SBA Teaches the Fundamentals of Good Governance

The Small Business Association of Barbados recently hosted an online webinar on the fundamentals of good governance. This topic, which is generally of great importance to business owners, currently holds even greater significance as the small business sector battles the socio-economic effects of the COVID-19 pandemic.

While defining corporate governance as the system by which companies are directed and controlled, Executive Director of Intellectual Management Services Inc and presenter, Dr. Erica Smith, stated that poor governance threatened the sustainability of small and medium enterprises (SMEs). She emphasised that poor governance negatively affected the strategic direction, decision-making, branding and organisational credibility of a business.

Also describing corporate governance as a function of a business which promotes corporate fairness, transparency and accountability, Dr. Smith listed several principles and factors to consider for good governance, including:

  • - The rights of shareholders and key ownership functions
  • - The equitable treatment of shareholders
  • - The role of stakeholders and
  • - The responsibilities of the board

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Dr. Smith recognised that most small businesses were operated by a single person with help from family members in some instances and therefore corporate governance principles may not seem applicable. However, even though most small firms generally had no separation of ownership from management, no board of directors and are subject to less disclosure requirements than larger companies, Dr. Smith stated that there were plenty of key issues and challenges faced by SMEs, which could be solved through the implementation of an effective governance structure.

Some of the challenges outlined which plagued SMEs due to poor governance included:

  1. No clear succession and movement from the founder
  2. Lack of clear roles for family members
  3. Conflict of interests between family members and other owners or stakeholders
  4. Bad decision-making & oversight due to a lack of diversity in skillsets
  5. Failing to recruit qualified management
  6. Weak internal controls
  7. Hinderances to accessing external finance 
  8. Lack of dynamism.

Key questions posed by Dr. Smith which small business owners should ask themselves to ascertain how many of these challenges may be affecting their business include:

  • - How are decisions made and informed in the firm?
  • - How do persons determine what should be done with the business?
  • - Where does the relevant knowledge and skills reside in the organisation and is the knowledge extractable?
  • - How does one identify and manage business risks?
  • - Where/how do persons obtain information on the performance of the business, and
  • - How does one know how the business is performing at any particular time?

Dr. Smith also stated that good governance should be at the helm of any strategy implemented to combat these challenges and issues, in order to ensure the growth and development of any small firm. Such a strategy would include the following:

  • - The use of external independent persons as non-executive directors or competency-based advisors to inform decision-making
  • -The creation of an independent board of directors, distinct from management to create policies and frameworks for the company
  • - The implementation of systems to monitor performance
  • - The implementation of policies and systems to reduce reliance on one person or persons
  • - The creation of a system to manage family-stakeholder conflicts, and 
  • - A continuous review and restructuring of the organisation as it grows.