onversations about the evolution of governance and the entry of new stakeholders, from private–public partnerships to bigger roles for civil society, always seem to assume this evolution is a good thing. However, there seems to be a growing divide in how governance is practiced by bigger players and by small and mid–sized enterprises, which form the majority of the economy. In these SMEs, governance sometimes remains inconsistent or absent.
In the UK, the number of directors disqualified from leadership due to misconduct in the last 20 years has remained the same, mostly in SMEs, which would appear to indicate that despite the higher level of concentration on governance, the level of misconduct remains constant.
This is not just a UK problem; in Germany, the company Wirecard collapsed after systematic fraud, regulatory evasion, and weak oversight.
The U.S. company Frank collapsed after its founder was charged with fabricating data and using company funds for personal costs.
For SMEs, governance apparently is not treated as a basic operating principle as it is in larger companies, institutions, and across civil society. This creates dangers in a global economy, and especially in a digital economy where small companies can scale quickly and become significant.
Part of the problem is that for many founders, good governance is seen as overly complicated, tied to regulations and systems rather than leadership mindset. That mindset sees good governance as something for large institutions with large teams, rather than understanding that good governance is a mindset of responsibility and integrity.
To drive a car, you need to pass a driving test. To open a bank account you need to pass a credit rating test…yet in the UK, a company can be set up online in a matter of hours. Whilst this creates a vibrant SME economy, it is also open to abuse. The 2022–23 Annual Report and Accounts by the Insolvency Service (part of the UK Government) stated that there are tens of thousands of companies struck off annually, a significant share for non–compliance, with many directors going on to launch new entities—some repeatedly, exposing a regulatory gap. This is not a UK only problem, the practice of “phoenixing” is also prevalent in Europe and the U.S.
So is the answer more regulation, more limitations on setting up companies, more enforcement? Probably a mixture of all three—in the future, governance must apply not just at the top but across the base. Governance must be embedded from the outset and treated as a condition of investment; supported with frameworks that are practical and enforceable.
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For hybrid governance to work, SME’s need governance mindset
Photo by Nagesh Badu on Unsplash
July 22, 2025
We assume the evolution of governance to include bigger roles for the private sector and civil society to be a good thing. But a growing divide in governance practice between bigger players and SMEs is problematic, writes Leonor Diaz Alcantara.
C
onversations about the evolution of governance and the entry of new stakeholders, from private–public partnerships to bigger roles for civil society, always seem to assume this evolution is a good thing. However, there seems to be a growing divide in how governance is practiced by bigger players and by small and mid–sized enterprises, which form the majority of the economy. In these SMEs, governance sometimes remains inconsistent or absent.
In the UK, the number of directors disqualified from leadership due to misconduct in the last 20 years has remained the same, mostly in SMEs, which would appear to indicate that despite the higher level of concentration on governance, the level of misconduct remains constant.
This is not just a UK problem; in Germany, the company Wirecard collapsed after systematic fraud, regulatory evasion, and weak oversight.
The U.S. company Frank collapsed after its founder was charged with fabricating data and using company funds for personal costs.
For SMEs, governance apparently is not treated as a basic operating principle as it is in larger companies, institutions, and across civil society. This creates dangers in a global economy, and especially in a digital economy where small companies can scale quickly and become significant.
Part of the problem is that for many founders, good governance is seen as overly complicated, tied to regulations and systems rather than leadership mindset. That mindset sees good governance as something for large institutions with large teams, rather than understanding that good governance is a mindset of responsibility and integrity.
To drive a car, you need to pass a driving test. To open a bank account you need to pass a credit rating test…yet in the UK, a company can be set up online in a matter of hours. Whilst this creates a vibrant SME economy, it is also open to abuse. The 2022–23 Annual Report and Accounts by the Insolvency Service (part of the UK Government) stated that there are tens of thousands of companies struck off annually, a significant share for non–compliance, with many directors going on to launch new entities—some repeatedly, exposing a regulatory gap. This is not a UK only problem, the practice of “phoenixing” is also prevalent in Europe and the U.S.
So is the answer more regulation, more limitations on setting up companies, more enforcement? Probably a mixture of all three—in the future, governance must apply not just at the top but across the base. Governance must be embedded from the outset and treated as a condition of investment; supported with frameworks that are practical and enforceable.
