Corporate governance has dominated policy agenda in developed market economies for more than a decade, and it is gradually worming its way to the top of the policy agenda on the African continent. The Asian crisis and the relative poor performance of the corporate sector in sub-Saharan Africa have made corporate governance a catchphrase in the development debate (Berglof and von Thadden, 1999). Developing countries like Ghana are increasingly embracing the concept of good corporate governance because of its ability to impact positively on sustainable growth and valuations and boost the bottom-line. The emphasis on corporate governance, however, has largely been on the bigger enterprises. Small and medium-scale enterprises (SMEs) have been noted to contribute about 85% of manufacturing employment (Steel and Webster, 1991) and account for about 92% of businesses in Ghana. SMEs in Ghana have an important role to play in spurring economic growth, given that they represent a vast portion of the firm tissue in the economy; yet corporate governance at the SME level is almost non-existent. The lack of proper governance mechanisms has been blamed for the failure of state-owned enterprises in Ghana. Traditionally, corporate governance has been associated with larger companies and the existence of the agency problem. The agency problem arises as a result of the relationships between shareholders and managers. It comes about when members of an organisation have conflicts of interest within the firm. This is mainly due to the separation between ownership and control of the firm. It is tempting to believe that corporate governance would not apply to SMEs since the agency problems are less likely to exist. In many instances, SMEs are made up of only the owner who is the sole proprietor and manager (Hart, 1995). Basically, SMEs tend to have a less pronounced separation of ownership and management than larger firms. Some argue that because SMEs have few employees - who are mostly relatives of the owner and thus have no separation of ownership and control there is no need for corporate governance in their operations. Also, the question of accountability by SMEs to the public is non-existent since they do not depend on public funds. Most especially the sole proprietorship businesses - do not necessarily need to comply with any disclosure. Because there is no agency problem, profit maximisation, increasing net market value and minimising costs are the common aims of the members. Members also disregard outcomes of organisational activities that will cause disagreement. They are rewarded directly and as such need no incentives to motivate them. Thus disagreement does not exist, and hence there's no need for corporate governance to resolve them. In spite of these arguments, there is a global concern for the application of corporate governance to SMEs. It is often argued that similar guidelines that apply to listed companies should also be applicable to SMEs. In Ghana, corporate governance can greatly assist the SME sector by infusing better management practices, stronger internal auditing and greater opportunities for growth. Corporate governance brings new strategic outlooks through external independent directors; it enhances firms' corporate entrepreneurship and competitiveness. It is not a threat to value creation in entrepreneurial firms if the guidelines on corporate governance are properly applied. Board members bring into the firm expertise and knowledge on financing options available and strategies to source such finances, thus dealing with the credit constraint problem of SMEs as well. For SMEs in particular, the role of other stakeholders must be well-articulated through a bottom-up approach where, for example, unions' (in the case of workers) views are explicitly laid out in board meetings. It must be noted that good governance does not guarantee business success. However, poor governance could be symptomatic of a business failure. Entrepreneurial firms need access to resources for growth. They need inputs on business operations, good strategy and best practices in the industrial sector. These resources can be provided for through the presence of non-executive directors or external board members as in the case of listed firms. As has been noted, access to finance is one main obstacle to growth and performance of the SME sector in Ghana. Incorporation of corporate governance into the sector could greatly reduce this constraint. The infusion of external board membership in this case is crucial since there is a high incentive for the board member(s) to introduce ways of attracting finance. Non-executive directors could also introduce creativity and innovation through opinions and suggestions during decision-making. In the Japan Small Enterprise Agency, SMEs with very high growth rates use non-executive directors more actively than larger firms. Also, as entrepreneurial firms grow, the need to introduce professional governmental practices and managers arises. This begins the process of separation between management and owners. However, agency problems will still exist between non-family professional managers and owners. The underlying fact is that these non-family professionals would have to be motivated with incentives in order to gain from their expertise. Accounting controls and internal audits will have to be put in place to help assess the performance of these managers. This merit has dire implications for the SMEs in Ghana, which are run largely by less competent managerial staff ¬mostly the sole proprietor and family. Corporate governance makes room for the composition of a board, which will include external directors not necessarily linked to the owner and thus induce more independent best practice methods of running the business and attaining profits. The possible tension here is that which may develop between the owner and board of directors (especially in sole proprietorships). An SME with a corporate governance structure will better overcome managerial incompetence via the expertise and more stringent internal control measures introduced by the board members. Corporate governance paves the way for possible future growth or a sale. It is within this period that corporate governance becomes crucial and the learning curve is steep. A consistent track ¬record of good governance will greatly assist when that point comes. Corporate governance allows firms to prepare for their pending initial public offering. For example, in Ghana early introduction of corporate governance would prepare an SME well enough - even before it gets listed under the provisional listing regime. The existence of a board will induce rapid growth strategies in the SME for rapid profits; this will at a point require the firm going public for larger finances. This will complement efforts by the Ghana Stock Exchange to encourage listing by SMEs on the market. Thus the transition from a small to medium and finally large company will be smoothly aided by an effective corporate control system. Applying good governance principles reduces the problems associated with information asymmetry and makes the SME less risky to invest in. However, attention should also be drawn to the disadvantages of corporate governance. The introduction of corporate governance will mean additional roles in audit, remuneration and nomination committees, new and more directors have to be hired. The non-executive directors will also have to be paid higher remuneration because of active roles they will be playing. Thus, introduction of corporate governance into activities of SMEs will increase operational costs. Nonetheless, the benefits of corporate governance in SMEs for an economy like Ghana cannot be overlooked. Source: Business and Financial Times