Corporate Governance And Management Of Small Business Enterprise: An Executive Summary

1512 words - 6 pages

Shea (2006), in quoting the work of Steiner & Steiner (2006) explained that corporate governance is generally referred to overall control of activities in a corporation that involves the formulation of corporate objectives, strategies, and plans and the proper management structure in order to be responsible to its various stakeholders. Since the 1990s, the term corporate governance has become a business jargon around the world. The literature on stakeholder theory suggests that business corporations should go beyond the traditional approach to protect shareholder interests and be more responsive to demands from both powerful and fringe stakeholders (Preble, 2005).Sometime in 1998, the Malaysian government purported to establish a High Level Finance Committee (‘the Committee’) to look into establishing a framework for corporate governance and setting best practices for the Malaysian corporate sector (Singam, 2003). According to the Committee in their Report on Corporate Governance 1999 (‘the Report’), corporate governance is defined as, ‘the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realising long term shareholder value, whilst taking into account the interests of other stakeholders’ (Singam, 2003).According to a survey conducted by Standard & Poor’s Governance Services and the Corporate Governance & Financial Reporting Centre at the National University of Singapore (Shea, 2006), it has demonstrated that listed companies in Malaysia surveyed score an average of 43 corporate governance points out of a maximum of 140. The score is quite far below listed companies in Singapore which was 81.Corporate Governance and Small or Medium-sized BusinessIt has been accepted that as a rule, people choose more security or protection when they possess more things that are considered valuable to them. Observations of homeowners, merchants, and institutions support this view: those with more at stake typically have greater security. Corporate governance is a sort of security that owners put in place to protect their interests against many problems, such as agency problems (Hermalin, 2008). Thus, according to the author, if one might ask which firms will have to have stronger governance than others, the answer would be those in which more is at stake, i.e., those with the most resources (such as capital, assets, and so on). This is because, the bigger the company is, more it has at stake and consequently, more corporate governance is required (McCahery & Vermeulen, 2006).The debates about corporate governance have been centered on the issues of the separation of ownership and control and the alignment of the agent’s interests with the principal (Shea, 2006). Rules and factors leading to effective practice in corporate governance include among others configuration and...

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