By Ikenna M. Okafor
(SmeDoctor)
The absence of the practice of corporate governance in Micro Small Medium Enterprises (MSMEs) and Small and Medium Enterprises (SMEs) constitutes part of the non-financial reasons businesses in this category close their doors within the first twelve months of their existence.
From my years of consulting for MSMEs and also carrying out research on SMEs, my discoveries have been that most companies that fall under these categories have a strong absence of corporate governance.
The issues around the practice of corporate governance are the fear of uncertainties, losing total control of the business, and not being able to make the only and final submission as it concerns the business.
Unfortunately, most people don’t look beyond the immediate activities surrounding their business. They are focused only on increasing cost and reducing revenue without paying keen attention to factors that may be leading to that.
They seem also not to pay attention to little details affecting the survival of the business in the next five years. Fortunately, corporate governance is meant to address all these uncertainties and ensure business continuity. Corporate governance takes away the burden of thinking alone about the fate of the business, it ensures the survival and continuity of the business if properly managed.
Corporate Governance is a systematic control adopted in an organization to share responsibilities, roles, and job functions. Corporate Governance ensures the existence of not just spelled-out job responsibilities, but helps identify and mitigate certain management risk, optimizes performances, and create a strong work culture.
From my years of consultation for Small and Medium Enterprises, I can safely say that companies that adopt good corporate governance in running their affairs perform better than those that run their affairs without adopting corporate governance.
Some of the major concerns of corporate governance
Establishing a vision and mission for the organization; Developing a corporate strategy to be followed; Creating policies and procedures that guide the conduct of the actors in the system; Creating transparency and accountability; Makes visible organizational hierarchy; Develops internal control and cost control mechanisms; and Establishes strong monitoring and evaluation frameworks.
With the establishment of the right vision, a propelling mission, and a workable strategy to achieve it, a company already has a head start and likely going to be among the leading players in its industry or any chosen market. The Vision, Mission, and Strategies are usually created by the Board of Directors or the founding fathers of the organization. It is usually the foundation on which the other subsequent growth and development of the organization are built upon.
How can Corporate Governance be applied in Organizations?
First, it can be applied to establishing a robust Organizational Structure (An Organogram). A well-written and structured organizational hierarchy gives employees more clarity on the operations of any organization, it helps manages the expectations of all parties, provides consistency, and shows a clear chart of assigned responsibilities. For a small business, it’s so important is it could tell the future of the organization and ensures continuity.
Secondly, the importance of corporate grievance is also important in reducing costs and bringing about internal control. Internal Control brings about checks and balances in business operations. It ensures that no one person starts and ends a process. This is one of the healthiest ways of doing business recommended for small businesses since many of them are not computerized. A typical example of this is when an office purchase is to be made, the Administrative Department would raise it to the Purchasing or Procurement Department.
The Procurement cost it and sends the document to the Audit Department to be sure the quality and prices are in line with the standards of the organization. The Audit Department sends it to the General Manager or Managing Director for approval if it’s up to standards for his/her approval.
Upon approval, it goes to the Account Department for the disbursement of funds. The Account Department releases funds to the Purchase Department and after the purchase; the Audit Department must check again to be sure that it was what was approved that was purchased. With these chains of checks, standards are maintained, quality is checked and the cost is also reduced.
In the application of Corporate Governance, we look out for the existence and application of policies and procedures. In most organizations, we call Standard Operating Procedures (SOPs).
Policies are established rules and regulations of what is and what isn’t obtainable in an organization. While Procedures are how tasks and activities should be done in an organization. It is mainly difficult to separate policies from procedures as both work hand in hand with each other. So that, we could have a “Policy of Staff Attendance” or “Policy on Bulk Purchase of Office Consumables”. Then we would also have a procedure on “Procedure for Staff Attendance Management” or “Standard Operating Procedure on How to Make Bulk Purchase”. With such in existence, the organization would be built on systems rather than on people.
In all, one of the differentiating factors between successful organizations and others has been the presence of corporate governance and the level of application. It doesn’t matter the size of your organization, it is important we begin from the earliest times of the existence of our organization to adopt various forms of corporate governance at our disposal. It’s not enough to have a Mission and Vision Statement alone we should also have strategies on how we wish to achieve these written statements. Corporate Governance must be applied in your marketing strategy, human resources department, finance and accounting policies, risk management, general operations, and in the general management and leadership of the organization.
KEYWORDS
#corporategovernance #organogram #policies #procedures #SOPs #organization #professional #performance #management
Ikenna M. Okafor, (SmeDoctor) is a Human Resource Manager @ Ammasco International Limited Management Consultant @ Integrate Institute of Professional Management
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