By Ikenna M. Okafor, (OgaHR)
Through my experience consulting for Micro, Small, and Medium Enterprises (MSMEs) and researching Small and Medium Enterprises (SMEs), I have found that many companies in these categories lack proper corporate governance. More so, I have also discovered that the absence of the practice of corporate governance by MSMEs constitutes part of the non-financial reasons these businesses seize to exit within the first twelve months of their existence. The concerns by most business owners around the practice of corporate governance are the fear of uncertainties, the fear of losing total control of the business, and the fear of being unable to make the only and final submission as it concerns the business.
Unfortunately, most people don’t look beyond the immediate activities surrounding their business to plan for the future. They are focused on only increasing revenue and reducing costs without paying keen attention to systems, and processes or institutionalizing their businesses. They also seem not to pay attention to little details affecting the business’s survival nor have long-term plans for the business. Fortunately, corporate governance is meant to address all these uncertainties and ensure business continuity. Corporate governance takes away the burden of thinking alone about the fate of the business.
Corporate Governance is a systematic control adopted in an organization to share responsibilities, roles, and job functions. Corporate Governance ensures the existence of not just spelled-out job responsibilities but also helps identify and mitigate certain management risks, optimizes performances, and creates a strong work culture. This explains why organizations with corporate governance in place, outperform those without corporate governance structure.
Some of the major concerns of corporate governance are:
- Establishing a vision and mission for the organization;
- Develop a corporate strategy to be followed;
- Creating policies and procedures that guide the conduct of the actors in the system;
- Creates transparency and accountability;
- Makes visible organizational hierarchy;
- Develop internal control and cost control mechanisms; and
- Establish strong monitoring and evaluation frameworks.
With the establishment of the right vision, a propelling mission, and a workable strategy to achieve it, a company already has a head start and, would likely be among the leading players in its industry or any chosen market. The Vision, Mission, and Strategies are usually created by the Board of Directors or the founding fathers of the organization. It often serves as the cornerstone for the organization’s future growth and development.
How can Corporate Governance be applied in Organizations?
First, it can be applied to establishing a robust Organizational Structure (An Organogram). A well-written and structured organizational hierarchy gives employees more clarity on the operations of any organization. It helps manage the expectations of all parties, provides consistency, and shows a clear chart of assigned responsibilities. For small businesses, it is crucial as it can make or break the survival of the organization and ensure its ongoing success.
Secondly, the importance of corporate grievance is seen in reducing costs and bringing about internal control. Internal Control brings about checks and balances in business operations. It ensures that no one person starts and ends the same process alone. This is one of the healthiest ways of doing business that is recommended for small businesses since many of them are not computerized. A typical example is when an office purchase is to be made, the Administrative Department would raise the request for the Purchasing or Procurement Department.
The Procurement costs it and sends the document to the Audit Department to be sure the quality and prices are in line with the standards of the organization. The Audit Department sends it to the General Manager or Managing Director for his/her approval. Upon approval, it goes to the Account Department for disbursement of funds. The Account Department releases funds to the Purchase Department and after the purchase; the Audit Department must check again to be sure that it was what was approved that was purchased. With these chains of checks, standards are maintained, quality is checked and cost is also reduced.
In all, one of the differentiating factors between successful organizations and others has been the presence of corporate governance and the level of application. It doesn’t matter the size of your organization, we must start implementing various forms of corporate governance from the earliest days of our organization’s existence. It’s not enough to have a Mission and Vision Statement alone but we should also have strategies on how we wish to achieve these written statements. Corporate Governance must be applied in your marketing strategy, human resources department, finance and accounting policies, risk management, general operations, and in the general management and leadership of the organization.
KEY WORDS
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