In the SME, the sole shareholder is often both director and executive. The relationship between the director and the executive is at the heart of an organization’s governance. Therefore, there is a direct correlation between financial performance and governance. Improving the quality of governance of an organization will have a direct impact on its financial results. Financial results do not happen by accident: they reflect the decisions taken by the sole shareholder. The financial performance of its SME is closely related to its governance, even if the SME has financial success year after year.

A governance diagnostic will identify the elements of risk or weaknesses related to the governance of SMEs with a sole shareholder, even when the sole shareholder is supported by its HR, sales, finance and operations teams, its accountants and its outside lawyers. Governance is a field in itself.

The consultant in governance must be independent. A professional is independent when he does not have any personal or professional relationship with the company and its management likely to influence his judgment and lead to decisions that would not be in the interest of the company. An employee or a close longtime collaborator does not meet this independence criterion. The reality of SMEs with a single shareholder is that it must deal only with the strategic elements of its SME: in case of illness, death, personal tragedy and during retirement, the SME’s future is put to hard test.

The first measure to take following the governance diagnostic it is to create a true board of directors, and not only names that were added into the legal and accounting documentation to meet different regulatory requirements.

In most SMEs, the creation of a board of directors consisting of 3 directors, including 2 independent and competent directors, would meet the requirements. In its first year of existence, the number of meetings would be more numerous than in the following years, considering the implementation of good governance practices. The independent directors will be selected for their high level of competence, and above all, their full independence, in order to achieve one main goal: to serve the interest of the SME. To do so, these directors will be able to protect the sole shareholder against himself.