Corporate Governance of Small and Medium Enterprises

Introduction

Corporate governance is a core component of our value creation strategy. It provides a key set of tools that small and medium enterprises (SMEs) 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.

The Business Case

The extensive body of research shows that well-governed companies demonstrate substantially better long-term financial results and grow faster and more sustainably. SMEs interested in attracting investors can use better governance as a core value proposition. Various providers of risk capital for SMEs, such as private equity and venture funds, understand that good governance means more security and better return on investment.

IFC’s Response

IFC provides governance training and advisory services for founders and owners of SMEs with high growth potential. The training and services are based on IFC’s Corporate Governance Methodology. Traditional guidance for SMEs has amounted to “simplified” versions of corporate governance practices recommended for larger companies. That approach rarely provides practical value for SMEs, which have unique needs and limitations.

IFC, on the other hand, focused in particular on SMEs, analyzing stages of SME growth from startup to maturity and identifying the various opportunities and challenges associated with each stage. IFC developed governance guidance specifically to address them.

The SME governance tools and training materials help entrepreneurs learn how to identify governance gaps in their own companies and find practical solutions that will benefit their business and promote its sustainable growth.

Regional Examples

IFC Corporate Governance Program in Middle East and North Africa has trained more than 300 SMEs on good governance practices. More than 500 owners generated action plans through the diagnostic tool. The team has also assisted several countries in developing SME-specific governance codes.

IFC Corporate Governance Program in Latin America and the Caribbean rolled out the SME Program in Colombia on a fully commercial basis, with IFC partner institution generating a healthy profit.

IFC Corporate Governance Program in South Asia provided training to three private equity funds and their portfolio companies. The team also delivered extensive advisory services to SOLARIC, a Bangladesh SME delivering solar-power solutions. IFC support focused largely on improving the decision-making process and internal-control environment. This work helped the company access private equity capital from a fund based in Singapore.

May 2019