Corporate governance refers to how businesses are governed. It refers to the powers and actions of the bodies responsible for the existence and progress of the business. Investopedia defines it as “the system of rules, practices, and processes by which a firm is directed and controlled.”
With this definition, it makes sense to expect that any business should need some level of governance. But before you apply corporate governance to your business, you need to answer these pertinent questions:
Are you an SME? Do you want to grow your business healthily and profitably?
A broad definition of an SME (Small and Medium-sized Enterprise) is an independent business that employs fewer than a given number of people. The number varies from country to country. For Nigeria, the limit is 300 employees, the European Union sets the limit at 250, and the United States’ limit is fewer than 500 employees.
Another defining factor of an SME is the financial assets and their annual turnover. The governing laws of the country where the business will determine their status.
If you fall within the description of an SME in your region, there are many benefits to gain from understanding how corporate governance applies to your business.
Benefits of Corporate Governance
Here are some benefits an SME can gain by implementing a strong corporate governance structure.
It helps build a better decision-making framework for the business.
It reduces business risks.
Cash flow gets a boost as customers trust your brand more.
It improves the reputation of your business.
It improves compliance with local laws.
Reliable and effective internal reporting systems can be established.
It helps the business retain good employees.
It helps your business to be agile, adaptive, resilient, and stable.
Corporate governance limits conflict of interest and disruptive behaviour.
If you would like to grow your business healthily and profitably, or you would like your business to stand the test of time, then you need a solid corporate governance structure. Have you considered or tried applying corporate governance strategies to your business? Let me know in the comments section what benefits you have derived and what challenges you have encountered (if any).
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