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The corporate governance code for regulating the activities of small and medium enterprises (SMEs) in Dubai, the United Arab Emirates (UAE), was developed by Dubai SMEs in 2011 (Shehata 2015). Dubai SME in association with the Department of Economic Development formulated nine pillars as the main corporate governance principles in the Emirate. These standards are rather general to address the rules of corporate governance that are appropriate for different contexts and companies (Shehata 2015). The nine pillars are the important principles of corporate governance for SMEs because they reflect aspects of the effective governance adopted in different countries, and they are efficient to regulate the governance practices with references to the principles of accountability, transparency, and fairness.
The code includes the following rules: the formulation and implementation of the corporate governance framework with set roles for shareholders; the focus on the succession planning; the exchange of information between shareholders; the choice of the formal Board of Directors; the focus on stating rules for the Board of Directors. Moreover, the principles also include the provision of comprehensive financial statements; the focus on internal control; the attention to stakeholders needs; the provision of rules for family-owned businesses (Shehata 2015). According to Koldertsova (2011), the focus on adopting the formal corporate governance framework and succession planning is critical for all enterprises in different countries as it is the first step toward developing the perfect governance. However, the approaches to following these pillars are various in regions.
While comparing the reference to these pillars in the UAE and Malaysia, it is important to note that the approaches of these countries are mostly similar only in relation to the discussed two pillars. Even though SMEs in the UAE follow all nine principles, the focus is also on regulating the work of the Board of Directors to adjust the overall approach to the corporate governance in the company (Hussainey & Aljifri 2012). On the contrary, in Malaysia, the focus is on regulating the relationships between shareholders, stakeholders, and coordinating the family-owned businesses (Rachagan & Satkunasingam 2009). For shareholders, effective corporate governance means the guaranteed return on investments (Baydoun et al. 2012). In Malaysia, the problem is in the fact that the ownership of SMEs plays a key role in influencing the corporate governance practices, and shareholders are inclined to gain more control over the enterprise (Ibrahim & Samad 2011). According to the ideas of the agency theory, it is a challenging task to convince enterprise owners to act as agents for the benefit of all stakeholders (Rachagan & Satkunasingam 2009). As a result, companies in the UAE refer to all nine pillars effectively and develop the appropriate corporate governance practices, but in Malaysia, it is possible to expect the effective use of only several principles when pillars related to shareholders and the issues of ownership and exchange of information cannot be addressed effectively in this country.
From this perspective, the key pillars that influence the progress of the corporate governance in SMEs are the adoption of the framework, the succession planning, the shareholders communication, the regulation of the Board of Directors, and the focus on stakeholders needs and family-owned businesses. However, the code also describes pillar six and pillar seven related to composing books of accounts and guaranteeing internal control (Shehata 2015). While comparing the situation not only in SMEs but also in the banking sector, it is possible to state that these pillars play an important role in maintaining the corporate governance in terms of planning activities based on accurate financial reports, protected investments, as well as assessed and predicted risks.
While analyzing the corporate governance principles followed by the Central Bank of Bahrain and the Central Bank of United Arab Emirates, it is possible to notice the focus of both organizations on the internal control and risk management and the accentuation of responsibilities for financial statements (Baydoun et al. 2012; Kamal 2009). The banking sector in the Gulf Council Cooperation (GCC) countries were characterized by ignoring the rules of corporate governance for a long period of time. The situation changed in the 2000s when the first codes of corporate governance were adopted in these countries to address the lack of transparency and set specific standards (Baydoun et al. 2012). Currently, in the UAE and Bahrain, these principles are correlated with the pillars proposed for SMEs as regulations required in these sectors regarding the governance are similar in terms of depending on the ideas of accountability and transparency, monitoring of risks, addressing the shareholders interests, and guaranteeing the provision of accurate financial statements.
It is possible to note that despite the country or a type of organization, the pillars proposed to for effective corporate governance are adopted in all sectors, and the public sector organizations are inclined to imitate the practices used in SMEs or private-sector organizations. The reason is that the discussed nine pillars reflect the general and most appropriate standards related to the corporate governance and composed based on the Western and GCC countries experience in regulating their governance and shareholders relations. At the current stage, the companys focus on these pillars can guarantee the attraction of the investments, the stakeholders commitment, and the minimal risks associated with financial and operations aspects.
Reference List
Baydoun, N, Maguire, W, Ryan, N & Willett, R 2012, Corporate governance in five Arabian Gulf countries, Managerial Auditing Journal, vol. 28, no. 1, pp. 7-22.
Hussainey, K & Aljifri, K 2012, Corporate governance mechanisms and capital structure in UAE, Journal of Applied Accounting Research, vol. 13, no. 2, pp. 145-160.
Ibrahim, H & Samad, F 2011, Corporate governance mechanisms and performance of public-listed family-ownership in Malaysia, International Journal of Economics and Finance, vol. 3, no. 1, p. 105-120.
Kamal, M 2009, UAE corporations-specific characteristics and level of risk disclosure, Managerial Auditing Journal, vol. 24, no. 7, pp. 668-687.
Koldertsova, A 2011, The second corporate governance wave in the Middle East and North Africa, OECD Journal: Financial Market Trends, vol. 20, no. 2, pp. 219-226.
Rachagan, S & Satkunasingam, E 2009, Improving corporate governance of SMEs in emerging economies: a Malaysian experience, Journal of Enterprise Information Management, vol. 22, no. 4, pp. 468-484.
Shehata, N 2015, Development of corporate governance codes in the GCC: an overview, Corporate Governance, vol. 15, no. 3, pp. 315-338.
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