Corporate Governance Strategy - EU SME Corporate Governance Research

Author: Li Kai
Publisher:
Publish Date: 2006-05-01
Features: Chapter 1: Issues and Current Status of Corporate Governance in Small and Medium Enterprises in the UK
I. The Development History of Corporate Governance in Small and Medium Enterprises in the UK
According to the current basic legal regulations applicable to small and medium enterprises in the UK and their amendments, this chapter will analyze the governance issues existing in UK small and medium enterprises. Most amendments emphasize adjusting the scope of application of commercial legal regulations to make it easier for more commercial entities to utilize these legal mechanisms, especially those more suitable for small and medium enterprises to operate, as they have become increasingly important in the recent economic recovery. By adjusting the scope of application of commercial legal regulations, the governance structure will also be simplified, and the remnants of commercial legal regulations that excessively emphasized formalism and retained typical Victorian traces will be eliminated. However, given the existence of numerous different industries, there is no ideal legal system or ideal governance model. From "lifestyle-focused" enterprises to those with development potential, enterprises differ greatly in essence and development goals. Nevertheless, in recent years, many people have believed that the complex legal regulations have burdened economic development, and therefore the goal of legal reform is to inject more entrepreneurship into economic activities. Legal reform is only a small part of the overall reform trend. In the latter half of this chapter, we will discuss other important institutional norms that affect the governance of small and medium enterprises.
II. The Meaning of Governance
Governance, especially corporate governance, is as old as commercial activities themselves. When Adam Smith criticized the joint-stock enterprises (which we now call joint ventures), he pointed out the problem of "managing others' money" by enterprise managers. However, in most small and medium enterprises, unless they are simply investors, partners, directors, and senior managers are mostly managing their own money. According to the hypothesis of Berle and Means, this will produce a series of problems different from those in large enterprises, where the typical problem is the separation of ownership and control. In fact, as pointed out by Lawton and others, including recent scholars like La Porta, even global listed companies in common law jurisdictions (although not all) that follow the Berle and Means model are not standard types of companies in other countries around the world. However, following the corporate scandals in the US Watergate affair and the failures of many European and other companies operating in the UK in the 1980s and early 1990s, governance, especially corporate governance, has become an important issue of concern and research in recent years. According to Coase's transaction cost theory, agency theory, and the theory of contractual links, this issue is related to many disciplines, not just economics, which has led many people to criticize the overly strong emphasis on economic research methods. Only recently has the focus of analysts' research shifted to the corporate governance of small and medium enterprises. Therefore, the meaning and essence of governance, especially corporate governance, have always been a subject of debate in academia. From different academic perspectives and ideological preferences, scholars