The Importance of Corporate Governance For SMEs

Business governance concepts are numerous. Nonetheless, the most applicable concept that is more important to small and medium-sized businesses (SMEs) defines corporate governance as “a collection of laws, legislation and processes aimed at achieving optimal efficiency by utilizing suitable efficient methods to achieve corporate objectives.” In other terms, corporate governance applies to internal structures or frameworks that regulate the interactions between ‘key players’ or organizations who are influential in the organization’s success. This also promotes the survival of the company in the long run and carries out transparency and accountability.Find additional information at corporate social responsibility theory.

The corporate governance principles aim at ensuring full accountability, justice and keeping the organization’s senior team responsible to shareholders. In doing so, corporate governance plays a crucial function in respecting creditors and, meanwhile, properly recognize the organization’s objectives at large, without regard to the privileges of workers. Although executive management may have fair control to operate the company, corporate governance guarantees that this power is held to specific proportions to mitigate the abuse of authority to achieve purposes not inherently in shareholders ‘best interests. It also offers a mechanism for optimizing income, fostering incentives for innovation and eventually generating more employment.

In fact, corporate governance highlights two basic principles: a. Oversight and oversight of results and future strategies of the senior team B. Accountability by senior management to shareholders That’s why corporate governance standards extend to those who claim full accountability for the organization’s performance or loss. On the other side, recognizing that effective execution of good corporate governance does not automatically ensure the organization’s performance is crucial. Meanwhile, a bad practice in corporate governance is definitely a prevalent syndrome in many organizations which causes failure.

It is important to note that a recent survey showed that more than 48 percent of investors are prepared to pay incremental premium on equity values for companies proven to pursue good corporate governance policies as opposed to certain businesses who might have the same degree of competitiveness but are marked by ineffective management or bad governance record.

The myth regarding SME’s derives its origins from this segment’s scale and economic participation. The truth is that SMEs might appear limited in scale today, but many of them are likely to have room for development in the future and becoming major institutions. Sadly, this theory has still not been fully understood and as a result, sound corporate governance policies tend to be overlooked.

SEMs form a wide industry market in Egypt. In general, they take the shape of a limited number of owners held by private corporations. Mostly, they have less than 100 employees. These corporations are typically privately owned by relatives of the company where the rights and powers are generally exercised by an person who is normally the main shareholder. Because of this the owners usually find themselves to manage their personal property.