The role of boards in small and medium sized firms

Abstract

Purpose This paper aims to investigate the role of boards in owner‐managed small to medium‐sized enterprises (SMEs), and seeks answers to the questions of whether boards generally enhance good governance in SMEs, and whether the use of outside board members plays a significant role. Finally, the paper seeks to examine the question of whether in practice owner‐managers see their boards as a resource. Design/methodology/approach The paper is based on a study of the ownership and control structure in 1,313 SMEs and an interview survey of 1,040 Danish owner‐managed SMEs. Findings The analysis of the empirical studies indicates that the role of a board as a resource is more important than its control role, which suggests that there should be a multi‐theory approach to board roles in SMEs. It also indicates that good governance appears to be associated with the existence of boards and of outside board members, and finally that boards in SMEs remain an untapped resource. Originality/value The paper contributes to the empirical literature on the role of boards. It contributes to the understanding of the role of boards in SMEs and to whether boards enhance good governance in SMEs. It also gives an insight as to whether boards are an untapped resource in SMEs.

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