Governance is often misunderstood but seriously important

boardroom

To many small and medium business owners, the word “governance” sounds scary and Victorian. However, despite popular opinion, the value the governance process adds to even the smallest of enterprises is fundamentally misunderstood.

Business owners often go into their particular business because they are passionate about it. They may know anything from a little to a lot about actually running a business, the particular industry they are entering and the roles that will be required. Among this group of business owners, governance is not a word used frequently. Nor is a formal governance structure a consideration for these companies. Generally, this is because the term governance is misunderstood – if indeed the SMME owner is even aware that it exists.

Having some kind of governance structure in a company is critical to the growth and development of any successful business. And while it can be scary and frightening thought for some, there is a clear and rational argument for doing it. Try and find a company that has achieved long-term growth, profitability and success that does not have a board of directors.

The companies that we deem as being successful, such as South African Breweries, Discovery and Vodacom all have an effective governance structure. So why is it that SMMEs do not provide themselves with the same opportunity?

Herein lies the problem. Governance isn’t simply for multi-national, multi-billion or even multi-million dollar companies. It is a key driver, a key tool and a key component of any business – be it a business with one employee to a company of a reasonable size. The role of the board is critical in any business that wants to have serious growth and take their business to a whole new level.

Yet there can be an element of threat felt by South African business people, when they look at sanctioning a board to begin to govern their own business – their baby! They often believe that they will be controlled, overruled and outvoted when it comes to operating the company that they started!

Yes, to a degree, this threat is real. The business owners will have to reflect on their achievements and mistakes, and report on them. They are likely to have to make some changes, and will have to listen to the advice of their board.

The problem is that SMME business owners see governance, corporate governance, as a concept that applies to just that – corporates! To consider that this might be relevant, appropriate and possibly even beneficial to their own company is quickly outweighed by the thought of the bureaucracy and significant cost that they think the governance process brings with it.

However, the reality of implementing enterprise governance, as I like to call it, in SMMEs can be quite the opposite.

The relevance of governance to an SMME becomes particularly important when it starts to transform from a craft to an enterprise – from a business about and driven by the owner, to an enterprise of its own.

While there may be some ambiguity about what governance actually means in the SMME sector, the results from choosing to grow and develop your business by implementing a governance structure are clear — and beneficial. If entrepreneurs and SMME owners like to think they are at the front of the business game, maybe it is about time that they caught up on this fact.

Editor’s note:  This article first appeared on VentureBurn with the title “Governance: It’s Misunderstood but Seriously Important for Your Start-up.”  

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