The Nature of SMEs

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Small and medium enterprises require management and leadership styles that are appropriate to influence the growth of the business in the environment. The ideas of balancing and rebalancing the management of SMEs emerge from the need to deliver the objectives of the companys products and services for increased results in the set plan. To that effect, corporate governance remains a salient attribute to the beneficial exchanges that the micro and small-medium enterprises (MSMEs) deliver to the socio-economic conglomerates of the environment. In the contemporary age, SMEs accrue the competence from the informative models such as an IT-based corporate governance method, which eradicates any risks from the internal and external factors. Considerably, the formulated perspective indicates the inevitable need for SMEs to embark on theoretical measures that enhance the firms decision-making processes for the benefit of the majority and relevant stakeholders.

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According to Anand Saxema and Rajna Jagota (2015) study, the essence at which corporate governance is questioned under the micro and medium enterprises (MSME) to decree the significant role of the managerial framework. The conceptualized ideology is that the activities conducted by the managerial teams and the organizations leaders conjure success or failure of the MSME from the relevant stakeholders reactions. To that effect, corporate governance remains a salient attribute to the beneficial exchanges that the MSMEs deliver to the socio-economic conglomerates of the environment. Delays in the implementation of corporate governance forces to SMEs to face threats as the immediate societys stakeholders fail to understand the significant role of the organization in alleviating challenges with its purported objectives (p. 65). Considerably, the formulated perspective indicates the inevitable need for SMEs to embark on theoretical measures that enhance the firms decision-making processes for the benefit of the majority and relevant stakeholders.

Embracing a management style that would address issues from an up-to-date platform

Croteau, et al. (2015) study perceives that the contemporary society should focus on incremental theories to best manage the internal and external groups of stakeholders. With the mindset that the financial, supplier, and outsourced logistics channels influence, the success of the organization, the authors perceive enhanced IT systems approach in corporate governance as the valuable means to accrue the external benefits. The informative model addresses that the IT-based corporate governance method eradicates any risks from the internal and external factors. To that effect, the organization implements a strategic leadership plan that applies technological communication basis in relaying information while reviewing the independent suggestions from the internal and external teams. Apparently, the IT-based corporate governance is applicable in SMEs for result-oriented communication of objectives (Bergeron, et al. 2015, p. 4445). The outcome of applying the theoretical model allures belongingness and loyalty; hence, the relevant groups endeavor in activities that elevate the organizations growth towards the competitive edge.

The board of every SME is vital in forecasting the revenue outcome from the gross income. Notably, the existence of salary remuneration influences participation from the leaders, managers, and employees in the enterprise. However, Abraham Amsong (2015) asserts that infant firms or existing firms face financial constraints from excessive remunerations. Similarly, the population of board members is a consideration that an SME should make. The argument is that many or few board members restrain the decision-making and leadership plan. In turn, the affected organizations suffer from financial or revenue losses with the banking, media, or consumer utilities learning of the existing or emerging reputations (p. 52). It is advised that SMEs seek the ideal financing plan for a particular number of leaders. In exchange, the strategic governance would attract positive changes; thus, the corporate firms would embrace any anticipated changes within the SME.

Choosing the right group of leaders for strategic growth of SMEs over environmental challenges

The ideologies of balancing and rebalancing the corporate governance of SMEs emerge from the need to deliver the objectives of the companys products and services for increased results in the set plan. Assuming that the organization is vulnerable to socio-political influences, Nordberg highlights the vision and mission oriented measures to succeed any insufficient strategies from the existing plan. The European integrated research anticipates the prevalence of corporate systems in the continents organizations as vital to the long range presence and growth in the socio-economic environment (Nordberg 2007, p. 14). Arguably, SMEs require corporate governance to implement democratic and affiliate workplace groups and leadership networks. The notion held is that the established corporate system leads to the reconstruction of the SMEs corporate identities.

The parameters of defining exactly what comprises a small or medium enterprise is a striking concern in the SME literature and understanding. Many scholars and authors have derived different cases, explanation and conclusions regarding this kind of businesses (Ceccarelli, 2011 pp 55-58). Small and medium enterprises have not been left behind in an effort to determine which falls under a certain category. The interpretation by size is diversified over a range of concepts ranging from use of skilled labor, Capital Assets and levels of turnover to define the classification of Small and Medium enterprises. This classification by size has over time deemed the SMEs not in need of corporate governance.

