ESG or Environmental, Social and Governance frameworks are becoming increasingly popular as a way for businesses to steer their strategies to ensure they have a positive impact on the world. While more prominent corporate businesses first adopted ESG frameworks to exemplify their better contributions towards global issues such as diversity and inclusion, carbon emissions and global warming and fraud and data protection, more recently, smaller companies have also begun to follow suit to benchmark themselves as they start to grow.
One area of ESG that has gained traction is the governance section of the framework; this is likely due to it offering structure and guidance to the overall operations of a business that helps with the direction of the board and decision-making. These elements in small businesses are crucial to successfully developing and growing a business.
This article will cover how small companies can adopt and benefit from good governance.
Why bother with good governance as an SME?
As an SME, you most likely have many plates to spin, which may leave you questioning, “why should I bother adding good governance to the list as well?”. And we understand your point of view and why you may think this way.
In fact, out of all the registered companies on Companies House in the UK, only 1% are listed on the public equity markets. Whilst an SME must act within the law as set out in the Companies Act 2006, 99% aren’t required to maintain the strict governance processes anything like to the same level as those listed businesses.
So why do you need to govern your company like a listed business?
Because good governance separates your company from the rest. As you begin to scale your operations and aim to achieve higher goals, following a structured governance plan will help you make advised decisions and ensure that you’re not tripping yourself up along the way. Running a business can be an incredibly stressful experience, especially during this growth phase; a good governance framework provides you with a guide and assures that you are not making choices that may have a detrimental effect on the business later down the line.
How can small companies adopt good governance?
All business operations are unique; implementing a governance framework is a specific task that must be adapted to account for your individual, operational processes and be something which you can manage. The point of having an ESG strategy in place is to also record your progress and accountability on the areas and issues you said you would work on. When looking at the governance aspect of ESG, this would include considering your hiring process, diversity amongst board members, how money is handled within the business, how you aim to combat fraud, theft as well as stakeholder compensation amongst others.
Once you have decided on the areas of governance you wish to address, you must then put a plan in place to execute them and record your impact. The most crucial part of implementing any governance strategy is following through with your goals; this is where most businesses fall on their accountability. So be sure to review and record your progress. This is important when you want to evidence your work for investors and insurers.
The benefits of good governance for small companies
Thankfully, operating with a good governance framework has many benefits for your business, so it makes logical sense to implement one as soon as possible. Below, we’ve listed some of the benefits that you may experience due to following a good governance strategy:
- Improved company culture – responsibly managing your business and being transparent in your operations is known to significantly improve company culture making employees feel more trusting and engaged in its future.
- Reduced costs – clear and well-executed decision-making ensures less employee turnover and a better outcome in almost all commercial decisions.
- Better insurance options – being able to evidence that your business is operating against a good governance framework is highly positive in the eyes of potential insurers. It may well mean that certain insurers quote for your business when they otherwise may have not been interested whilst others may provide more competitive pricing.
Whether you’re a large or a small business, operating against a good governance framework is a logical approach. Contact us to learn how you can better understand your company’s sustainability profile and what you can do to improve it.
