In 2019, Naisula and her partner, Sam, co-founded a small fashion business in Nairobi. Their goal was simple: produce quality, African-inspired clothing for local and international markets. With a surge in demand and a passion for creativity, the business quickly grew from a two-person operation into a bustling enterprise. However, success came with challenges. Decision-making became overwhelming as responsibilities expanded, and without a clear governance structure, the lines between personal interests and business needs blurred. What started as a dream risked turning into a cautionary tale. But Naisula had foresight—she sought advice on corporate governance. By forming an advisory board, the business gained structure, clearer decision-making processes, and long-term vision, allowing them to navigate complexities more effectively.
Governance structures, often misunderstood as a luxury for larger corporations, are fundamental for SMEs. As businesses grow, making strategic and informed decisions becomes critical. The virtual series “Corporate Governance for SMEs,” hosted by the SME Founders Association, explores how governance can shape the future of small and medium enterprises (SMEs). The 17th October session, themed “Governance Structures and their Impact on Decision-Making in SMEs”, will highlight the pivotal role that governance plays in business sustainability and growth.
At the heart of good governance is a well-composed board. Whether it’s a formal governance board or an advisory one, having the right mix of skills, experience, and perspectives ensures that the business can effectively strategize and solve problems. For SMEs, board composition can be a game-changer. By integrating external advisors with expertise in various fields—finance, legal, marketing, or industry-specific knowledge—SMEs benefit from diverse viewpoints that challenge the status quo and drive innovation. This not only aids in decision-making but also nurtures accountability, as board members act as checks and balances to ensure that actions align with the business’s long-term objectives.
Many SMEs hesitate to set up governance boards due to fears of losing control, especially if they are family-owned businesses. However, an advisory board, as a less formal alternative, offers flexibility while bringing external expertise into the fold. These boards act as sounding boards for strategic decisions without having formal voting rights. On the other hand, governance boards come with fiduciary responsibilities and authority, making them more suitable for businesses at a later growth stage. The choice depends on the business’s maturity, size, and complexity. Understanding these structures allows SMEs to choose what best fits their immediate and long-term needs.
A key challenge for SMEs is ensuring decisions are made with clear, structured processes. Without a governance framework, decision-making can be reactive, leading to poor financial management, misalignment with strategic goals, or even conflicts among stakeholders. Implementing governance mechanisms clarifies roles, responsibilities, and processes, making decision-making more strategic, inclusive, and less emotionally driven. For example, when a major capital expenditure decision arises, a governance structure ensures thorough risk assessment, scenario analysis, and consensus-building, rather than relying solely on instinct.
Good governance supports SMEs in long-term strategic planning. Instead of focusing solely on day-to-day operations, governance boards help leaders step back, assess the broader landscape, and develop roadmaps that ensure business continuity, adaptability, and resilience. In uncertain economic climates, governance structures play a critical role in scenario planning, risk mitigation, and ensuring the business is prepared for the unexpected.
The presence or absence of governance structures significantly impacts how SMEs are managed. Businesses with clear governance frameworks are more likely to thrive, attract investment, and scale effectively, while those without it may struggle with internal conflicts, stagnation, or even collapse. Effective governance promotes transparency, accountability, and strategic foresight, all essential elements in building resilient SMEs.
As Naisula’s story demonstrates, governance structures add value and transform businesses by nurturing informed decision-making, accountability, and strategic growth. SMEs that invest in governance today lay the foundation for sustainable success tomorrow.
To learn more, join our facilitator Ondaba & Partners Advocates LLP live this Thursday, 17th October 2024 at 10 am EAT
