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Why good governance is important to SMEs too

By 16th February 2017 Blog, CSR No Comments
Suspension files - regulations-min

Good governance can help SMEs too, not just ‘corporates’.

When we hear about governance in business, it’s often prefaced with the word ‘corporate’. But this doesn’t mean that it’s only important to big businesses, which is how we tend to think of corporates.

Before explaining how and why good governance is import to SMEs too, it’s probably a good idea to think about what it is.

What is good governance?

Here at Remsol, where we promote sustainability and CSR as tools for growth, we do so with a view to improving the environmental, social and governance performance of businesses.

Governance is about the way your business behaves. It’s often wrapped up in a company’s values and how it wants to be perceived, and it’s about doing things right, being fair and transparent.

So, it follows that examples of good governance include things like understanding which laws apply to your business, what duties they impose, having systems in place aimed at ensuring those duties are satisfied, and conducting compliance audits at intervals to see how you’re doing. Likewise, a policy of paying suppliers within 30 days or less, and then verifying that you’re achieving this by measuring and reporting on creditor days is also an indicator of good governance. Having an independent director on your board is also an example of recognised good governance practice.

How does it help SMEs?

One of the most important advantages of good governance is that it helps to significantly reduce risk, which in turn leads to a number of important benefits.

For example, if you are able to demonstrate that you’re on top of legal compliance, then you’ll find that relevant regulatory authorities will trust you more and therefore regulate you with a lighter touch. Banks will find it easier to justify lending you money, suppliers will be happier to extend credit terms, customers will feel like you’re a safe pair of hands.

All of this helps make running a business easier and less stressful, whilst also helping you to grow.

Improving governance

Like most things, if you want to improve something, you need to first of all know your current condition. There are lots of benchmarking tools available, including our Sustainability and CSR Performance Review.

However, you can also start by just asking and answering some simple questions to begin with.

For example, do you maintain a legal register of applicable laws and do you make appropriate checks to ensure compliance? Are decisions on strategy and direction made collectively, with independent input, or unilaterally by the most senior person in the organisation? If you asked them, would your suppliers say you’re a good company to work for? Would staff say you’re a fair employer that treats everyone equally, and keeps them informed about the progress of the business (good and bad)?

Just by asking these questions, you can quickly get a feel for where governance improvements might lie.

Then, just like you would when closing gaps identified in any other part of your business, you need to craft an action plan that identifies the relevant stakeholders (those that are Responsible, Accountable, must be Consulted, and those that just need to be kept Informed) and that sets out the steps that need to be taken, by whom and when.

Being methodical about it, and ensuring that actions are closed out, is also an example of good governance.

The Government is consulting on corporate governance reforms, but the deadline for responses is Friday 17th February 2017, so act quickly.

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