This applies to small and medium-sized enterprises (SMEs) as well. Take, for example, a clothing business looking for capital to expand into other markets. The key for prospective investors is not the already proven product, but whether a company’s internal structures are healthy and robust. Their concerns may include how decisions are made, what checks and balances exist to account for oversight, and whether there is succession planning in place for key positions.

Regardless of a company’s size, good governance practices are vital to doing well, and SMEs stand to gain much from making good governance a core part of company DNA. While there is no one-size-fits-all approach, one thing is clear: the earlier you start, the better.

Identify what your company needs

SMEs exist on a spectrum. In Singapore, they are defined as enterprises with less than 200 employees and an annual sales turnover of less than $100 million . This definition covers everything from small family-run businesses to more established outfits.

Depending on a company’s stage of growth, governance practices that work well for one business may not have the same outcome for another. The IFC defines four key stages of an SME’s evolution: the start-up stage, the active growth stage, the organisational development stage and finally, the business expansion stage.

Leaders may have different priorities, depending on what growth-stage their business is at. For example, a start-up may be more focused on product development. Leadership is usually informal and personality-oriented, with key leaders fulfilling multiple roles. This means the company is agile in decision-making – but it also runs the risk of becoming reliant on the key figures.

In contrast, a company at the organisational development stage may have just come off an intense period of growth. The focus is now on optimising and professionalising the system, such as through establishing proper internal controls.

Leaders should keep in mind that stages are not discrete but continuous. A business may be in between stages, or even move backwards along the evolutionary path. Identifying what growth-stage the business is at can help leaders define challenges more effectively and come up with solutions.

Incorporate good governance practices

At all stages of an SME’s growth, building objectivity and accountability into decision-making is crucial. Not only does this reduce over-reliance on key personnel at early stages of the business, it also helps to spread the workload and create a more sustainable work culture.

A business at the start-up stage may choose to establish an informal board of two or three trusted people, who can help to provide perspective and set company direction. However, as the business grows and becomes more complex, there is a need for leaders to relinquish some control of everyday decisions.

According to a McKinsey & Company survey which polled more than 1,200 managers across the globe, time squandered on decision-making amounted to about 530,000 days of managers’ time a year in large corporations, equivalent to some US$250 million in annual wages. The upshot for SME leaders is this: train employees early to develop their managerial capabilities. Empowering them to make decisions can help to avoid a hefty opportunity cost later on.

Another good governance practice is to plan for succession. Naturally, entrepreneurs who built their companies from scratch may not be thinking about relinquishing control yet. However, having a plan in place for succession – both for business owners and key positions – helps to fortify a business’ resilience in case company leaders are suddenly absent. A solid succession plan also helps to build confidence in a company’s future and encourages top talent to stay by signalling that they have good prospects within the company.

Succession planning can vary depending on the founder’s intentions. If a founder plans to cash out by selling the company at a later stage, he or she may choose to bring in professional management. If a business is family-owned and intends on staying that way, a founder may look to develop the leadership capabilities of the next generation of leaders.

As companies plan for the future, they should also look back on the past. Conducting independent reviews of financial statements and internal risk management processes can help to keep a business accountable and transparent to external parties, such as investors.

In line with recommendations in the Singapore Code of Corporate Governance, boards should establish an independent audit committee to conduct reviews of a business’ finances and processes at least once a year. This goes beyond ensuring the integrity of a company’s financial statements – a survey by Financial Executives International in 2021 found that 77 per cent of respondents from public companies believed independent audits yielded important insights about the company, such as the quality of internal risk management controls and operational efficiency.