Benefits of Corporate Governance for SMEs

21 Aug 2022 12:17 PM By itSMF Staff

Reading time: ~ 3 min.

The Corporate Governance role on SMEs

Even if frequently have been put in relation only with large companies, the principles of Corporate Governance are also suitable for small and medium enterprises.

In SMEs the main responsabilities of a Board of Directors are usually focused on increasing the value of the company, by complying with the specific code of conduct and all legal and regulatory requirements.

Reducing personal liability issues as well as risks to the company by making sure that this one is led in compliance with all rules and laws, making the right decisions by always having the correct and up-to-date informations and monitoring their effective implementation are indeed others relevant responsabilities of a Board of Directors.

But nearly the 80 percent of SMEs that don't use to access the capital market do not bother to define the Governance principles - that can focus on the relationships between management, board of directors, shareholders and stakeholders - relying mainly on family resources for the establishment of the Board and relegating the supervisory bodies to a mainly passive and limited role.

These companies indeed don't have to face the concerns nor meet the expectation of transparency of potential investors claiming for a well-established and compliant with the main and relevant standards Corporate Governance.

The corporate governance assessment led by the capital market

When the companies must face the best practises and standards expected by the investors on the capital market, everything changes.

The evaluation of a company is usually based on the assessment of the Corporate Governance, which therefore becomes increasingly relevant not only from an internal perspective of an optimal succession of the management that is often a reason for evolution in terms of Corporate Governance.

This assessment on the CG becomes also an outward tool to maximize the value of the company making it more attractive to the investors. It is indeed very important to remember that the shareholders usually want to rely on ethical leaderships and a Corporate Governance that ensure a real and well-documented integrity of the financial results.

Some of the main benefits of a good Corporate Governance

Let's take a look at some of the benefits that companies can get implementing a well-designed Corporate Governance, considering that it is not an exhaustive template:

✔️Policies and processes that take shape in the right way and are managed according to a compliance culture help improving results;

✔️The cost of capital (collected on the market) is reduced by the best practices on CG, leading to better performances on getting investors;

✔️Better company performances due to a quicker decision-making process, which is the result of the management of the information and the communication across the enterprise and all the stakeholders;

✔️Better audit culture, due to a most significant compliance standards implementation;

✔️Strategic planning on resources and capital allocation and use, due to the information and communication performance around the enterprise;

✔️Best-talented Managers and directors who are looking for a well-designed working environment can rely on good corporate governance culture.

itSMF point of view on Corporate Governance

As iTSMF we believe that Corporate Governance is one the key feature that - in particular on SMEs - is most neglected although it is increasingly known and certified by facts that the benefits of good corporate governance are undeniable.

The main ones are:

✔️intrinsic increase in the long-term value of the company;

✔️alignment with ESG objectives;

✔️improved performance and increased resilience;

✔️simplification in access to capital for increased investor and creditor confidence;

✔️improved decision-making and reduced risk.

Efficiently creating and applying governance in SMEs is possible by taking some steps that together we will discover... So stay tuned!

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itSMF Staff