Corporate Governance Norm for SME
Journal of Public Administration and Governance (2011), Vol. 1, No. 2, Pg. 77 - 123
Posted: 24 Apr 2019
Date Written: August 9, 2011
The last few decades have witnessed several changes in the world economic system:consolidating trend of globalization and liberalization of economies; crumbling barriers to international trade and free movement of capital due to the establishment of World Trade Organization (WTO) and shifts towards market economy in contrast to the control economy or socialist economy. It was believed that market economy will be the ‘mantra’ for all nations, either developing or under developed, to achieve economic salvation. Destiny smiled and brought the belief to its knee and rethinking process started afresh as to what ought to be the new ‘mantra’. Economic downtown indicated further that it is not the big companies, which are only efficient machineries to rotate the economic circle; rather SME’s are the most trusted vehicles that will lead any economy towards salvation.
Literature across the globe suggests adoption of sustainable Corporate Governance Norms within the SME sector. On the contrary, there are strong arguments also available against introduction of such norms. In the present study, we have considered the feasibility of introduction of corporate governance norms in the sector and attempted to develop, on the basis of the findings, sound and practicable solutions.
Following are the findings of the primary survey:
a. Eighty-six present of total business firms belong to the informal sector, i.e. Proprietorship and Partnership.
b. Economic liberalization encouraged many enterprises to incorporate in this sector.
c. Eighty-five percent of the enterprises in this sector are engaged in productions.
d. It is found that over the years, number of enterprises have increased their business capital, indicating thereby, that the enterprises are making profits and in sustainable business process.
e. Majority of the promoters started their business as a proprietor or partnership firm and majority of them were employed in similar type of business. The promoters/proprietors of first generations are well aware of the business risks.
f. Proprietors ordinarily are in the Management of the enterprises. Only ten percent of the enterprises said that the owners of the enterprises are not involved in day-to-day management.
g. The apex and middle management of the enterprises are occupied by comparatively less number of people. Substantially large number of the enterprises said that the apex management comprises professionally qualified people.
h. On the issue of stakeholder awareness and participation in business, almost ninety-one percent of enterprises responded that the stakeholders are aware about the activities of the firms, and nearly seventy-five percent of the enterprises welcome suggestions of their employees regarding improvement of organizational management and firm activities.
i. Fifty-one percent of the enterprises noted that their employees have undergone regular training programs. Out of that, about forty-one percent enterprises send and sponsor the training programs of their employees.
j. For sixty-two percent of the enterprises, the accounts are audited by Chartered and Cost Accounting firms. Enterprises disclose the audited accounts to the other partners of the firm, members of the society, shareholders or Government authority or to the banker, those who are statutorily prescribed.
k. On the front of regulatory compliances, it is found that the enterprises are required to go through multiple regulatory compliances.
l. The exposure of SME to information technologies is quite high. About forty-one percent of the enterprises file their regulatory returns online. Seventy-Five percent of the enterprises are interested to get promotional schemes and file all regulatory returns online, if provided for.
Proposed Corporate Governance norms for SME’s
A. Prepare and Publish ‘Mission Statement’ of Enterprises
B. Enterprise Policy Statement to Manage Business Growth
C. Enterprise Succession Plan
D. Annual Management and Accomplishment Statements
E. Management Structure and Level of Professional Qualification relevant to Industry
F. Method of Accounting and Disclosure of Audited Account
G. Stakeholder Relations and Welfare undertaken by the enterprise
H. Legal and Regulatory Compliance
Keywords: Corporate Governance, SME, Norms
Suggested Citation: Suggested Citation