Corporate Governance and Succession in SMEs A Debate
May 25, 2015
Corporate Governance and Succession in SMEs
A Debate
Outline
Governance Succession SME’s in Latin America: Mexico
Case Study: Cineapolis SME’s in Africa SME’s in Asia Conclusion
Governance
• Structures put in place to discuss and decide the right issues at the right time by the right people in the right place.
• A way to integrate ownership, business and family subsystems while maintaining the necessary boundaries.
Succession
Alternative to sale or closure.
Ownership succession: the complete and irreversible transfer of ownership from one group to another.
Managerial or leadership succession: ultimate transfer of management duties and responsibility from one C.E.O to another
Barriers to Succession
FAMILY BUSINESS
Owner holds all the cards
Poor business performance
No natural or trained successors /gender issue
Unwillingness of CEO to let go
Conflict within family
NON FAMILY BUSINESS
• Owner holds all the cards
• Poor business performance
• No natural or trained successors/gender issue
• Unwillingness of CEO to let go
Overcoming these Barriers
• Plan, Plan and Plan—a process, not an event
• Reduce lifestyle issues
• Have an organization
• Develop talent—a marathon, not a sprint
• Strategic planning to determine needs of business going forward
• Implement appropriate governance
SME’s in Mexico: An Overview
5,144,059 companies 99.8% are SME’s 52% of GDP 72% of Employment Regulated by SPyME Life period: 3-5 years
Sales
ServicesComercial ManufacturingOthers
SOCIEDAD ANONIMA
Fixed or variable capital
-Shareholder’s liability
-Directors liability
A disinterested third party
Minority rights
Accounting methods
Sucession and merger
Limited Liability
Fixed or variable capital
Shareholder’s liability is
limited to their stock interest
No third party
Sucession must be
stablished sin ce the
beggining
Why SME’s collapse
Absence of planning and forward thinking
Inadequate leadership and management skills
Lack of future business plans and problems with cash flows
Inability to innovate Inadequate access to technical
assistance
Case in Mexico
Mexican Founded in 1947
Small company Family business
Cine Morelos
Cine “La raza”
Cinepolis
Structure of Cinepolis
Sons
Father
CHAIRMAN OF THE BOARD
Director Director
PROBLEM : family matters have repercussion on the business
After the Succession: Structure of Cinepolis
Family membe
rs
Son CEO
Director
Director
TODAY
Biggest cineplex chain in Mexico with 205 theaters in 65 cities
Largest chain in Latin America 230 theaters 2,160 screens 13,000 employees throughout Mexico,
Guatemala, El Salvador, Costa Rica, Panama, Colombia, Brazil, Peru and India.
SME’s in Africa: An Overview
North Africa, Mauritius, and South Africa South Africa: 55% of all jobs, 22% of GDP Nigeria: 95% of all formal manufacturing
activity Senegal and Kenya: conducive for SME’s
as well
Incentives are being given by Institutions African Development Bank, UK
Commission for Africa, International Finance Corporation, UN
Problems
Political and economic instability
Informality Limitations
brought about by the market
Lack of regulations and policies
Undeveloped regional integration
Poor access to formal financing
Management Infrastructure Unavailability of
certain raw materials
NO SUCCESSION PLANS
Possible solutions?
More Initiatives
Communication
More rigid policies
More diverse sources of financing
Succession Plan
The Asian Perspective
China is regarded as having the most competitive SMEs.
Followed by North Asian markets Japan, Hongkong, Korea and Singapore
Private-owned enterprises have chosen the highly centralized family style to be their ownership capital structure.
The Asian Perspective
Change in ownership is a dynamic evolution, which, however, is restrained by external institutional environment to appear to be ultra-stable. The changes in the corporate governance system are often more slow than necessary and, in some cases, are not even made at all. This mismatch, even if transitory, could stop the growth of family firms
Recommendation
Combining the modern market rules and the traditional Chinese culture. Admission of the difference in knowledge and
capability among people. Ownership and property rights should be
unambiguous Improvement of internal management and
training of talents to increase competitiveness.
Rely NOT on the network-based but the rule-based development.
Conclusion
There is a growing need for greater transparency and corporate governance among SME’s.
SME’s are facing the same problems all over the world.
SME’s aren’t the only ones experiencing problems in corporate governance and succession. Apple and Steve Jobs