by Marlon Madden
Small business operators are being warned against engaging in nepotism if they are serious about good governance and growth of their operations.
This piece of advice was dished out to members of the Small Business Association (SBA) recently as the organisation held one of its members’ information webinar under the theme The Fundamentals of Good Governance.
Executive Director of Intellectual Management Services Inc. (IMS) Dr Erica Smith, while focusing on family owned businesses, the principles of good governance and considerations for SMEs, told the online session that without good governance, the sustainability of SMEs was threatened.
“At least in Barbados, an issue we have is the continuation of small businesses past one generation. We definitely have some shortcomings in that regard. Why? It is because really there is no planning ground to move on from the founder,” said Smith.
“And then when you have family members who say . . . ‘I am doing this for my family so I want them involved. It is a matter of trust’ or ‘I want to make sure I have people around me who I can trust’. These are quite legitimate reasons but we have to consider as we move from one stage to the next how do we address these issues and what roles can or should family members continue to play,” she said.
She said in the case where a business had shareholders, one of the challenges was that they had different ideologies for the business from those of the family members.
“I am sure you all know of situations where the family members have their ideas of how things should be done or their own interest that they are trying to protect, which may work against the interest of other owners in the business or stakeholders,” she said, adding that objective decision-making was a major challenge for small and medium-sized enterprises (SMEs).
The intellectual property and business strategy professional also pointed out that due to a lack of proper oversight in many SMEs, there tended to be a high level of theft and fraud.
“So the idea of having family members so as to build trust or to allow you to have a certain level of trust is one thing, but in the absence of good oversight, in fact, they can be the source of a lot of problems,” Smith pointed out.
“It is okay that you start off with family members, but as the organization grows or is properly established, you have to think in terms of relinquishing some of that control and bringing in qualified persons – qualified management, qualified employees,” she said.
Smith warned that not having the right people in place could result in weak internal controls, which could then affect the business’ ability to access financing due to a lack of information or structure.
She explained that many SMEs, while they often indicated that they were serious about growth and expansion, they hired family members without considering the culture they want to foster within the organization or the level of education required for the specific area.
She also pointed out that in the initial stages there were no separation between owner and manager, and there was often an ad hoc approach and informal system, with the owner making most of the decisions even if they had someone in charge of running the
However, Smith warned the SBA members that as their operations grow, a part of good governance would be to ensure that advisors or a board of directors was put in place to implement policies and develop a strategic direction of the firm without being involved in the day-to-day management of the firm.
“Good governance has a positive impact in terms of strategy and strategic direction, decision making, branding of the organization and organizational credibility,” she said.
“With growth you have a larger team, and you should have increased professionalisation, you should have the development of your internal systems, you certainly should have moved off the ad hoc approach and have a system that would allow for the provision of information, reports and monitoring so that you can make sound decisions,” Smith recommended.
Smith said it was critical that advisors or board of directors chosen were based on qualification and what they could offer to the continued growth of the organisation.