Essential Corporate Governance for SME Owners Approaching an Exit

Corporate governance is essential in larger (corporate) businesses. For SMEs, the principles of corporate governance can be seen as “overkill” or inappropriate where the managers of a business are the same people as the directors.

However, as the shareholders approach an exit, good corporate governance practices are essential to facilitate a management takeover of the day to day running of a business and can be one of the differentiating factors between a premium valuation and a below average valuation.

Your corporate governance framework should include:

  • Clear reporting lines and clarity about how decisions are made, risks controlled and matters raised to the board’s attention.
  • Roles and responsibilities of the management team, the limits of authority they have with respect to the degree of risks they can take to execute the shareholders strategy
  • How incentive structures for staff are aligned with shareholder strategy.
  • How shareholders will communicate strategic goals, standards of behaviour, culture, etc., to management and staff.
  • Methods and channels for internal controls should be related to important identified risks.
  • How shareholders will maintain visibility of management actions, decision making, business performance and risk management.
  • How shareholders (the board) will operate, including shareholder agreements and shareholders rights.

There are a number of additional benefits to instituting good governance practices, on top of increased valuation. These include:

  • reduced risk of conflict between shareholders
  • reduced conflict between shareholders and management
  • increased access to finance
  • enhanced growth and reduced failure rates
  • reduced fraud and theft

Inevitably there are barriers to implementing corporate governance structures into business (otherwise every business would already have them in place). One is the cost, another is the perceived increase in bureaucracy. However, there are clear benefits when a business achieves a certain scale and owner-operators want to become owners or when approaching an exit.

Corporate governance is not a one-size-fits-all solution. Talk to our experts about what a corporate governance framework would look like that is fit for purpose in your particular case.


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