That the private sector, ranging from SMEs to large, privately owned businesses, form the backbone of the Irish economy is undisputed. According to CSO statistics, the sector accounts for just under 70 percent of all those employed in Ireland and contributes over 50 percent of the country’s turnover. These statistics illustrate that SMEs and large businesses punch well above their weight.
Mazars “Governance Matters Survey 2017’, asked a range of questions designed to delve into the attitudes of those at the helm of Irish SME’s and large businesses regarding issues and challenges around governance.
“Our survey is deliberately pitched to private sector owner managers, business founders, senior management and board members,” said Justin Moran Director, Governance, Risk and Internal Controls at Mazars. The survey reported a gap in terms of the commonly perceived pecking order of challenges and threats to the sector, within the context of corporate governance.
“While there are significant concerns driven by political uncertainty, including the implications of Brexit and the change of leadership and policy in the US, perhaps surprisingly challenges posed by skills shortages and the competition for talent are more immediate areas of concern amongst the private sector. The presence of the major multinationals means that it can be hard for SME’s and larger businesses to compete for talent and specialist skillsets” said Moran.
“In terms of threats and challenges to their business objectives, survey respondents also ranked increasing levels of regulation and compliance higher than Brexit, which is attributable to recent developments in the legal and tax compliance obligations placed on the directors of large companies, impending changes in EU general data protection regulations and the overall strengthening of Ireland’s regulatory culture and environment” he added.
Moran said that the overall survey findings also point to a lack of formal governance processes within the private sector. This begs a key question, namely; what benefits could improvements in corporate governance deliver for SMEs and large businesses?
60 percent of survey respondents indicated that they didn’t have well-structured corporate governance processes in place. Moran observed that for the majority of SME corporate governance continues to be a reactive response rather than being driven by formalised processes.
Perhaps more worrying, when asked how best to describe their approach to corporate governance, around 20 percent of private sector businesses said they ‘Just do it’. As Moran ruefully observed, “Such an approach can reduce transparency in decision making, which may lead to costly legal disputes and court cases down the line”.
At 40 percent, less than half of respondents said they had independent non-executive members appointed to their board. The decision to bring in non-executive directors is an important step in strengthening corporate governance processes. “Bringing someone from the outside in can deliver significant benefits, in particular where a business is seeking to scale up and enter new markets. However, it can also change the dynamic of the boardroom. For this reason, many businesses also consider using advisory boards or specialist advisors as an initial first step to help develop their business and add value” said Moran.
Indeed, Moran noted an interesting development in this year’s survey findings with 12 percent saying they use individual specialist advisors or business mentors to support their business. More specifically, 40 percent said they used advisory or internal audit based activities to strengthen their risk management and corporate governance processes. Moran said that this is normally a feature of larger businesses and is partly driven by the need for independent assurance as business risks evolve and become more complex.
It’s Moran’s view that the approach to corporate governance needs to fit with the maturity of the business and can be quite dynamic. “For example, SMEs and large businesses can look to develop corporate governance without adding red tape.”
It’s Moran’s hope that with rising challenges ahead, a greater number of private sector businesses will grasp the benefits that good governance can bring to their organisation.
This first appeared in the Sunday Business Post March 19th 2017