Dubai SME 100 is one of the well-known initiatives in Dubai that helps a number of small and medium-sized companies to become bigger and more successful and supports in terms of their growth and the development of international relations (Dubai SME 100 2015). As it is the project developed by a consultant of one of the Dubai SME 100 companies (Dubai Desert Extreme, DDE), the current paper aims at analysing the existing corporate governance framework and its 9 pillars of the Corporate Governance Code for SMEs and evaluating the gaps connected with poor internal corporate governance and inability to choose qualified external experts. It is important to identify the capability gap and improve the required mechanism in a short period of time.
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The developed framework has to be in a form of open and straightforward relation within which stakeholders are aware of all steps to be taken and are able to minimise the risks. Corporate governance is the way chosen by stakeholders to control and directed the whole corporations (Pacces 2103). The structures and principles should be properly identified to understand the responsibilities and set the expectations. As soon as corporate governance is analysed and defined, the companies are able to understand if the chosen Dubai SME 100 is an effective mechanism to be used for individual development of not.
Background of Dubai SME 100
Dubai SME 100 is the initiative organised under the patronage of His Highness Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum to identify the most effective SMEs and help each of them to become a sustainable enterprise (Dubai SME 100 2015). It is not enough to create a ranking system according to which the companies may compare their achievements, describe their peculiarities, and share the experience. It is a means to inspire various SMEs to invest, underline the importance of innovations and people, and promote the growth. The peculiar feature of Dubai SME 100 is the possibility to identify the capability gaps for improvement. Dubai companies are in need to enter the markets at home and even abroad, and corporate governance supports the idea of sustainability of SMEs and promotion of the transitions from small companies to medium ones (Dubai SME 100 2015). With time, properly chosen governance makes it possible for a company to become a large one by means of appropriate capital, talents, experience, and management details.
To have a clear guide on how to develop and organise the activities within a company, a special Code of Corporate Governance has been developed (Dubai SME, n. d.). It helps the companies to understand the main issues of corporate governance, identify the regulatory landscape, and make use of business culture (Dubai SME, n. d.). To make sure that any kind of mechanism is properly developed in regards to DDE, it is necessary to understand the essence of corporate governance, its theories and approaches and implement it in accordance with the conditions the company has to work.
There are many ways of how corporate governance can be defined because, in fact, its idea is old indeed. It has been developed during a long period of time. If it is possible to believe that the phrase is new, the meaning has been existed a while as the way according to which power may be exercised over corporate entities (Tricker & Tricker 2012). Nowadays, corporate governance is introduced as a set of relationships that can be developed between the managers of a company, the board of directors, the stakeholders, and other people involved in the work of the chosen organisation. The identification of corporate governance is also important because it helps to identify the structure on the basis of the goals set by the company.
DDE has a rather simple still effective structure: the Finance department, the brand management/marketing department, the business development and customer services, the HR development and training department, the department of IT Operations, and the logistics department (DDE: structure 2015). All these departments are under the control of CEO & Managing Director. The peculiar feature of this company’s work is the connection between all departments and the necessity to promote cooperation to meet the objectives and consider the organisational culture of DDE. The main philosophical position of the company is to provide the chosen market with the brands that are of high quality and recognised on the international level (DDE: about 2015). Sport is not only a kind of hobby that has to be chosen by a person (DDE: about 2015). It is a style of life, an event that is happening during the whole life, a chance to become someone in this world following personal demands and interests. Such attention to marketing and customer services make the company recognisable on the market.
Theories and Approaches
The UAE is a developing country with an intention to apply the international standards to corporate governance as a part of the merge with the current economy around the whole globe (Aljifri & Moustafa 2007). There are several corporate governance theories to be mentioned: agency theory, stakeholder theory, resource dependency theory, stewardship theory, social contract theory, legitimacy theory, and political theory (Yusoff & Alhaji 2012).
The political theory supports the idea of developing a kind of voting support that comes from shareholders. A political influence plays an important role in this approach because it helps to incorporate governance into an organisation (Plessis, McConvill, & Bagaric 2005). The agency theory presupposes the necessity to have much information about the level according to which governance activities can conform to the preferences of investors. Therefore, there are two main factors to be considered: clear interests of managers and shareholders and the ability to sacrifice some personal interests for the interests of other representatives of the company and meet the general needs (Yusoff & Alhaji 2012). The resource dependency theory helps to choose the approaches with the help of which the company can use its resources to achieve the objectives set (Tricker & Tricker 2012).
