Governing SME Businesses for Sustainable Growth
Good Governance is Good for Businesses
The extensive body of research shows that well governed companies demonstrate substantially better long-term financial results. They grow faster and more sustainably. Conversely, poor governance practices have consistently shown to be one of the drivers of poor business performance, fraud and catastrophic failures.
IFC provides governance training and advisory services for business founders and owners of Small and Medium Enterprises (SMEs) with high growth potential. The governance training and advisory services are based on IFC’s SME Governance Methodology - the first and the only tool of its kind on the market.
When should SMEs Think about Governance
Governance is a long journey, and the sooner SMEs start adopting good practices, the more benefits they can reap. In practical terms, governance provides a key set of tools for SMEs to support their competitive survival and growth. The entrepreneurs need to start governing their company based on a certain set of principles; the exact solutions and tools will evolve along with the business as it grows. For example, even simple but properly structured internal controls help in fraud prevention and allow for more accurate financial reporting and planning.
SMEs interested to attract investors also can use better governance as a core value proposition. Various providers of risk capital for SMEs, such as Private Equity and Venture Funds, understand that good governance means better security and return on investment. “CG is a core component of our value creation strategy. We generally target early-stage SMEs, with the goal of increasing the revenue five-fold in two years. About 20 to 30% of that value creation is from improved corporate governance.” Ennis Rimawi, Catalest Private Equity.
What is the IFC Approach
Traditionally, SMEs have been given guidance based on “simplified” versions of corporate governance practices recommended for larger companies. That is rarely practical, as SMEs have unique needs and limitations. Instead, IFC analyzed stages of SME growth from startup to maturity, identified various opportunities and challenges associated with each stage, and then developed governance guidance to address them.
The SME Governance Tools and training materials do not push the entrepreneurs toward common “best practices” but instead teach them to identify governance gaps and practical solutions that are beneficial for their specific company to promote sustainable growth of business.
Key Message and Themes
- The SME Governance training has a modular course design that allows for flexible delivery, customized to different audiences. The training length varies from 1 to 2 days. The key topics include:
- Evolution of strategic decision-making and management practices
- Practices to attract, motivate, and empower staff of high caliber
- Succession planning to minimize “key-persons” risk
- Internal Controls to manage business risks
- External advisors and Advisory Board
- Setting up an effective Board of Directors
- Governance of family businesses
In all cases, the training includes interactive real-life case study to practice new knowledge and skills.
By the end of the course, participants will engage in individual action planning using Governance Diagnostic Tool for Small and Medium Enterprises. All participants will leave the training with a set of high priority actions that are practical, realistic, and quick to generate positive impact.
The training can be followed on demand by in-depth governance advisory services, helping companies plan and implement priority changes.
Select Project Examples
IFC Corporate Governance Project in Middle East and North Africa has trained more than 300 SMEs on good governance practices. More than 500 owners generated action plans through the diagnostic tool. The team has also assisted several countries in developing SME specific governance codes.
IFC Corporate Governance Project in Latin America and the Caribbean rolled out the SME Program in Colombia on a fully commercial basis, with IFC partner institution generating a healthy profit.
IFC Corporate Governance Project in South Asia provided training to 3 private equity funds and their portfolio companies. The team also delivered extensive advisory services to SOLARIC, a Bangladesh SME delivering solar power solutions. IFC support focused largely on improving decision-making process and internal control environment. This work helped the company access private equity capital from a fund based in Singapore.