The Governance Gaps Managers Overlook Before Individual Investors Do

See for Yourself Before “Someone Else Sees It”

The news headline “Corporate Governance Risks Overlooked by Individual Investors” poses a critical question for many executives: “Are we ‘seeing’ our own governance risks before some external party ‘overlooks’ them?”

Discussions on governance are often framed as topics “for listed companies” or “for institutional investors.” However, its essence lies in “designing for continuous and stable business growth.” This applies regardless of listing status or company size.

Elements highlighted in this news—such as “board composition,” “shareholder structure,” and “policy-driven shareholdings”—are not mere checklist items. They are the very “blueprint” reflecting how your company makes decisions, what risks it undertakes, and what future it aims for.

The problem is that this blueprint is often shelved as a “finished document,” disconnected from daily decision-making. Today, let’s explore three concrete steps to reclaim this blueprint and make it function as an engine for business growth.

Step 1: Inspect the Board as a “Decision-Making Engine”

The “danger signals in board composition” mentioned in the news refer to situations like boards comprised solely of management and family members, lacking diverse perspectives. SMEs often dismiss this with, “We’re a family business.”

However, the key question is not the “composition itself,” but whether “that composition fosters optimal decision-making for the current business phase.” Governance is not about “meetings to avoid violations,” but an “apparatus for making better decisions.”

Practical Action: Create a “Diversity Map” of Decisions

First, list the key management resolutions from the past year (e.g., new market entry, major investment, key personnel changes). Next, create a sheet to visualize the “diversity of opinions” for each decision from the following perspectives:

• Business Perspective: Opinions advocating for direct impact on sales/profits.
• Risk Perspective: Opinions advocating for legal/compliance/financial stability.
• Human Perspective: Opinions advocating for organizational culture/talent development/employee engagement.
• Medium-to-Long-Term Perspective: Opinions advocating for the company’s state 3 or 5 years from now.

Creating this map reveals clear “biases”—where certain perspectives dominate decisions while others are absent. For instance, if all decisions are made solely from the “business perspective” with little “risk perspective,” that is a significant governance risk. This “bias” is the very “gap” managers should identify before individual investors point it out.

Filling this gap doesn’t necessarily require appointing external directors. Simply assigning internal officers roles like “risk perspective lead” or “human perspective lead” for key decisions—a form of “role-playing”—can significantly improve decision quality.

Step 2: Evaluate Shareholder Structure as a “Business Risk Buffer”

“Shareholder structure” is also not just a list of capital relationships. It’s the design of a “risk buffer (or amplifier)” that determines the support or pressure a company receives during unexpected crises.

In SMEs, the manager’s ownership stake is often high, which can be a strength (“not worrying about shareholder opinions”). However, the flip side is the inherent risk of “having no one to halt the manager’s judgment.” This isn’t a problem when business is smooth, but if the manager makes a critical error, there may be no failsafe to correct it.

Practical Action: Simulate “Stress Test Proposals”

Looking at your shareholder structure chart, imagine the following “stress test proposals” being raised:

• Proposal A (Major Investment): A new venture requiring 80% of current cash. Success probability: 30%.
• Proposal B (Business Exit): Exiting a core, legacy business with declining profitability, requiring employee reassignment.
• Proposal C (M&A Offer): A friendly acquisition offer from a competitor, with management retention possible.

How would your key current shareholders (including yourself) react to these? Is there a structure for calm, rational debate based on logical factors (company survival, asset value, employee livelihoods), not emotional approval/rejection?

If this thought experiment results in “no one can say NO, or everyone says NO emotionally,” it signals a risk in your shareholder structure. The ideal is a structure enabling constructive debate from different positions/perspectives, where management can build consensus through compelling rationale. Intentionally including “external shareholders” who can view management objectively (e.g., a trusted business partner’s owner) alongside financial institutions and family is one effective design approach.

Step 3: Look Beyond “Policy Shareholdings” to Explore Management’s “Unconscious Biases”

The news highlights “policy shareholdings” as a danger signal, referring to the risk where shareholders strongly committed to specific policies/ideologies distort corporate decision-making.

This may be rare for SMEs. However, a more fundamental issue is whether “the manager’s own unconscious biases” dominate the company as a form of “internalized policy.”

“The founder’s philosophy,” “industry customs,” “past success stories”—these are powerful guides but can become the most dangerous “invisible policies” when the environment changes. A firm identity of “this is how our company is” can become a “governance gap” blocking entry into new market opportunities.

Practical Action: Hold an Annual “Bias Inquisition Meeting”

Once a year, gather the management team or key executives for the following “reverse questions.” An external facilitator (consultant, external director, trusted customer) is ideal.

1. Re-evaluating Past Decisions: “Re-evaluating that new business proposal rejected three years ago with today’s market and technology, would the conclusion change?”
2. Articulating Taboos: “What is implicitly understood as ‘what we don’t do’ here? Are the reasons still valid?”
3. Redefining Success: “What was the founder’s definition of ‘success’? Do all current employees understand and share it the same way?”

The goal isn’t to find answers but to bring unconscious assumptions into “conscious awareness.” Biases, once articulated, become subjects for evaluation and review. This is the most powerful governance activity—identifying and correcting issues internally before external investors point them out.

Governance Design is “Seismic Retrofitting” for Your Business

The “governance gaps” highlighted by individual investors or rating agencies resemble “insufficient earthquake resistance”—a danger only revealed during a quake. In calm times, they cause no issues and may even be strengths like “high flexibility” or “fast decision-making.”

However, when a “management earthquake” strikes—a sudden market shift, disruptive innovation, or unexpected crisis—the structural fragility is exposed. A board lacking diversity leads to tunnel vision. A shareholder structure without buffers can tilt the company with one decision. Dominance by unconscious biases prevents adaptation to environmental change.

The three steps introduced here—the “Decision Diversity Map,” “Stress Test Proposals,” and “Bias Inquisition Meeting”—require neither major system overhauls nor significant costs. All that’s needed is the habit of regularly reclaiming and inspecting your company’s “blueprint” as a tool for business growth.

The ultimate goal of governance is not to be monitored or to improve ratings. It is to solidify the foundation for realizing your “desired business” in a more sustainable way. Polishing your blueprint with your own hands before external parties point out flaws—that is the true meaning of “governance capability.”