Almost the same ideas are present in other theories. It is just the means of goals’ achievement should be changed accordingly: the stakeholder theory centres on the role of stakeholders in the company, the social contract theory helps to define the role of each member of society in regards to the society as a whole and realise that there are certain expectations people may have in regards to the company and its propositions. Finally, the stewardship theory proposes a legal point of view of an organisation. It is a kind of opposition to the agency theory because it requires the attention to the needs of the company’s owners. The point is that owners should have the interests similar to those of the organisation. Therefore, the objectives of the company will be met as soon as the objectives of its owners are met. The DDE representatives choose the last theory as the basis for their work.
Nine-Pillars to Good Governance
The Corporate Governance Code for Dubai SME 100 consists of nine points known as 9 Pillars according to which all SMEs have to organise their activities and make the solutions (Dubai SME, n. d.):
- A succession planning progress;
- An explanation of the roles people involved in business: managers, board of directors, partners, and shareholders;
- A timely and open exchange of information with shareholders;
- A properly chosen board of directors to control the growth of a company;
- A board of directors’ mandate with the help of which the evaluation and improvement of the business strategies are possible;
- An organisation of a special book of accounts that is checked by an internal auditor annually;
- A control framework to review the risks;
- An attention to the needs of stakeholders;
- An analysis of family relations in regards to business.
All these pillars play an important role in the development of any SME. Though not all points are usually considered by a single company, it is necessary to know about them to achieve them and become more successful and ready for a chosen market.
A number of misunderstandings and the necessity to investigate better the chosen company take place. It is interesting to observe that DDE takes one of the leading places in the overall ranking system of the initiative. However, corporate governance is not on a high level in regards to other indexes (SME Ranking 2015). It means that the company has a huge potential to be developed in future. Still, much work and analysis should be done.
Role of Government
Being a part of the Dubai SME 100 initiative is a good chance to understand what to strive for and how to achieve the required goals (Dubai SME 100 2015). DDE has already proved that it is possible to promote the skating industry in the Middle East. The company shows high ratings and defines clearly the goals and philosophies (SME Ranking 2015). The team admits the importance of action, sport, and healthy lifestyle. Within a short period of its existence, DDE has already faced the financial and economic crises. Its government shows the ability to restructure the company and re-identify the sources in accordance with the internal opportunities and external threats. Much work has been done to survive, and the government of the company demonstrated the ability to combine its interests with the interests of the whole company and each worker in particular. It is one of the nine pillars defined within the frames of the Corporate Governance Code of Dubai SME 100 (Dubai SME, n. d.).
The board of directors has made an attempt to identify clearly the roles of managers, possible partners, and shareholders, as well as their own roles. As a rule, a corporate governance policy is spoiled by the existing conflict of interests that have to be considered. The positive aspect of DDE is that the company is not too big, and the directors of the company are its owners. The founders of the company understood that they had to introduce a new and unusual service for the majority of the Middle East citizens. They introduced skateboarding as neither a kind of sport nor a hobby only but as a style of life, as a chance to make some change, as an opportunity to be free.
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The government had to define the roles of each member of the team to make sure all rights and duties were taken into consideration. Still, its corporate governance had to be improved. DDE was established by two brothers in 2001 (Thomas 2015). According to one of the pillars, family-owned business is hard to control because the business of the family can be easily interrupted and dependent on family business. The brothers should work hard to succeed. They have a number of chances to succeed as well as a number of obstacles to fail. It is not enough just to demonstrate the leaders’ ambitions and the desire to work. It was necessary to prove that family relations could not become a problem but turned out to be an additional opportunity. It is possible to say from the beginning that DDE meets two out of nine pillars to good corporate governance. Still, it is not enough to take the leading position in the ranking.
