Corporate Governance Norms for SME's

- By Indian Institute of Technology, Kharagpur

(Summary)

On survey of the firms in entire country, it was revealed that almost 85% firms belong to the ‘informal sector’ having varied organizational form. Majority of them have evolved out of customary business practices. But, professionally trained individuals generally promote firms of recent origin. Significant numbers of firms are exposed to regulatory compliance for their business practices and regularly audit their accounts by qualified auditing firms. In most of the organizations, there is no separation between management and ownership. So, agency problem is unknown in almost all firms. On the flip side, the firms does not follow minimum defined organizational structure; neither they have the knowledge of the same; secondly, there are no fire-fighting mechanisms against internal and external risks built-in within a organizational system which can be activated in time of crisis; thirdly, the succession plan of firms are the last priority.

On the basis of survey report, the researchers are of opinion that corporate governance norms for SME’s should be based on the stakeholder approach instead of agency problem. Further, it will be a self-compliance model than the regulatory model. So, the report suggests following corporate governance norms for SME:
  1. Mission Statement of Enterprise,
  2. Enterprise Policy Statement to Manage Business growth,
  3. Enterprise Succession Plan,
  4. Annual Management and Accomplishment Statement,
  5. Management Structure and Level of Professional Qualification relevant to Industry,
  6. Method of accounting and disclosure of audited account,
  7. Stakeholder relation and welfare undertaken by the enterprise,
  8. Legal and regulatory compliance.

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Comments / Suggestions / Inputs may please be forwarded to:

The Executive Director
National Foundation for Corporate Governance
E-mail : ed.nfcg@cii.in

Shalini Budathoki
Director (CII), NFCG
E-mail : shalini.budathoki@cii.in

 

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