Small to medium-sized enterprises (SMEs) grow quickly, and usually that means changing things internally. This includes optimising the internal structures, assigning new roles to existing employees and possibly hiring new staff. To scale effectively, you need to optimise your governance structures.
Scaling means that your business is growing operationally and is making a solid profit. For many SMEs, this means you might need to get funding that will help you attain the equipment or experience you need. But investors in scaling businesses will not invest in your business if your governance structures don’t reflect a growing company.
In this article, we look at what governance structures are, what it means to optimise them and what strategies to adopt for strong, optimised governance structures.
What are Governance Structures?
A governance structure is the framework that outlines how decisions are made, who holds authority, and how accountability is maintained within an organisation, institution, or even a government.
At its core, a governance structure sets the rules of engagement. It defines roles (e.g., boards, committees, or executives), responsibilities, and reporting lines. In a corporate context, for instance, this might involve shareholders, the board of directors, the CEO, and various departments, all with clear boundaries and oversight mechanisms.
Layers of a Governance Structure
Comprehensive governance structures usually consist of multiple layers, each with a specific function. These layers work together to guide the business strategically, manage operations and maintain oversight.
The different layers are:
- Steering Layer: This is the top-level authority, typically a Board of Directors, Trustees, or Steering Committee. It sets strategic goals, defines organisational priorities, approves budgets and policies, and ensures long-term alignment with the mission or business objectives.
- Strategic Layer: Usually composed of executive leadership (e.g., CEO, Executive Director, Managing Director), this layer translates board-level direction into high-level strategies. It is responsible for shaping organisational plans, setting performance targets, and driving strategic execution.
- Managerial Layer: This layer includes senior and mid-level managers who oversee departments, teams, and functions. They manage resources, implement strategy, and ensure that operations align with executive goals. This layer acts as a bridge between vision and execution.
- Operational Layer: The operational layer is where core work happens. It includes staff and functional teams who execute projects, deliver services, and maintain workflows. While not part of strategic governance, this layer feeds crucial information back up the chain.
- Oversight and Advisory Layer: This layer includes audit committees, compliance officers, or external advisors. Their role is to monitor risk, ensure regulatory compliance, and provide independent feedback to the steering or executive layers. This layer enhances objectivity and strengthens accountability.
Why Governance Matters to Funders
When looking through funding proposals, one of the things funders look for is companies that can demonstrate operational excellence. This is where strong governance structures come into play. Other ways in which governance is crucial to funders include:
Trust and Credibility
Strong governance builds trust through transparency and accountability. When you can present independently examined accounts, a well-composed board with diverse expertise, and comprehensive safeguarding policies, you send a clear signal to investors about your organisation’s maturity and reliability.
These aren’t just administrative requirements – they’re trust-building mechanisms that help funders feel confident in their investment decisions.
Reduced Risk
Strong governance frameworks help you stay ahead of potential issues before they become a crisis. Regular board oversight ensures strategic decisions are scrutinised, financial controls prevent mismanagement, and robust policies protect against reputational damage.
When funders see these systems in place, they recognise an organisation that takes risk seriously and has invested in its own sustainability.
Strategic Oversight
Fundraising needs to be part of the bigger picture and not a secondary thought in your company’s development and delivery. An effective board can help steer income generation strategically, ensuring targets are realistic, aligned with your purpose, and resourced appropriately.
Board members bring valuable networks, expertise, and credibility that can open doors to new funding opportunities. However, this value is only realised when governance structures are functioning effectively.
Financial Resilience
Organisations with clear financial oversight, accurate records, proper reserves and regular audits are simply more investable. Funders want to invest in businesses that will still be standing in a year or at least have a clear strategy for sustainability amongst a turbulent funding landscape.
Beneficiary Voice and Impact
Governance isn’t just about internal structure; it’s also about how accountable you are to the communities you work with. This means valuing how the people you serve shape your programmes and strategy and being able to provide evidence of how their voices inform your work.
Optimising Governance Structures for Scaling
Optimising governance structures for scaling requires shifting from rigid, centralised control to a federated model where central teams set guardrails and domain teams manage day-to-day execution.
Here are some strategies to consider for optimising your governance structures.
1. Conduct a Company-wide Review
Governance starts with transparency. Conducting an early governance review during the initial stages of development is crucial to comprehend the intricacies of existing controls, risk mitigation approaches, and legislative compliance frameworks. This review should be business-wide and must evaluate everything from data protection and financial reporting to health and safety protocols and employees’ grievance mechanisms.
Once the review has been done, a full plan can be drafted outlining what is working and where there is room for improvement. Writing this plan will enable teams to establish key steps to take to ensure governance is at the centre of their practices. Without this baseline, it will be difficult to begin to move forward or to track progress across the business over time.
2. Use ISO 37000 as a Baseline
Approaching governance for the first time can be a daunting task. Every organisation will do it differently, but there are ample resources on the best ways to embed good governance into a business, with one being the ISO 37000. ISO 37000 is an international standard that outlines principles of good governance, including ethical leadership, accountability and risk oversight.
Reading and understanding the ISO 37000 offers an excellent baseline when learning to effectively manage organisational governance.
3. Educate and Empower Your People
Although executive leadership defines and sets governance structures, everyone is responsible for upholding these standards. To ensure everyone understands their responsibilities and company standards, every employee must complete mandatory onboarding training on governance practices, followed by regular refresher courses.
When people understand why governance matters, they are more likely to raise issues early, suggest improvements, and make decisions that align with company values. Integrating governance procedures into progression plans and KPIs keeps individuals invested.
4. Bring in Non-executive Insight
You don’t have to implement good governance practices alone. Non-Executive Directors (NEDs) are legally responsible for the governance of a firm. They offer impartial oversight, strengthen accountability, and bring strategic and regulatory expertise. Their oversight adds valuable objectivity and strengthens governance as the business grows.
5. Make Governance an Ongoing Process
Once conducted, the review findings are processed, and the plans are put in place. But then it’s important to continuously monitor these to ensure the newly established processes are working as effectively as possible. Regular check-in audits are essential to evaluate pacing to KPIs.
This ongoing evaluation is an opportunity to see whether KPIs are still fit for the purpose, reveal blind spots or new areas of interest and reinforce accountability.
Good governance is less seen when things go well, but it remains the foundation for sustainable growth, especially in SMEs. As your business scales, investing in the right governance systems, company culture and people is not only smart; it’s essential.
Small to medium-sized enterprises (SMEs) grow quickly, and usually that means changing things internally. This includes optimising the internal structures, assigning new roles to existing… Read More