There are several groups of people, who may be interested in developing good corporate governance in DDE. DDE’s founders and the CEO department play an important role in corporate governance promotion. They have to improve a planning process (second pillar) and make sure shareholders have access to a timely and open flow of information about the company, its goals, and needs of the employees (Dubai SME, n. d.). Another party that has to be mentioned is the customers of the company. The peculiar feature of DDE is the necessity to underline the role of stakeholders and the ability to create a culture around everything offered and sold by the company (Thomas 2015). Stakeholders are all those people and groups of people that the company may have an impact on.
They are all those employees, who work at DDE, suppliers, who provide the company with the necessary resources, customers, who like using services and buying the products offered by DDE, banks that offer the required portion of financial support in case of emergency, and even other members of Dubai SME 100 because the ranking system and the level of support depend on the achievements of a company individually in regards to the rest mentioned in the Dubai SME 100 Ranking (Plessis, McConvill, & Bagaric 2005).
Taking into consideration the nine pillars to good corporate governance defined by Dubai SME, any company in the list should be aware of these aspects, follow, and adopt them accordingly as they are enumerated. Each stage of development has to be passed in time because the founders of the initiative admit that it is not a kind of perspective but a framework that helps to understand the main idea of corporate governance (Dubai SME, n.d.). Investigating DDE, it is possible to identify the following capability gaps that have to be solved and improved (DDE: about 2015; Dubai SME, n. d.):
- Poor attention to the risks that can take place in the market (pillar seven);
- Inability to find out if an independent auditor works with the company and if there are any books of accounts that help people follow various accounting practices and analyse the incomes properly (pillar six);
- No access to the information about the board of directors, its functions, and abilities to evaluate the current business strategies (pillars four and five).
No evident problems can be observed with pillars one, two, three, eight, and nine. DDE introduces a good approach to work with customers and offers them the best services and ideas on how to improve and connect their lives with the sport.
There are several ideas on how corporate governance of DDE can be improved so that the company can achieve higher ranks and become more recognisable on the chosen market in the UAE and even in the whole world:
- The company has to consider risks and their impact on the work of the company (Dubai SME, n. d.). The prosperity of DDE depends on several factors: weather conditions and natural disasters, financial crisis, and even the rate of birth can influence ratings because younger people are more eager to go skateboarding.
- A certain attention should be paid to the analysis of all financial operations of the company (Dubai SME, n. d.). The board of directors has to define the department of finance not to follow all internal and external operations. It is more important to cooperate with a not-interested external auditor and have the evaluation of the results achieved so far.
- Finally, the board of directors should continue developing and controlling various business strategies to attract more people and make them eager to connect their lives with the sport.
Process of Improvement the Governance Mechanism
The board of directors have to create a department that can work with the risks inherent to the company. These risks can be of various nature: external (like the appearance of new competitors or a possibility of substitution), internal (like employees’ dissatisfaction or poor board of directors’ control), or unexpected (like natural disasters, illness, or death). DDE should be ready for any kind of challenge and make use of the fact that it is a family-owned organisation with an ability to promote a governance mechanism for mutual understanding and coordination between the family member and other employees of the company (Mallin 2013).
Benefits and Challenges of the Framework
The UAE is the country with its own culture and attitude to life, family, and traditions. Skateboarding is not its native kind of sport. It comes from the west and has to be promoted in a proper way (DDE: about 2015). It is wrong to introduce it as something the Arabs cannot live without. It is more effective to offer skateboarding as an option to try a captivating kind of sport. The Arabs would be eager to benefit from skateboarding. There is no need to set some sales or offer discounts. The Arabs is the nation that does not find it necessary to save money. If they have some, they can spend a lot. DDE should also focus on its stakeholders and their needs. It is possible to offer some additional options to skateboarding. For example, the company may focus on the places where skateboarding with DDE can be better. Family traditions may be combined with business to improve corporate governance. Still, it is necessary not to lose the line between family traditions, the business of family, and family business (affairs). Any of them should be mixed up. It is the main challenge of the framework offered.
In general, corporate governance of DDE may serve as an example of how small companies should start working and develop business. DDE has survived several crises; still, its leaders do not want to give up (Thomas 2015). They want to believe that their business can be developed, and the company can achieve greatness in the future. Sporting goods are not unique on the market. However, all companies have chances to choose unordinary ways to present their services and products and ensure people choose a particular company. As soon as DDE’s corporate governance is improved by means of the ideas offered, it is possible to talk about the changes and improvement on the international level.
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