Our regular business columnist Ian Garner asks if Coporate Governance is important for SMES.

We hear a lot about ESG (Environmental, Social, and Governance) these days and a lot of focus is on ‘E’ with an emphasis on carbon footprints, net zero and how respectful to our environment we are in our businesses.

The ‘S’ is also a priority as we seek to be diverse and inclusive with our management style, employment practices and our supply chain etc. Sometimes smaller businesses give less attention to the ‘G’ of ESG, ‘Governance.’

Increasingly, the standards for larger businesses are becoming norms that SMEs (small and medium enterprises) are expected to regard as good, or even standard, practice.

The UK government definition of SMEs encompasses micro (less than 10 employees and an annual turnover under £2 million), small (less than 50 employees and an annual turnover under £10 million) and medium-sized (less than 250 employees and an annual turnover under £50 million) businesses.

Corporate governance is the system by which companies are directed and controlled. The UK Corporate Governance Code was a response to a series of corporate scandals and failures during the 1980s which were caused by powerful individual directors not being challenged or restrained by their boards.

The UK Corporate Governance Code, while applied to the listed market, contains much of use for small companies. Its main principles; Leadership, Effectiveness, Accountability, Remuneration and Relations with shareholders all have lessons for an SME prepared to adapt them to their need.

SMEs are not obliged to take mind of any formal corporate governance arrangements, beyond the regulatory requirements of the Companies Act 2006. That said, companies of all forms stand to benefit from implementing corporate governance practises.

Good corporate governance increases the long-term value of a company and its potential for growth. It reduces risk and strengthens reputation.

Corporate governance is a core component of any value creation strategy. It provides a key set of tools that small and medium enterprises can use to support their competitive survival and growth. Entrepreneurs need to start governing their companies based on a certain set of principles, trusting that specific solutions and tools will evolve with the business as it grows.

If a small or medium sized business wants to grow it may need to raise capital. Banks, Government loans, debt finance and equity investors will want to see good governance demonstrated in a business before approving capital and some customers want to see evidence of good governance before entering contracts etc. Your business may be small but proving you are well governed is essential for growth and success.

The ACCA (The Association of Chartered Certified Accountants) says “The challenge for SMEs is that established corporate governance frameworks have been developed with large, listed companies primarily in mind. Such frameworks and codes may not reflect the characteristics of the SME, where owners may often be its managers as well, or where company ownership may be shared across family members.”

Not everything demanded of listed companies will be appropriate, but some of the practices and principles will help you prioritise what is important and relevant for SMEs and even start-ups.

The Financial Reporting Council (FRC) regulates auditors, accountants etc. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries.

It pays to be aware of the code and adapt and apply the guidance to your business, even if it’s only small. The code can be found online:


Former Bank of England Governor, Mervyn King said “Market forces will sort out those companies that do not have sound corporate governance.”