18 Jun Corporate Governance and Financing @European Business Review
According to SAFE[1] 2016 survey most SMEs are facing difficulties in accessing financing and consequently their sustainable growth is at stake. In particular, one out of four SMEs in Greece faces such a reality today.
When a company wishes to shift away from dependence of the founding entrepreneur, governance processes are needed to ensure business continuity and success re-enforcing the efforts of founder. Improved leadership, decision making and strategic vision make it easier to monitor and manage the various risks a company may face as it grows in size and complexity.
New sources of funding are sought after by smaller entities in their demanding journey to finance their expansion and growth. Banks, venture capitalists and private equity investors need an explicit governance framework to assure them that their investment will be well managed.
A well-prepared pitch brochure as well as an effective comprehensive Annual Report are necessary not only to comply with new laws[2] and regulations[3] and avoid heavy fines, but will be used for showcasing that the company operates with high professionalism and sustained commitment in its operations.
In particular, the new regulations[4] in Greece require companies within scope to disclose, to the extent necessary for an understanding of the company’s development, performance, position and impact of its activity, information relating to environmental, employee, social, respect for human rights, anti-corruption and anti-bribery matters. A company is also required to describe, where relevant and proportionate, the business relationships, products and services which are likely to cause adverse impacts relating to the principal risks identified above. Companies following standards such as the IFRS standards for financials can easily understand the importance and comply with GRI Standards or being members of the UN Global Compact can easily measure and report their performance. This has been proven useful both to the internal and external community.
Given the importance of above companies seek the services of professional providers. Not only the big four but also a small range of boutique consultancies can cover the needs and develop bespoke solutions.
Public opinion does not pay much attention to the listing or not of a company, but rather to the practices applied. Sometimes unlisted companies are considered as having something to hide due to their lower levels of transparency in comparison to listed ones.
External shareholders, such as customers, employees, local communities are heavily influenced in terms of respect from the existence of a good governance as potential financiers do.
When company behavior does not fulfil the expectations of society, even if it is not breaking any formal laws it may be operationally affected by the negative perception of stakeholders.
Banks and institutional investors do not stop repeating that they are not any more interested in collaterals; they are interested in company’s mission and strategic plans presented by a reliable and driven team.
The governance of companies in today’s globalized economy is of utmost importance and growing public scrutiny of corporate behavior is here to stay. The public demand for improved corporate accountability and transparency has grown and is not limited to financials but it is expanding to non-financials which need to be explicitly explained.
Does any company still have the “luxury” to abstain from establishing a corporate governance framework?
The above article was published at issue 2-2018 of European Business Review
[1] Survey on the Access to Finance of Enterprises
[2] Greek Law 4403/2016
[3] 2013/34/EU and 2014/95/EU
[4] Regulation 62784/6.6.2017