The immense contributions of small and medium enterprises (SMEs) to Kenya’s economic growth and job creation cannot be overstated.

However, many of these businesses struggle to transition from the start-up and active growth phases to become sustainable, thriving organisations.

A key factor often overlooked is the lack of robust corporate governance practices. Corporate governance establishes the policies, processes, and structures through which companies are directed, controlled, and held accountable.

While frequently viewed as a burden relegated to large corporations, governance is equally crucial for SMEs aspiring to long-term success. Here’s why:

Enhancing Access to Finance

Well-governed SMEs are more attractive to investors and lenders, improving their chances of securing funding for growth and expansion.

Robust governance signals lower investment risks, instilling confidence in the company’s management, strategic direction, and overall health.

Attracting Top Talent

A strong governance framework demonstrates an SME’s commitment to professionalism, transparency, and ethical conduct.

This is a powerful tool for attracting and retaining skilled employees who prioritise working for well-managed organisations.

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Fostering Sustainable Growth

Implementing sound governance practices early on helps SMEs manage risks, resolve conflicts among stakeholders, and establish clear lines of authority and accountability.

This facilitates smoother transitions through growth phases, reducing over-reliance on key individuals and mitigating disruptions.

Improving  Performance

Good governance encourages strategic decision-making, effective oversight, and a culture of continuous improvement.

SMEs with governance structures aligned to their growth stage consistently outperform their peers, boasting higher profitability and operational efficiency.

Ensuring Regulatory Compliance

As SMEs expand, they face increasing regulatory scrutiny. Proactive adoption of governance best practices positions them for compliance with evolving legal and industry requirements, avoiding costly penalties and reputational damage.

Despite these compelling benefits, many Kenyan SME owners remain sceptical about governance, perceiving it as an unnecessary burden.

This mindset stems from a lack of understanding about tailoring governance practices to suit an SME’s specific growth stage.

The International Finance Corporation (IFC) has developed an innovative SME Governance Methodology that provides practical, stage-specific recommendations across five key governance topics: culture and commitment, decision-making and oversight, risk management, transparency, and ownership structure.

For instance, in the start-up phase, the focus is on establishing basic organisational processes, consulting external advisors, and implementing cash flow management controls.

As the SME progresses through growth stages, the methodology guides the formalisation of policies, committees, risk management frameworks, and eventually, the transition to a professional board of directors or advisors.

Success stories abound of SMEs that have reaped significant rewards by embracing governance principles aligned with their growth journey.

A technology firm increased profitability by 20% over two years through board-level improvements and enhanced management controls.

Institutional investors have also expressed a willingness to pay premiums for well-governed SMEs in emerging markets. Corporate governance is not a one-size-fits-all solution.

By adopting a tailored, stage-specific approach, Kenyan SME owners will harness its transformative power to drive sustainable growth, attract investment, and establish a lasting legacy as cornerstones of our national economy.

Mr. Mashary Keya is a Strategy Advisor at WYLDE International. You may connect with Mashary via email: [email protected]