Informal governance in small and medium-sized companies as a systematically managed activity : an owner, board and management perspective

Abstract

The European economy is overwhelmingly dominated by SMEs. Today they face a challenge of generating growth in an environment with increasing regulation. Since SMEs typically have limited resources, it makes it a timely subject to better understand how the governance of privately held SMEs can better support the success of European SMEs. In the first section of this dissertation, an overview of the theoretical background, methodology, results and conclusions are given. In the second section, the three articles that form the empirical base for the results and conclusions are enclosed.

Through a qualitative research approach, this study provides an understanding of the informal governance of privately held SMEs. The increasing number of companies founded by entrepreneurial teams that apply active board work including non-executive directors makes the understanding of governance in this context a timely subject. First, the study emphasises that theory on governance in privately held SMEs should have regard for owners as well as the board and management (OBM) as the appropriate level of analysis for governance. This contrasts with most literature on corporate governance that regards only the board as the central actor. Second, this study provides a definition of informal governance as a variety of interactions between OBM individuals and a body of responsibility. This identification of the actors provides a base to create and test hypotheses regarding specific interaction in the interface between informal interaction and corporate governance. Third, this study shows that informal governance is a systematically led activity including practices that precede, succeed, compensate and complement corporate governance. In these practices, OBM respectively has distinctive roles.

In addition to the theoretical contributions, the study includes practical recommendations for owners, board and management on roles and practices to establish and maintain informal governance as a systematically led activity.