News & Press: IoDSA in the Press

IoDSA commits to helping SMEs use governance to grow

Wednesday, 13 February 2019   (6 Comments)
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President Ramaphosa’s State of the Nation speech for 2019 highlighted the key role that small businesses play in stimulating economic activity, and their impact on broad-based empowerment. A key element to building sustainable small and medium businesses (SMEs) is to ensure their governance structures and processes grow alongside their financials, says Parmi Natesan, CEO Elect of the Institute of Directors in Southern Africa (IoDSA).

“SMEs are drivers in an economy that is both inclusive and growing, but only if they can sustain their growth and provide stable livelihoods for more and more people. We thus need to pay equal attention to the post-incubation phase,” she argues. “Flexible and effective governance structures have a key role to play in the growth of an entrepreneurial start-up into a corporation.”

Recent research by the Small Business Project[1] shows that while SMEs make up 98.5 percent of the South African economy, they only provide 28 percent of jobs. One reason is that 3.3 million of the approximately 5.6 million SMEs are classified as “survivalist”. Such businesses often only employ the owner and seldom show growth.

By contrast, the research shows, in OECD countries, over 95 percent of enterprises are SMEs which provide up to 70 percent of all jobs and up to 60 percent of the gross domestic product.

“Good corporate governance can help an SME by making its leadership structures more effective and thus better able to support its strategic objectives,” she says.

Aside from the development of a more effective leadership structure, SMEs can derive other significant benefits from good corporate governance. These include:

  • Added credibility and enhanced reputation.
  • Access to capital and loans on better terms.
  • The ability to attract talent for employment.
  • Improved access to customers and market participants.
  • Better positioning to capture business opportunities.
  • Better fraud prevention due to improved controls.
  • Business continuity arrangements that permit the SME to operate under conditions of volatility, and to withstand and recover from acute shocks.
  • Leadership continuity through succession planning.
  • Better management of the risk of conflict in family businesses.

King IV has been intentionally structured to make these benefits more accessible to SMEs. It does so by not focusing prescriptively on what should be done or what roles or committees are called, but on what the desired outcomes are. Crucially, it introduces the key concept of proportionality, in terms of which organisations can scale the practices they adopt in accordance with their turnover and workforce size, their resources, and the extent and complexity of their activities. King IV also includes a supplement to provide SMEs with specific but flexible guidance for how to adapt the Code to their needs.   King IV thus recognises that governance delivers very desirable outcomes, but that each organisation is unique and must be able to adapt its practices to achieve the principles set out in the Code.

“In the spirit of Thuma Mina (Send Me), the IoDSA is soon making an e-learning module on governance for SMEs available to them free,” concludes Natesan.  “By making e-learning on corporate governance available free for SMEs, the IoDSA recognises the financial pressures that they face. We hope this initiative will play a part to help this vital sector of the economy reach its potential, to everybody’s benefit.”    

[1] “The alarming truth about the number of small businesses in South Africa”, Business Tech (25 July 2018), available at https://businesstech.co.za/news/business/260797/the-alarming-truth-about-the-number-of-small-businesses-in-south-africa/

Comments...

Yvonne Iyer says...
Posted Monday, 01 April 2019
Thank you IoDSA for this well-written article. We fully support your commitment by offering a solution from Germany on "how to help SME's utilize governance to grow". Senior Experten Services (SES), is a German government program which provides voluntary services of professionals and technical experts. We have approximately 13 000 experts from 50 different sectors of the economy with over 500 different professions. SES offers a mentorship/coaching approach to SME companies for a minimum of 3 weeks to a maximum of 6 months. This program ticks all the boxes for the benefits that SME's will derive from applying good governance to organizations. The SES program has already made tremendous progress in the province of KZN. If you are willing to accept this offer, please let me know and I will get the ball rolling for IoDSA.
Clive Roberts says...
Posted Tuesday, 12 March 2019
Hi What is the link?
Christelle Marais (Faul) Ms says...
Posted Saturday, 02 March 2019
In addition to Vinod's suggestion on incorporating the likes of SEFA, SEDA, etc., other professional bodies are also trying to support SMEs. However, SMEs often need guidance on how to scale all these various governance initiatives appropriately and proportionally. Perhaps professional bodies such as IoDSA, IRMSA, CISA, TEI, IIA and IISA should collaborate to bring online resources to SMEs in the way the IoDSA has taken the lead here, but in a more structured (perhaps modular) approach. This could have an enormous positive impact, e.g. if SMEs are aware of the impact of good risk management, risk-based compliance and insurance on their cost of funding, insurability and sustainability, they could free up resources to employ and grow, thus increasing their positive impact on the economy.
Vinod Kalicharran says...
Posted Wednesday, 27 February 2019
Good day Parmi Great idea. To obtain a wider reach of SME's for the e-learning , incorporate government SME support structures SEDA and SEFA as well as all the other financial support instituitions. Regards vinod kalicharran
Parmi Natesan (Chetty) says...
Posted Monday, 25 February 2019
Thank you Peter, we will look into this.
Peter M. Kreft says...
Posted Monday, 25 February 2019
What a brilliant idea to support SME's. This needs a bit of a rethink though. SME's have totally different constraints to larger companies. Following the magnificant lead of Germany, to make it affordable requires regular workshops, newsletters and mentoring. Is e-learning really going to do it? Will it really start with the needs of these companies that can really vary in size ability and experience. Is King IV really able to be adapted to be meaningful? Excellent that something like this is being started. If you have ever managed in Germany or in Europe, for that matter, you can see what the 'Mittelstand' is able to do for the Economy