Nine pillars of growth

The Life: Small businesses may be able to get more financing and lower the cost of capital if they implement these new corporate governance guidelines.

Nick Nadal, the director of Hawkamah, the Institute for Corporate Governance, which helped draft the new guidelines with Dubai SME. Callaghan Walsh for The National
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Small businesses looking to supersize their operations often need a fresh infusion of capital.

A new set of guidelines, released by the Dubai Government this week, could make that task easier. The measures include nine voluntary principles that small and medium-sized enterprises (SMEs) could implement to show a commitment to strong corporate governance and help convince banks or outside investors to provide more financing and lower the cost of capital. While big, public companies have traditionally paid the closest attention to corporate governance guidance in the past, some experts argue that smaller businesses need to adopt similar guidelines if they want to grow and remain sustainable for the long-term.

Only 16 per cent of small businesses in Dubai already have a corporate governance code, according to a survey from Dubai SME, an economic development agency that issued the new guidelines.

Creating the new recommendations was "a controversial issue, to say the least, because everyone was telling us SMEs are the last territory you need to address", says Alexandar Williams, the director of strategy and policy at Dubai SME. Yet, Mr William notes that SMEs in Dubai make up 95 per cent of the 76,000 businesses in operation and are responsible for employing more than 40 per cent of the emirate's workforce.

Following is a highlight of Dubai SME's nine new pillars on corporate governance, which are based on international best practices.

Adopt a formal corporate governance framework outlining the roles of the key bodies such as partners, shareholders, board of directors and management. The rights and obligations of business partners and shareholders should be clearly set out.

Conduct a succession planning process. Sixty per cent of businesses surveyed by Dubai SME acknowledge they do not yet have a succession plan in place. The process is also important for short-term guidance when a top executive or management team goes on leave. "You should have somebody who can take over when you leave the business to, say, participate in a conference," says Nick Nadal, the director of Hawkamah, the Institute for Corporate Governance, which helped draft the new guidelines with Dubai SME.

Establish a timely, open and transparent flow of information, including financial situation and performance, with shareholders.

Endeavour to set up a formal board of directors to accompany the growth of the company. While entrepreneurs and smaller companies may do better setting up an "advisory" board with two to three people who don't hold formal decision-making powers, larger firms should look into creating a formal board with independent members.

Develop a clear mandate for its board of directors to oversee the operational performance of the business as well as evaluating and improving business strategies. "You need to articulate how you will sense the effectiveness of that board," says Mr Nadal.

Maintain credible books of accounts, which are annually audited by an external auditor. Dubai SME has partnered the International Accounting Standards Board to provide training this week about meeting global financial reporting standards.

Set up an internal control framework and conduct a regular review of risk.

Recognise the needs of stakeholders. Many companies already have a broad mission statement, but this step formalises policies outlining a business' values and objectives.

Formulate a framework setting out the family's relationship with the business. Experts suggest a formal, written family constitution should be created.