The influence of corporate governance variables in financial distress models for SMEs: Evidence from the Family Business field

Paragraph 1.1 highlights the way Corporate Governance refers to all the structures and processes for the conduction and control of an enterprise; the concept includes the large quantity of relationships established among the management, the board of directors, the controlling shareholders, the minority shareholders and the stakeholders in general.
In this way, an optimal CG contributes to the company's development by improving the firm's performance and increasing their access to credit.

As mentioned before in this work of thesis, most of SMEs are represented by Family Businesses, whose researches conducted also give as an interesting perspective about a three-way articulation of CG mechanism inside family firms and SMEs: the well known distinction among ownership, management (or business) and family.

First of all, the ownership makes it evident how a firm's owners can hold different internal roles (only owner, owner and manager, owner and family member, etc.) and as they all have different roles and opinions, this perspective may create conflicting opinions.

In order to avoid so, three different structures can be established:
• Family Office: an administrative centre, usually organised by the internal council, that is responsible of the relationship between buying and reducing management costs with the intention of endorsing economies of scale;
• Family Foundation: an organism that aims to accumulate excess revenues form firm and family members to be invested, in order to receive tax exempt returns destined to charity associations according to the values of the family/management;
• Shareholder's Council: this is the common organism in all SMEs as it provides an office for different types of shareholders where they can express their opinions and desires; through the council, shareholders can both distinguish ownership from management and help transforming "passive owners" to "informed owners".

It has to be underlined that these are just three examples of CG mechanisms usually held in FFs (for the first two systems) and SMEs (about the last one); other forms of organisms might be articulated exclusively for FFs (as regards family constitution and family institutions, expression of the "family" CG component).

Management, the second component of Corporate Governance, has quite a few aspects to be explicated: first, as SMEs are often dominated by the owner's family members, the role of senior manager is often covered by one of them, avoiding the chance for talented external managers to fulfil that role inside the company. This particularity can represent a weakness, due to the fact that choosing a good manager is crucial for the company's success in terms of the implementation of the strategic direction defined by the Board of Directors (and affiliates).

The main organism of the management structure is the executive council (or top management team), that meets regularly to discuss the strategies' development to reach the firm's goals. The more mixed personalities compose the top management team, the more effective the management will be and the better the firm will perform in the market, just like a perfect chain.

In the end, the image attached before shows an important organism which belongs to both ownership and management circles, referred to the Board of Directors (BoD): it is a fundamental institution inside SMEs in general, composed by members elected to act as representatives of the shareholders, whose function is held in defining the company's strategy, reviewing its performances and also the decision making process on major issues. [...]