Corporate governance is compatible with entrepreneurship

Corporate governance is compatible with entrepreneurship

Originally designed for big companies, corporate governance seems to be just about them. It only applies to listed companies for protecting the rights of shareholders and stakeholders. That corporate governance is provided with a framework for monitoring management activity and that the goal is to encourage better results. But this concept also applies to small and medium-sized entrepreneurs. Even if in many cases management is done by company owners and shares are owned by family members, corporate governance is of great relevance.

In companies where the owners are also executives, the management and exercise of property rights are aligned, but their interest may not coincide with that of stakeholders. Where not all family members are involved in managing the business, activating mechanisms to protect their rights is necessary.

From this point of view, adapting corporate governance to the size and level of maturity of the entrepreneurial company is helpful. Because corporate governance determines the role of each family member in the business, it structures the need for development by reporting to future generations that will take over the business, defines the role, structure and composition of management, and determines the impact of seniors on the business and the need for a succession plan.

Benefits of adopting corporate governance for SMEs

The International Finance Corporation shows that the benefits of adopting corporate governance and adapting it to small and medium business are as follows:

  • Less conflict between family members or other stakeholders involved in the company’s management and those not involved
  • Greater protection against fraud, embezzlement, or financial costs generated by poor internal control
  • Easier access to credit and generating faster business growth

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