Academic Master

Business and Finance

Corporate Governance for SME’s

Executive Summary

Many components of best corporate governance practices are important for the business’s long-term success. Internal and external mechanisms must be followed, and other factors would go a long way in ensuring they have all the control mechanisms. The other important factor is to ensure that the skill development is done in a manner that makes sure that the business can develop itself in the right manner.


Most of the time, the key objective of the Framework and the Code of Good Governance is to make sure that all the SMEs, 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 designed to ensure that the SMEs can operate independently and 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 another there are going to be some disparities, but in 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 Analysis

The underlying principles and the codes that are part of the framework are designed in a manner that they should make sure that all the SMEs that are opting for the IPO and looking for the 1st level of 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 Shareholders

The expropriation of the minority shareholders and how they are going to be managed is a big part of the guiding principles of 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 can 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 Sector

If there are long-term lingering cases where the failures of the SME are becoming a common feature, most of the time it means that it would turn out to be a huge threat to the economy (Abor and Adjasi, 2017, p.111).  Thus, effort must be needed to set up the guiding principles that allow the corporate governance of the SMEs to be done properly and allow long-term and sustained advantage to the business (Abor and Adjasi, 2017, p.111).

Handling the Issues of the Corporate Governance

The key thing that needs to be done here is to ensure that the mechanism’s development is carried out in a manner that 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 a need to ensure that internal and external control development is being done (Abor and Adjasi, 2017, p.111). The main external control mechanism ensures that the market is developed for the controlling mechanism in terms of 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 is about ensuring that the director’s shareholding and the Board of Directors work in a manner that ensures the people’s long-term development can be carried out appropriately (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 as one of the worst issues that are being faced by emerging economies (Abor and Adjasi, 2017, p.111).

Barriers to the Development of the SME

Quite a large number of issues might hamper the progress and growth of smaller businesses (Brunninge, 2017, p.308). For instance, the concentration of the ownership, how it needs to be managed, and the fraudulent activities that the majority shareholders carry out are other major issue (Abor and Adjasi, 2017, p.111).  Then there are illegal investment schemes that one gets to see on a rather regular basis these days and the result is that the development of the SMEs and the way they are supposed to be developing in Malaysian is not being carried out in the appropriate manner to say the least (Abor and Adjasi, 2017, p.111).  Most of the time, these issues surface due to the fact that the corporate guidelines and governing mechanisms are not being followed by the SMEs (Abor and Adjasi, 2017, p.111).  It is one of the main reasons why, if one talks about the number of SMEs witnessed in the given time period, they have not been able to perform correctly (Kocmanová et al. 2016, p.94). The ideal thing that needs 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 SMEs can be improved (Abor and Adjasi, 2017, p.111).

Enhancement of the Skills

One of the issues that small businesses face is that they cannot sustain themselves in the long run (Hui, 2013, p.36). The primary reason behind this is that they do not have the necessary set of skills to ensure 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 skill enhancement and development are made part of the agenda (Abor and Adjasi, 2017, p.111). If SMEs can ensure they have the right set of skills, their chances of success will increase considerably (Sarbutts, 2013, p.340).


One of the key purposes of corporate governance is to ensure that the small businesses opting for the 1st level of funding are in the position to make sure that they can follow the right sort of principles and guidelines regarding business development (Huse, 2015, p.50).  If the corporate governance practices are followed, they will 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).


Abor, 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.



Calculate Your Order

Standard price





Pop-up Message