Corporate Governance for SME’s

Published: 2021-07-06 06:26:48
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Executive SummaryThere are many components of best corporate governance practices that are important for the long term success of the business. There are internal as well as the external mechanisms that are needed to be followed as well as the other factors that would go a long way in making sure that they have all the controlling mechanism. The other important factor is to make sure that the skill development is done in the manner that make sure that the business are able to develop themselves in the right manner. IntroductionMost of the times, the key objective of the Framework and the Code of the Good Governance is to make sure that all the SME’s, that are working should be operating under the framework where they can be sustainable as well as they can stay competitive (Abor and Biekpe, 2016, p.288).  The framework is the guide that is designed to make sure that the SME’s can operate at the independent level and also carry out the phased implementation towards good governance and best business practices (Parum, 2015, p.709).  It has to be noted that the whole thing is bound to vary from one business to the another there are going to be some disparities, but in the hindsight, everything about the business and its long term operations is going to stay the same to say the least (Abor and Biekpe, 2016, p.288).Evidence and AnalysisThe underlying principles and the codes that are part of the framework are designed in the manner that they should make sure that all the SME’s that are opting for the IPO and looking for the 1st level funding are following the general guidelines and principles that are integral for the long term growth of the business (Abor and Biekpe, 2016, p.288).Expropriation of the Rights of the ShareholdersExpropriation of the minority shareholders and the they are going to be managed is the big part of the guiding principles of the small and medium enterprises (Del Baldo, 2012, p.36).  The key thing that has to be made sure during the given process is that the controlling shareholders are in the position to make the private benefits (Del Baldo, 2012, p.36).  The whole activity is carried out at the expense of the shareholder (Parum, 2015, p.709).Issues in the SME SectorIf there are long term lingering cases where the failures of the SME is becoming a common feature, most of the times it means that the it would turn out to be a huge threat of the economy (Abor and Adjasi, 2017, p.111).  Thus effort must be needed to setup the guiding principles that allow the corporate governance of the SME’s to be done in an appropriate manner and allowing long term and sustained advantage to the business (Abor and Adjasi, 2017, p.111).Handling the Issues of the Corporate GovernanceThe key thing that is needed to be done here is to make sure that the development of the mechanism is carried out in the manner that it allows the establishment of the two internal mechanisms to be operated at the given time period (Abor and Adjasi, 2017, p.111).  There is also need to make sure that the development of the internal and external control is being done (Abor and Adjasi, 2017, p.111). The main external control mechanism is to make sure that the market is developed for the controlling mechanism in terms of the corporate control (Abor and Adjasi, 2017, p.111).  At the same time, effort is needed to be made to make sure that the management of the labor markets and the concentrated shareholding of the block holders are needed to be done (Longo et al, 2015, p.28). Coming towards the external corporate control mechanism it is about making sure that the directors shareholding and the Board of Directors must be working in the manner that make sure that the long term development of the people can be carried out in the appropriate manner (Brunninge, 2017, p.308). At times, when the market controls are weak, the internal corporate control mechanism that is supposed to play a vital role in the corporate governance mechanism is not able to work out in the right manner (Kocmanová et al. 2016, p.94). As a matter of fact, it has been counted among as one of the worst issues that are being faced by the emerging economies (Abor and Adjasi, 2017, p.111).Barriers in the Development of the SMEThere are quite a large number of issues that might hamper the progress and the growth of the smaller businesses (Brunninge, 2017, p.308). For instance, the concentration of the ownership and the way it needed to be managed, the fraudulent activities that are carried out the majority shareholders is termed as another major issue (Abor and Adjasi, 2017, p.111).  Then there are illegal investment schemes  that one gets to see at a rather regular basis these days and result is that the development of the SME’s and the way they are supposed to be developing in the Malaysian is not being carried out in the appropriate manner to say the least (Abor and Adjasi, 2017, p.111).  Most of the times, these issues are able to surface due to the fact that the corporate guidelines and governing mechanism is not being followed by the SME’s (Abor and Adjasi, 2017, p.111).  It is one of the main reason due to which if one talks about the number of SME’s that are witnessed in the given time period have not been able to perform in the right manner (Kocmanová et al. 2016, p.94). The ideal thing that is needed to be done is to make sure that the perfect corporate governance mechanism is needed to be developed in order to make sure that in the long run, the performance of the SME’s can be improved (Abor and Adjasi, 2017, p.111).Enhancement of the SkillsOne of the issues that are faced by the small businesses is the fact that they are not able to sustain themselves in the long run (Hui, 2013, p.36). The primary reason behind this fact is that they do not have the necessary set of skills to make sure that they stay in the business (Juan García-Teruel and Solano, 2017, p.177). So one of the things that are going to be discussed in the corporate governance mechanism is to make sure that the skill enhancement and development is made the part of the agenda (Abor and Adjasi, 2017, p.111). If the SME’s are able to make sure that they have right set of skills, their chances of success are going to be increased by considerable margin (Sarbutts, 2013, p.340).ConclusionOne of the key purposes of the corporate governance is to make sure that the small businesses that are opting for the 1st level funding are in the position to make sure that they can follow the right sort of principles and guidelines regarding the business development (Huse, 2015, p.50).  If the corporate governance practices are followed, they would go a long way in making sure that the businesses are not repeating the same level of mistakes that they have committed before and are able to sustain themselves in a better manner to say the least (Huse, 2015, p.16).ReferencesAbor, J. and Adjasi, C.K., 2017. Corporate governance and the small and medium enterprises sector: theory and implications. Corporate Governance: The international journal of business in society, 7(2), pp.111-122.Abor, J. and Biekpe, N., 2016. Corporate governance, ownership structure and performance of SMEs in Ghana: implications for financing opportunities. Corporate Governance: The international journal of business in society, 7(3), pp.288-300.Brunninge, O., Nordqvist, M. and Wiklund, J., 2017. Corporate governance and strategic change in SMEs: The effects of ownership, board composition and top management teams. Small Business Economics, 29(3), pp.295-308.Del Baldo, M., 2012. Corporate social responsibility and corporate governance in Italian SMEs: The experience of some “spirited businesses”. Journal of Management & Governance, 16(1), pp.1-36.Hui, W., 2013. Debt financing, corporate governance and market valuation of listed companies. Economic Research Journal, 8, pp.28-36.Huse, M., 2015. Accountability and creating accountability: A framework for exploring behavioural perspectives of corporate governance. British Journal of Management, 16(s1).Huse, M., 2015. Corporate governance: Understanding important contingencies. Corporate Ownership & Control, 2(4), pp.41-50.Juan García-Teruel, P. and Martinez-Solano, P., 2017. Effects of working capital management on SME profitability. International Journal of managerial finance, 3(2), pp.164-177.Kocmanová, A., Dočekalová, M., Němeček, P. and Šimberová, I., 2016, July. Sustainability: environmental, social and corporate governance performance in Czech SMEs. In The 15th World Multi-Conference on Systemics, Cybernetics and Informatics (pp. 94-99).Longo, M., Mura, M. and Bonoli, A., 2015. Corporate social responsibility and corporate performance: the case of Italian SMEs. Corporate Governance: The international journal of business in society, 5(4), pp.28-42.Parum, E., 2015. Does disclosure on corporate governance lead to openness and transparency in how companies are managed?. Corporate Governance: An International Review, 13(5), pp.702-709.Sarbutts, N., 2013. Can SMEs “do” CSR? A practitioner’s view of the ways small-and medium-sized enterprises are able to manage reputation through corporate social responsibility. Journal of communication management, 7(4), pp.340-347.

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