The Importance of Corporate Governance for SMEs

  • Reading time:6 mins read

Large corporations all understand the critical importance of having robust corporate governance, but as a topic it’s often overlooked with SMEs. 

Good governance can help SMEs establish a solid foundation for long-term success, manage risks effectively, and enhance their reputation among investors, customers, and partners. It can also become the platform for growth, and this is why SMEs with ambition often turn to advisory partners like InCorp Advisory to get their corporate governance affairs in order.

What Corporate Governance Means To An SME

Corporate governance is a simple term for a complex process. It refers to the systems, processes, and principles that govern the management and oversight of a company. While that is a simple definition, it does mean that corporate governance is broad in scope, as it covers everything from decision-making structures and the roles of board members to policies on transparency and accountability.

For SMEs, one of the reasons that corporate governance is often put to the back of mind is that it can be intimidatingly complex, but it’s also a critical step in scaling operations and attracting investment.

Meeting the corporate governance best practices within a SME means three things: Firstly, it means establishing clear roles and responsibilities for management and board members. Secondly, it’s important to ensure that there are checks and balances in place to prevent abuses of power. Finally, the organisation should create and follow policies around transparency and accountability. This not only helps in building a solid internal structure but also enhances the company’s credibility with external stakeholders.

The Value of Advisory Partners

Delivering that framework is where a business advisory firm like InCorp Advisory comes in. The value that they add to an SME goes well beyond corporate governance, but just with regards to corporate governance alone the value-add is monumental:

Expertise in Best Practices

Advisory partners bring a wealth of knowledge about industry best practices and regulatory requirements. At the very top level, they can help the leadership team within an SME set up the governance structures that they need, which will then provide the foundation that will postiion the company for growth and success. There’s a lot involved in doing this – everything from establishing effective boards and committees to developing policies that promote ethical behaviour and compliance with laws and regulations – and many SMEs would struggle to have the necessary skills for it without the support of an advisory partner.

Risk Management

One of the key aspects of corporate governance is risk management. SMEs face the same set of risks that large enterprises do, including financial, operational, strategic, and compliance-related risk. The difference between them and the large enterprise is that they often lack the resources to develop effective strategies to mitigate them, meaning that the level of risk is actually greater for the SME. Effective risk management is crucial for SMEs, as they often operate with limited resources and are more vulnerable to external shocks. Advisory partners help in creating risk management frameworks that are tailored to the specific needs and circumstances of the SME, thereby enhancing their resilience.

Strategic Planning

Advisory partners work closely with SMEs to formulate strategic plans that incorporate governance considerations. This ensures that governance is not an afterthought but a key component of the company’s strategic direction. Strategic planning with a governance lens involves setting long-term goals, defining the company’s mission and values, and ensuring that these are reflected in the governance structures and practices. This alignment between strategy and governance helps in creating a cohesive and focused approach to business growth and development.

Access to Networks

Another governance value that cannot be overlooked is the access to networks. Access to such networks can provide SMEs with opportunities to collaborate with other businesses, access new markets, and secure the resources they need to grow. These networks can also provide the kind of structure that allows SMEs strengthen their board and advisory team, which is essential should the business be targeting growth.

Training and Development

Business advisory partners can provide training and development for board members and executives to ensure they have the skills and knowledge to lead effectively. SMEs are often reliant entirely by the strategic capabilities and knowledge of their leaders, so by investing in a partner that can help build those leaders up, the SME is, in a very meaningful manner, supporting the growth of the company.

With business failures in the SME space accelerating, and at least 11% of those SMEs blaming governance for it, it should be clear that governance is a strategic asset inherently linked to the health of the underlying business.

With the support the right corporate governance advisory services, SMEs can implement governance frameworks that drive efficiency, foster ethical business practices, and support sustainable growth. Good governance helps in building trust with stakeholders, which is essential for long-term success. If you’re running an SME and want to get on top of this challenge and opportunity, reach out to the InCorp Advisory team today – we have a long history with working with SMEs across all sectors and sizes.

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InCorp Content Team

InCorp’s content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide business owners across Australia and beyond.