What is governance in MSME’S? It is a holistic approach encompassing the processes, standards, rules, and practices an organization follows. It guides operations and administration, ethics, risk management, compliance, and more.

What is the need for Governance in MSME’s? Governance helps you to always act in the best interests of the business. More specifically, it can improve the performance of your business, help it become more stable and productive, and unlock new opportunities. It can reduce risks, and enable faster and safer growth. It can also improve reputation and foster trust.

Governance requirements include but are not limited to:

1. Appointment, Qualification, size, and composition of Board Members

• Board appointment procedures should be transparent and clearly documented and approved by the Board before they can be used. The procedures should be formal and a matter for the Board as a whole, assisted by the nomination committee, and subject to shareholder approval when necessary.
• The appointment process should be well managed to ensure that a balanced mix of proficient individuals is attained and that each of those appointed is able to add value and bring independent judgment to bear in the decision-making process.
• All persons offering themselves for appointment as Board members shall disclose any potential areas of conflict that may undermine their position or service.
• Board members should receive formal letters of appointment setting out the main terms and conditions relative to their appointment.

2. Succession Planning

• The term of office of the members of the Board should be organized in such a way that they end at different times. This ensures retention of institutional memory and makes it easier to induct new Board members. Where possible, no more than one third of the Board members shall retire at the same time.
• The purpose of succession planning is to make sure a company always has the right leaders in place should a change happen quickly. By failing to create an orderly plan for succession, your company may not get a second chance if it doesn’t adapt immediately after a key player leaves the company or passes away.
• Death, illness, personal problems, abrupt resignation, and even arrest can leave you with an unexpected vacancy in one of your most important positions. While you can’t plan for disaster, you can plan on how to respond to such events. Without a succession plan, you will have to scramble to keep the business running smoothly.
• Putting a succession plan in place can send a positive message to your staff. They will know the company is planning for the future, and perhaps more importantly, they will see that the company is committed to developing staff members for future leadership positions.

3. Code of Ethics and Conduct

• The key role of the leaders in an organization is to establish a corporate culture with ethical conduct that permeates the whole company. The Company needs to develop a Code of Ethics and Conduct and ensure the implementation of appropriate internal systems to support, promote and ensure compliance.
• The Code of Ethics and Conduct should include appropriate communication and feedback mechanisms which facilitate whistle-blowing.
• The leaders should periodically review its Code of Ethics and Conduct. Besides, a summary of this code shall be made available on the company’s website.
• A well-written code of conduct clarifies an organization’s mission, values and principles, linking them with standards of professional conduct. The code articulates the values the organization wishes to foster in leaders and employees and, in doing so, defines desired behavior.
• As a result, written codes of conduct or ethics can become benchmarks against which individual and organizational performance can be measured.

Conclusion

Governance isn’t just about ensuring financial success and longevity. It’s also about guiding and supporting the character of your business. You and anyone else on your governance team should ‘set the tone’.

For example, you should always make decisions that uphold your company values and help to achieve your vision for your business.

A good starting point is to make sure that everyone involved in overseeing your business is of good character.

As a business owner, you probably already live by these ideas — good governance practices help you demonstrate your way of working to your staff, customers, and investors.