Small and Medium Enterprises (SMEs) are critical for developing countries because of
their role in economic growth and poverty reduction. As companies globally face issues
relating to transparency, accountability and timely disclosure of material information, the
concept of corporate governance and business ethics has gained significant importance.
SMEs in developing countries face a number of challenges including access to finance
both domestically and internationally, developing international trade linkages.
Developing entrepreneurial culture and ethical business environment are also important
challenges. The main underlying constraint to their growth is lack of corporate
governance structure. There is generally a lack of awareness among these enterprises
regarding significance of corporate governance and if there is awareness, there is a
general aversion to adopting these practices because of the high cost of implementation.
This paper discusses issues facing SMEs in developing countries (particularly in South
Asia) and the need for embracing corporate governance and ethical business practices.
This paper proposes that an incentive based system for encouraging SMEs to adopt good
governance practices is more likely to succeed. It also presents a market based solution
through creation of venture services companies for engaging closely with SMEs. SME
Chambers can also play a critical in this regard. This paper discusses the framework
through a Code for SMEs and suggests mechanism to develop it. Developing and
implementing a framework of corporate governance for SMEs needs be a participatory
and engaging process. The key components of the Code are also given. Business ethics
practices from SME perspective are also discussed. The paper then concludes by giving
recommendations to push the agenda forward.