I began writing about corporate governance in Malaysia more than two decades ago. To be specific, I cover issues and developments relating to the governance of listed companies, which are larger and more newsworthy than most privately held businesses. But I have always been interested in the role and level of governance within the latter group, particularly small and medium-sized enterprises (SMEs).
We can safely assume that very few SMEs operate according to governance standards that meet the expectations of capital market regulators and players. They do not have to do so because the owners of many of these businesses are also the managers and directors (if the businesses are incorporated).
Good for business
Considering that governance is defined as the structures and processes by which organisations are directed and controlled, the pursuit of good governance should be a natural part of business, just like the profit motive. All businesses ought to be governed well; you can never be too small nor can it be too early to strive for good governance.
And yet, governance is rarely a hot topic for the SME sector, which suggests that these businesses do not place it high on their priority lists.
That will hopefully change with the formulation of the governance code for Malaysian MSMEs (micro, small and medium enterprises).
Good governance can mean different things at the various stages of business maturity
On 11 March, the multi-agency SME Governance Working Group, chaired by the Securities Commission, issued the draft code for a public consultation that runs until 30 April.
The document starts with the assertion that governance is the foundation for the growth and competitiveness of MSMEs. ‘It provides the essential framework and principles for these businesses to effectively manage their operations, allocate resources and make strategic decisions that foster sustainable development,’ it states.
Five pillars
The code addresses five key areas of governance: decision-making and strategic oversight; culture and commitments; risk governance and internal controls; sustainability; and disclosure, transparency and data protection.
In the past, governance and sustainability were dealt with separately, but as the working group points out, embracing sustainability has become ‘a paramount imperative for MSMEs in today’s business landscape’.
The code’s centrepiece is a matrix that provides an overview of the principles and practices of good governance and sustainability applicable to each category of MSMEs, recognising that good governance can mean different things at the various stages of maturity that a business goes through.
Accountants and auditors are not helpless bystanders in this process
Although the adoption of the code is voluntary, not all the practices laid out in the draft are mere recommendations; some are, in fact, required by law. For example, there is this fundamental and catch-all practice: ‘companies must ensure that their business complies with the relevant laws and regulations.’
That is obvious and simple enough to understand. However, it is equally clear that the code is meant to offer broad guidance rather than detailed prescriptions. The publication of the code alone will not move the needle appreciably. To be effective, it must trigger a strong response from SMEs.
Informed advocates
The Malaysian Institute of Corporate Governance is a member of the SME Governance Working Group and will be leading the implementation of the code. It says it will roll out further guidance and support initiatives to aid MSMEs in comprehending and implementing the code. It will also release infographics on recommended practices, and is planning to host workshops and training programmes after the code’s launch.
Accountants and auditors are not helpless bystanders in this process. By submitting feedback during the public consultation, they can help shape the code into the go-to reference for what good governance of SMEs should look like.
Next, in giving business advice to SMEs as employees or service providers, accountants and auditors should promote the benefits of good governance and be guided by the code’s best practices. Business governance is always in need of informed and dependable advocates, and there are few more qualified than accountants and auditors to do so.
