A company can enter new markets, hire experienced managers and attract fresh capital while still making decisions as if everyone worked in the same room.
That gap becomes a problem when daily operations depend on the founder’s availability, important risks remain local knowledge, or the board’s expertise no longer matches the company’s activities.
Governance should develop alongside the company. The aim is to maintain clear responsibility and effective oversight without making ordinary decisions unnecessarily difficult.
When Informal Governance Reaches Its Limits
In a small business, the founder may know the customers, employees and financial position directly. Informal conversations can resolve problems quickly because the people involved share much of the same information.
Additional locations and management layers change that. The owner may still expect to be consulted on everything, even though managers now hold information the owner cannot see directly. Decisions slow down, or employees act without knowing whether they have permission.
IFC’s SME Governance Guidebook treats increasing organisational complexity as central to changing governance needs. Its growth stages are a practical framework, not a fixed sequence or a set of universal size thresholds. The relevant question is whether existing arrangements still work for the company concerned.[1]
Growth Changes Who Should Decide
Delegation should begin with specific decisions. Consider a business establishing an overseas operation. Its local manager might be authorised to recruit within an agreed budget and negotiate standard customer terms. Major investments or long-term commitments might remain subject to approval elsewhere in the group.
Those arrangements need to specify approval limits, reporting expectations and how exceptions are handled. They must also be respected in practice. If the founder routinely reverses decisions through informal conversations, a written delegation policy provides little certainty.
Growth therefore requires owners to reconsider their own involvement as well as the responsibilities assigned to others.
Oversight Requires Better Information
As a business expands, personal familiarity becomes a less reliable basis for oversight. Management and the board need information that reveals problems beyond their immediate field of view.
For example, total revenue may be rising while an overseas operation offers longer payment terms and ties up increasing amounts of cash. Reporting sales alone would miss a significant part of the picture.
The OECD’s 2023 principles call for board members to receive information that is reliable, relevant to their responsibilities and available in time to act.[2] In practical terms, a report should explain material deviations, identify who is addressing them and distinguish matters requiring a decision from those provided for information.
Where different entities use different definitions or reporting periods, comparability needs attention before another dashboard is added.
The Board Must Evolve With the Business
The next phase of growth may require experience that the existing board does not possess. International expansion can raise unfamiliar market risks; acquisitions can demand knowledge of integration and organisational change.
Lynall, Golden and Hillman’s theoretical work links board composition to a company’s development and the influence of its early decision-makers. It also suggests that those initial arrangements can persist.[3] The practical implication is to review whether the board’s collective experience still matches the decisions ahead.
Empirical research offers a more qualified picture than a simple recommendation to add outsiders. In a 2007 longitudinal study of more than 800 SMEs, Brunninge, Nordqvist and Wiklund found that closely held firms exhibited less strategic change. Their findings suggested that outside directors or larger top management teams could partly offset that pattern.[4] This does not establish that adding board members will improve every company’s performance.
The task is to identify gaps in expertise and the board’s ability to challenge management. The response may involve development, external advice or changes in membership.
Formalise What Matters Without Slowing Everything Down
Formalisation should address an identifiable weakness. Clear purchasing authority, for example, can allow a manager to act without seeking repeated approval. An escalation threshold can ensure that an unusual commitment receives attention before it is made.
Adding several approval layers to routine purchases may do the opposite. It consumes management time without necessarily improving control.
Greiner’s growth model offers a useful warning: practices that help an organisation through one phase can become obstacles in another.[5] It is a way to examine organisational tensions, not a prediction that every company will follow the same path.
Each new control should therefore have a clear purpose. Existing procedures should also be reviewed when they duplicate checks or no longer address a meaningful risk.
Make Governance Part of the Growth Plan
A new market, acquisition or investor should prompt a review of governance before the change takes effect. That review should ask:
Which decisions will move to different people, and which approvals will remain necessary?
What information will management and the board need that they do not receive today?
Does the organisation have the expertise to assess the new activities and their risks?
Where does continuity still depend too heavily on one person’s knowledge or availability?
For each material gap, agree who will address it and by when. Include that work in the expansion plan rather than leaving it until delays or unexpected losses expose the problem.
Not every growth step requires a new committee or a larger board. Sometimes the priority is a clearer division of authority, better reporting or access to specialist expertise.
The test is whether people can make the decisions assigned to them while those responsible for oversight can understand and challenge the consequences.
Does the company’s governance still fit the business it has become?
David Monge Vega is the founder and independent adviser at Monge Vega Advisory.
Selected sources
1. International Finance Corporation (2019). SME Governance Guidebook. Chapters 2 and 3. Source
2. OECD (2023). G20/OECD Principles of Corporate Governance 2023. Chapter V, particularly section V.F. Source
3. Lynall, M. D., Golden, B. R. & Hillman, A. J. (2003). Board Composition from Adolescence to Maturity: A Multitheoretic View. Academy of Management Review, 28(3), 416–431. Source
4. Brunninge, O., Nordqvist, M. & Wiklund, J. (2007). Corporate Governance and Strategic Change in SMEs: The Effects of Ownership, Board Composition and Top Management Teams. Small Business Economics, 29, 295–308. Source
5. Greiner, L. E. (1997). Evolution and Revolution as Organizations Grow. Family Business Review, 10(4), 397–409. Reprint of the 1972 article. Source
