KEY POINTS:
Small to medium businesses are realising that size does not matter when it comes to good corporate governance.
A national survey has found that despite their size, SMEs are looking outside their firms for independent directors to ensure accountability and transparency at director level.
Waikato Management School associate professor and lead survey researcher Jens Mueller said in New Zealand a large number of SME chief executive officers were also the company's directors, and in some cases, the chairman as well.
The survey showed that the number of directors who were also chief executives had declined on last year, as had the number of "triple holders" - those who were chief executive, director and chairman.
The decline was a good sign, Mueller said, because such close involvement limited the potential for "detached" expertise.
"Most smaller firms recruit [directors] from the investor base, but it's hard to see how a CEO could be professionally schizophrenic and not influence board decisions based on his or her role."
The survey showed that SMEs were clearly expressing their wish that even in smaller firms there be more disclosure and transparency, Mueller said.
"That's [an important message] for business owners to recognise because being small is no longer an immunity shield that allows you to not consider governance."
In the past governance had been an abstract concept that shareholders didn't quite understand and had left to the firm, Mueller said. However, cases such as Enron and World Com in the US, and Feltex in New Zealand, had probably sparked the demand for more accountability and transparency.
Of the 1400 respondents, 56 per cent expected to be searching for one or more independent directors in the next year. Last year just under 60 per cent said they would be looking for independent directors. The survey also found that directors were motivated more by the chance to "do some good" rather than by perks of office such as director's fees, career advancement or service with prestigious publicly listed firms. Other important motivating factors factors were the level of personal risk, and reputation of other directors on the board.
The survey also highlighted a shift toward SMEs regarding the role of the company's board as adding value rather than being a compliance tool.
When looking for a director, SMEs focused on the practicality and relevance of skills and a diversity in age, which was a change in focus from last year when gender diversity was the key requirement, Mueller said.
SIZE DOESN'T MATTER
* SMEs want independent directors to ensure board transparency.
* Relevant skills and age diversity more important than gender diversity.
* Number of SME chief executives who are also directors is declining.
* Prospective independent directors motivated to "do good" rather than by money.
