Two News Stories Reveal a Common Governance Challenge
Recently, two troubling stories made headlines. One involved a major confectionery manufacturer caught mislabeling the origin of its ingredients—a case that prompted corrective action from Japan’s Ministry of Agriculture, Forestry and Fisheries. The other was the dramatic dismissal of BP’s chairman after just seven months—an unusually swift move that caught my attention as a governance specialist.
At first glance, these events seem completely unrelated. But for SME leaders, they share a critical takeaway: the very “guardians” of governance can become a risk themselves.
In BP’s case, the chairman—the highest governance authority—was at the center of the scandal. In the confectionery case, the person responsible for managing everything from raw material sourcing to labeling may have overlooked the fraud.
These stories highlight the “invisible blind spots” lurking in SME governance.
When the Guardian Becomes the Blind Spot
In many SMEs, a small leadership team—often just the president or managing director—handles all governance. This structure carries significant risk.
Let’s take a closer look at BP’s chairman dismissal. BP’s chairman was supposed to oversee management. But when it emerged that he himself had been involved in past misconduct, he was removed.
In other words, the person monitoring governance was complicit in the wrongdoing they were meant to oversee.
This dynamic is even more pronounced in SMEs. When the president handles both management and governance, who monitors the president? If the president engages in misconduct, there’s no mechanism to stop it.
The same applies to the confectionery maker’s origin fraud. If the person responsible for sourcing decides to fake product origins to cut costs—and no system checks their work—the fraud can persist for years.
The key issue here is the lack of a system to check the “guardians” themselves. Large companies have outside directors or auditors for this, but SMEs rarely have those resources.
Three Actions SMEs Can Take Starting Today
So, what can SME leaders do? With limited budgets and staff, here are three practical steps you can implement right away.
Action 1: Reduce Information Asymmetry
Governance blind spots arise when information is concentrated in a few people. It’s dangerous when the president holds all the data.
Specifically, these measures are effective:
・Set up a system where multiple people can review financial data
・Make contracts with key partners accessible to managers other than the president
・Have external experts (e.g., tax accountants or lawyers) periodically review business processes
These steps don’t require special systems—you can achieve them with existing tools.
Action 2: Create Rules to Avoid “One-Man Decisions”
In SMEs, it’s common for the president to make all decisions—a “one-man management” style. But this is the biggest governance blind spot.
Especially for these decisions, create rules that require multiple people’s involvement:
・Selecting or changing business partners
・Changing quality standards for raw materials or products
・Making major price adjustments
・Deciding to enter new business areas
If the president makes these decisions alone, always hold a meeting with the finance manager and on-site supervisors, and keep minutes.
Action 3: Train for the “Unexpected”
What surprised me about BP’s chairman dismissal was how quickly it came to light—within just seven months. This shows that even the strongest governance systems can face unforeseen events.
For SMEs, I recommend running drills once a year using hypothetical scenarios like:
・If the president were suddenly hospitalized, who would take over?
・If a key business partner went bankrupt, how would you respond?
・If internal fraud were discovered, who would investigate and how would they report it?
These drills help uncover governance blind spots before they become real problems.
Shift to Governance as a “Design”
By now, some of you might think, “Our company doesn’t need that level of structure.”
But the origin fraud and BP cases show that problems can happen at any company, regardless of size. In fact, SMEs have larger governance blind spots, and once misconduct occurs, it can threaten the company’s survival.
Governance isn’t just “a set of rules to avoid violations.” It’s “a design to protect and grow your business.”
BP’s case teaches us the risk of top leaders being complicit in wrongdoing. The confectionery case shows how fraud at the operational level can persist unchecked.
To protect your company from these risks, it’s essential to create a state where “someone is watching” on a daily basis. Start building that system today, step by step.
As a concrete action, bring these topics to your next management meeting:
・Does our current decision-making process include checks by multiple people?
・Are there areas where the president makes all decisions alone?
・If the president committed misconduct, is there a mechanism to stop it?
Confronting these questions is the first step toward better governance.
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