Enterprise
SMEs also need corporate governance
Najihah S 
Aiolfi says good anti-corruption policies will help to improve SMEs’ reputation and corporate image
advertisement[x]
THE perception that corporate governance is only for public listed companies is a thing of the past.

Other than them, small and medium enterprises (SMEs) also need good corporate governance practices to grow their businesses and attract talent.

The Basel Institute Switzerland’s head of compliance Gemma Aiolfi says good anti-corruption policies will help to improve SMEs’ reputation and corporate image.

This, in turn, is advantageous as SMEs can potentially attract the attention of global and multi-national companies.

Moreover, those with good corporate governance policies can attract better talent and retain them.

Unfortunately, lack of awareness and training is part of the reason for SMEs to lag
behind public listed companies in terms of good corporate governance practices.

Aiolfi says SMEs are still worried that improving corporate governance and providing training to its employees will incur additional cost and reduce profitability.

“There is still a misconception that [corporate governance] compliance is costly.

“To conduct due diligence as part of compliance can also be seen as cost [outlay] for companies. So they are not keen,” she says, emphasising that SMEs need to be trained more on good corporate governance practices.

SMEs are not just key players in the economy but a major employer. Hence, it is very important that good governance practices are included within their corporate framework to further spur business growth. However, not many SMEs seem to be keen on training.


Resistance

There are a number of other reasons SMEs lag behind when it comes to corporate governance compliance and anti-corruption structures.

One is perhaps the lack of awareness while another is the rising cost of such training and compliance.

A key concern for any company is productivity. However, corporate governance practices can improve productivity and result in better profits.

Issues such as corporate governance and compliance need to be addressed as it deals with a company’s management structure, negotiation techniques and succession planning.

Nestor Advisors UK’s economist and director David Risser tells FocusM that SMEs should seriously invest in corporate governance training to equip themselves.

SMEs should realise that the cost of failing is worse than spending on corporate governance training, says Risser

“Compliance training is not seen as a revenue generating activity. But SMEs should realise that the cost of failing is far worse than spending on the [corporate governance training] module.

“It’s similar to the analogy of having breaks in a car. It does not slow down your progress, but it is a precautionary measure to ensure damage control,” Risser says.

To help SMEs equip themselves with good corporate governance practices, the Malaysian Institute of Management (MIM) has partnered with Basel Institute and Nestor Advisors.

The partnership will result in a roll out of comprehensive corporate governance training. This includes internationally recognised compliance modules.


Succession planning

Succession planning, transparency and anti-corruption are part of MIM’s three-day training session, conducted by experienced professionals.

MIM works with SME Corporation Malaysia (SME Corp), to develop a framework for the country based on white papers prepared by the Organisation for Economic Co-operation and Development (OECD).

The programme issues certification on compliance, governance and anti-corruption.

Risser says succession planning is important for companies as it not only assures a smooth transition in the event of an ownership or leadership change but also gives confidence to potential investors in a merger or acquisition exercise.

“We address issues of transparency, succession and selecting the board of directors.

“Transparency within the organisation should start from the beginning – the moment they commence operations,” says Risser.

Another area of concern is anti-corruption, which is also part of the training programme.

Aiolfi says good communication is important to curb corruption.

“SMEs seem to miss communicating things internally prior to changing their standard of operations,” says Aiofli, when touching on the common mistakes made by companies that implement anti-corruption practices.

Way to achieve sustainable business growth

Implementing corporate governance and anti-corruption practices take time. To gain the long-term benefits, companies need to create a good internal and external communications platform.

The former head of Regulatory Compliance and Stewardship for Global Banking and Capital Financing, Chong Sek Lee, says companies can start by taking small steps towards compliance.

“Companies need to implement relatively small steps and initiatives, and improvise on the corporate governance platform,” he says.

The initiatives need to be consistent with the goal of having good corporate governance. Companies will then experience strong sustainable business growth.

Lee, who attended MIM’s training programme in Kuala Lumpur says: “There is no one size that fits all. 

“Good corporate governance and effective anti-corruption practices and procedures depend on the nature and complexity of the business and the size of the SME concerned,” he says.

To start implementing good corporate governance and anti-corruption practices, SMEs first need to compare their processes against regulatory compliance requirements.

A comprehensive risk assessment also needs to be carried out and must cover all the SMEs’ activities, such as their different types of businesses and products, processes, operations, finance and human resources.

They must also identify relevant laws, regulations and guidelines applicable to business activities (including extraterritorial legislations if an SME trades with foreign companies), identify key risk areas and rate each of them accordingly.

The company then needs to come to a realistic risk rating for each area and activity.

Based on the risk ratings results, an appropriate review and monitoring programme can be prioritised. High-risk areas can be reviewed and monitored closely.

The comprehensive risk assessment helps alert companies to emerging and high-risk areas.

This can then be addressed with appropriate manpower and expertise, and costs allocated accordingly.

Chong advises SMEs that are keen to implement anti-corruption compliance to assess the structure periodically to improve efficiency.

“After the comprehensive risk assessment is implemented, it should be reviewed periodically depending on the nature and complexity of the businesses and products/processes,” he says.

This, Chong says, can be done quarterly or half yearly and by certain trigger events such as the introduction of new legislation or when embarking on a new business for the company. 


This article first appeared in Focus Malaysia Issue 248.