Good corporate governance benefits SMEs


Small and medium enterprises (SMEs) view corporate governance with scepticism and consider it to be only relevant to large companies, said economist David Risser.

Risser, a director and partner of corporate governance consultants Nestor Advisors, said SMEs around the globe are not aware of the huge benefits the implementation of strong corporate governance systems can give companies.

“I still think the value of corporate governance is seen only when SMEs have to deal with changes,” Risser told The Malaysian Reserve (TMR) in a recent interview,

He added that SMEs would be left with no option but to inculcate good governance habits, especially when they need to raise money; decide on succession plans; sell the company or in the face of conflicts.

“Development institutions have found that two-thirds of SMEs non-performing portfolios are due to weak governance.

“In most cases, governance is seen as additional cost and SMEs find it difficult to open their doors and minds to outside opinions, as they have to be transparent,” he said.

Good governance is not primarily concerned with compliance of formal rules and regulations, rather it is about establishing a framework of company processes and attitudes that add value to the business, help build its reputation and ensure its long-term continuity and success, Risser said.

“Corporate governance is particularly important to the shareholders of unlisted companies. In most cases, such shareholders have limited ability to sell their ownership stakes and are therefore committed to staying with the company for the medium to long term,” he said.

This increased their reliance on good governance, he added.

In terms of essential principles of corporate governance for SMEs, Risser said the first step is to be able to distinguish the different types of SMEs.

“You have SMEs that are fast- growing, SMEs that are in their early stages, SMEs that are more established, and those that are more family based.

“Family companies should establish family governance mechanisms which promote coordination among family members, and organise the relationship between the family and the business,” he said.

In terms of fast-growing SMEs, Risser said the task was to understand the right way to attract and retain people and develop a good board of directors.

The key challenge is to set up the right control.

He said SMEs required a clear division of responsibilities between the running of the board and the running of the company’s business.

“Levels of remuneration should be appropriate to attract, retain and motivate executives and non-executives of the quality required to run the company successfully.

“You need at least one champion in the company who believes corporate governance should be implemented for without that you can’t really succeed,” he said.

“Organisations can apply the prepared framework but it will work only with someone who’s willing to support it internally,” he added.

Risser is attending a conference in Kuala Lumpur today entitled, “Stepping up corporate governance, compliance and anti-corruption practices” organised by the Malaysian Institute of Management (MIM) along with Basel Institute on Governance (BIoG), Switzerland.

Besides Risser, BIoG head of compliance and corporate governance and collective action Gemma Aiolfi will also be speaking on anti-corruption practices, the issues and challenges faced by both SMEs and non-SMEs.

“There is huge interest in anti-corruption practices not only in large companies, but also for mid-sized companies, so this conference is an initiative to showcase standards of behaviour that must be exemplified for anti corruption compliance,” Aiolfi told TMR yesterday.

On the difference between SMEs and large corporations when it came to anti-corruption management, Aiolfi said SMEs are exposed to bigger risks in terms of losing contracts.

Aiolfi said BIoG is partnering with MIM to help deliver the objective of promoting good governance, compliance and anti-corruption in support of the government’s initiatives.

“I think the combination of MIM and BIoG brings an international perspective and at the same time caters for local rules and regulation,” she added.

According to MIM, BIoG will be offering certificate and diploma programmes in Malaysia in collaboration with K-Pintar Sdn Bhd and its programme partner MIM.

The programmes include Certificate in Corporate Governance, Certificate in Compliance and Certificate in Anti-Corruption Compliance.

Upon completion of all the certificates, which are expected to be rolled out in the fourth-quarter of 2017, participants can obtain a Diploma in Corporate Governance and Compliance by completing an additional final assessment.

Seven local experts with industry background and work experience in the areas of governance and compliance are now attending a five-day programme delivered by Aiolfi and Risser,” MIM CEO Sivanganam Rajaretnan told TMR.

He said this is the first step in corporate governance education that MIM is helming.