Analysis in the context of Small and Medium Enterprises –SMEs. By Callixte NYILINDEKWE
Traditionally, corporate governance has evolved around the contract theory and agency problem based on separation of ownership and management (Dube, 2011). The benefits of this separation derive from the monitoring by the board of the CEO activity in the interest of shareholders, and generally in the interest of all stakeholders. There is a need here to first know what the agency theory is. Agency theory relative to corporate governance assumes a two-tier form of firm control: managers and owners. Agency theory holds that there will be some friction and mistrust between these two groups. The basic structure of the corporation, therefore, is the web of contractual relations among different interest groups with a stake in the company (Johnson, 2011). It is generally recognized that most of Small and Medium Enterprises are characterized by lack of separation between ownership and management. The present paper will investigate the issue of corporate governance in SMEs. Specifically we will try to find out how SMEs would implement good corporate governance principles.
II. What is Management?
Management has been defined by different authors in a number of ways. Some call it a process of managing. Some call it a coordination of resources, some call it body of personnel challenged in the task of managing while others call it as an organized distinct discipline (Sharmaa, 2011). From different author’s definitions, it derives that the “management” is a technique of extracting work from others in an integrated and co-ordinated manner for realizing the specific objectives through productive use of material resources. Mobilizing the physical, human and financial resources and planning their utilization for business operations in such a manner as to reach the defined goals can be referred to as “management”. If the views of the various authorities are combined, management could be defined as “a distinct ongoing process of allocating inputs of an organization (human and economic resources) by typical managerial functions (planning, organizing, directing and controlling) for the purpose of achieving stated objectives namely – output of goods and services desired by its customers (environment). In the process, work is preformed with and through personnel of the organization in an ever-changing business environment”. (Unknown, 2011). The term management also represents the team responsible for management activities, led by the chief Executive Officer.
In the framework of corporate governance, we will mention that management is responsible for leadership of the business and managing it within the authorities delegated by the Board.
III. What is governance?
Corporate governance as "a set of rules, regulations and structures which aim to achieve optimum performance by implementing appropriate effective methods in order to achieve the corporate objectives". In other words, corporate governance refers to internal disciplines or systems which govern the relationships among 'key players' or entities that are instrumental in the performance of the organization. Moreover, it supports the organization's sustainability on the long term and establishes responsibility and accountability. There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large corporations, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron Corporation. The guidelines of corporate governance aim to achieve greater transparency, fairness and hold executive management of the organization accountable to shareholders. In doing so, corporate...