Introduction
The Financial Reporting Council (FRC) issued the Nigerian Code of Corporate Governance (NCCG) 2018, pursuant to its powers under Sections 11c and 51c of the Financial Reporting Council of Nigeria Act (FRC Act) No. 6 of 2011 (amended).
The SME Corporate Governance Guidelines 2024 aim to enhance corporate governance practices among Micro, Small, and Medium-Sized Enterprises (MSMEs) in Nigeria. By providing a structured framework, these guidelines help MSMEs build trust, improve management, and achieve sustainable growth.
The guidelines apply to all MSMEs operating in Nigeria as of the effective date decided by the Council. According to the National Policy on SMEs issued by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), an SME is defined by the following characteristics:
| SIZE CATEGORY | EMPLOYMENT | ASSTES (N million) (excluding land and buildings) |
| Micro enterprise | Less than 10 | Less than 5 |
| Small enterprise | 10-49 | 5 – less than 50 |
| Medium enterprise | 50-199 | 50 – less than 500 |
Key Principles of Corporate Governance for MSMEs
The guidelines are organized into six sections and eleven principles, each with recommended practices for effective implementation.
A. Corporate Governance Policies and Procedures
- Principle 1: Adopt a formal corporate governance framework outlining the roles of key stakeholders such as partners, shareholders, the board of directors, and management.
- Ensure clear documentation of partners’ and shareholders’ rights and obligations.
- Formalize delegation of authority, specifying roles of management and reserved matters for shareholders and the board of directors.
B. Board of Directors
- Principle 2: Establish a formal Board of Directors to guide the entity’s growth, providing oversight and strategic direction.
- Smaller entities may set up an advisory board with no formal decision-making powers.
C. Control Environment (Internal Controls, Audit, and Risk Management)
- Principle 3: Maintain credible books of accounts reflecting a true and fair view of financial performance.
- Implement an internal control framework and conduct regular risk reviews.
D. Stakeholder Relations
- Principle 4: Recognize the needs of stakeholders including regulators, shareholders, employees, customers, suppliers, creditors, and the community.
- Develop policies governing relationships with stakeholders.
E. Family Governance
- Principle 5: Formulate a framework setting out the family’s relationship with the business.
- Create a constitution outlining the vision, values, and policies regulating family involvement in the business.
F. Environment, Social, and Governance (ESG) Considerations
- Principle 6: Integrate ESG factors into business operations to promote sustainability and social responsibility.
- Align activities to be environmentally friendly and ensure transparent communication with investors and stakeholders.
Importance of Corporate Governance for MSMEs
Implementing good corporate governance practices offers several benefits:
- Improved Business Environment: A structured governance framework clarifies roles and responsibilities, enhancing decision-making and operational effectiveness, while it also helps build transparency, accountability and trust with the stakeholders.
- Sustainability and Longevity: Effective risk management and robust internal controls ensure business stability and longevity.
- Increased Access to Capital: Transparent governance practices boost investor confidence and make it easier to attract funding, and financial reporting also enhances business credibility.
- Enhanced Stakeholder Relations: Effective communication channels foster strong stakeholder relationships, while maintaining transparency and accountability builds a positive reputation.
- Tailored Solutions for Family-Run Businesses: Address unique challenges such as succession planning and conflict resolution, ensuring business continuity and stability through clear succession planning.
- Incorporating ESG Considerations: Promote sustainability and social responsibility by integrating ESG factors, enhancing long-term business viability and attracting environmentally and socially conscious investors.
Conclusion
The SME Corporate Governance Guidelines 2024 provide a comprehensive framework for MSMEs to enhance their governance practices. By adopting these guidelines, MSMEs can build a solid foundation for growth, improve stakeholder relationships, and achieve sustainable success. Implementing these practices is essential for navigating challenges and seizing opportunities in the dynamic business environment. For more detailed information, please refer to the ORIGINAL PUBLICATION by the Financial Reporting Council attached to this article.