Incorporation and Application of Corporate Governance in SMEs

Corporate governance in small and medium enterprise have picked up pace over the recent years in a bid to incorporate benefit of investors. In the past corporate governance was associated larger companies, with some arguing that SMEs are have few employees and generally small to need corporate governance in their system and operations. For small and medium enterprises, the growing need for a strong relationship between internal governance, corporations and their overall mechanism have triggered their adoption into these classes of business. This is in a bid to developed proper accountability that is the key pillar to a successful small and medium enterprises by enhancing the way these businesses are controlled and how ownership changes take place in a company (Abor and Adjasi, 2007, pp 11-122).

Corporate governance in SME's, good corporate governance enables the market to have confidence in what the enterprise is producing. Good corporate governance also promotes integrity and efficiency of the SMEs, enabling its economy to grow and be financially stable. In countries that have week legal protections for corporate investors, having level corporate governance in the organization is very important. Corporate governance of small and medium enterprises is increasingly gaining importance world over and its becoming the number one agenda of any business all over the world. It is estimated that small and medium enterprises account for nearly 80% of the overall value that is produced by the private sector. Most people around the world are either starting a young business or are planning to start one soon. Better corporate governance of small and medium enterprises is positively linked to growth and sustainability as evidence shows that SME's that use corporate governance in their business operations grow faster and are also able to sustain them in the long run. By having better corporate governance, a business improves its chances of accessing finance regarding loans and grants (Baldo, 2012).

When corporate governance has been incorporated into small and medium enterprises, a small and medium enterprise can be in a position to be directed, controlled, and administered through a supervisory system that is accountable to those how are in ownership, management, stakeholder and shareholders. Corporate governance creates rules, laws and procedures as to how the overall business is run, close loopholes for abuse of office and ensuring integrity of financial records and results thus maximizing accountability which in turn yields growth and prosperity (Jalari and Dr. M. Devarajulu, 2012 pp119-121). As a results small and medium enterprises adequately meet the demands from the board which is controlled with an effective mix of independent and non-independent directors.

Impacts of Corporate Governance in SMEs

The concept of corporate governance has for a long time been associated with large companies and multinationals and rarely has it been associated with small and medium enterprises (SMEs). The key to strong and thriving economies is seen by investors and corporate analysts as good corporate governance. According to (R La Porta, 2000), the benefits of applying corporate governance on listed companies is easily seen when they post their results and publicly report their conformity with ethics of corporate governance. Unlisted SMEs pose a challenge because there is little understanding of how corporate governance affects their growth, sustainability, and performance when relying on researched data (Baldo, 2012).

(Clarke, 2006) States that corporate governance in SMEs includes the establishment of structures and procedures with the necessary balances and checks to enable the management of the company to undertake their duties while making sure that the business complies with legislations. Corporate governance should apply to all entities regardless of the manner and form of incorporation and whether they are in the public or private sectors. Applying corporate governance ethics in SMEs means that the business reporting landscape will change. SMEs failure can be attributed to lack of management skills, lack of strategic thinking and the business management not understanding the fundamentals of the business operations. (Baldo, 2012) States that the failure of SMEs especially in third world countries can be attributed to the general lack of professional skills. (Clarke, 2006) Further states that corporate governance practices are assumed to trickle down from the large companies to SMEs by default. In this study, he further explained that SMEs apply corporate governance after the big corporations take them into account, that is, by default.


Abor, J. and Adjasi, C. (2007). 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.

Ansong, A., 2015. Board Size, Intensity of Board Activity, and Financial Performance of SMEs: Examining the Mediating Roles of Access to Capital and Firm Reputation.

Baldo, M. D. (2012). Corporate social responsibility and corporate governance in Italian SMEs: The experience of some spirited businesses. Journal of management , 11-21.

Bergeron, F., Croteau, A.M., Uwizeyemungu, S. and Raymond, L., 2015, January. IT Governance Theories and the Reality of SMEs: Bridging the Gap. In System Sciences (HICSS), 2015 48th Hawaii International Conference on (pp. 4544-4553). IEEE.


Clarke, A. (2006). Small and medium-sized enterprises (SMEs) and corporate governance: politics, resources and trickle-down effects. Keeping good companies , 9-1...

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