance within their businesses.

“But equally, governments, advisers and other stakeholders need to realise the challenge for SMEs is that established corporate governance frameworks have been developed with large, listed companies primarily in mind. Such frameworks and codes may not reflect the realities of running a small business.

“Governance issues are nevertheless of critical concern to small businesses, where owners may often be its managers as well, or where company ownership may be shared across family members. Sometimes the line between business and personal interest can be blurred. Corporate governance should establish clear roles and responsibilities for each individual and as such is relevant to businesses of all sizes.”

Decision-making clarity

There should be clear reporting lines and clarity about how decisions are made and risks controlled, and about other matters that need to be brought to the board’s (or committee’s) attention for review or approval, the report found.

Incentives for staff need to be supportive of board strategies while there also needs to be clear communication by the board to management and staff about issues like strategic goals and expected behaviour.

The board should also have good visibility of management actions and decision making, which includes the provision of high quality information on business performance and risk management.

Choi said that advisers and international institutions like ACCA, need to play their part by campaigning for the cause of why corporate governance matters to SMEs – a “vital step for creating a receptive environment and overcoming barriers to action”.

ACCA canvassed views from members of its Global Forum for SMEs for the report, which also incorporates discussions held during a seminar held by the Economic and Social Research Council (ESRC).