Governance is one of those terms that is often misunderstood and equally feared by business owners. Bearing in mind this term is often thrown around by Government to justify bloated bureaucratic processes, it's no surprise. Far from being a hinderance to decision making or getting things done, the purpose of governance in any business or institution is to ensure transparency and accountability. The other belief that needs debunking is that governance is for public or large companies with lots of shareholders. This is not the case.
Anyone who has attended an African investment or trade event will be familiar with the constant cry about the lack of bankable projects in Africa. It will be mentioned at least once on a panel session. Lack of transparency and good governance is not just a constraint hampering growth of African trade but a project cannot be deemed bankable without solid governance in place.
The prevailing culture of business practices in Africa is one of secrecy where business owners retain absolute control over day-to-day operations including its processes. The fact is no business can be successfully run by a sole individual. The business of running a business is different from working in the business. Just because you understand how to get the most yield out of agricultural inputs or know the ins and outs of the commodity brokering business in terms of access to supply, finding buyers and shipping the product, this is not the same as understanding how to develop an operationally efficient business. You need people, practices and processes for that.
What is corporate governance - the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a Company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government and the community.
To further break things down:
Simply appointing a Board of Directors or Advisors is not governance itself. Poor governance casts doubt on a Company's integrity and transparency which can negatively impact its financial viability and ability to raise finance. Below are 5 corporate governance best practices:
Appointing the ex-Governor of a State may get your foot in door at a Ministry or even get paperwork done quicker but they have little value if they have no relevant knowledge or expertise of the business you operate in and a contacts book they can open to assist you with your next Senior hire. Any political exposed people connected to your business is an automatic red flag doing more damage than good. Find individuals who are qualified and competent in successfully, have a strong ethical stance, diverse skill sets and actually have the time to commit to your business.
It is essential to agree clear lines of accountability among the Board, Chair, CEO, Executive Officers and Management. The Chair and CEO serve very different roles. The Chair leads the Board ensuring they are acting in the interest of the Company's long term interests. And yes, this means they can fire the CEO. The CEO's role is to lead management, develop and implement business strategy and report business progress to the board.
Directors must declare conflicts of interest and refrain from voting on matters in which they have interests. The business should establish a culture of integrity in its business dealings and in compliance with laws and policies without fear of recriminations.
I can hear all the Nigerians saying, “Aaaa, in dis one Nigeria…integrity ke”
Integrity is a tough one to achieve in a business environment riddled with lack of integrity however finding creative ways around this within ethical and legal parameters will serve you well in the long term.
This will be a particularly tough one to accept but all Executive Officers including the CEO must have performance targets which they are evaluated against and their compensation is tied to. Compensation must be sufficient enough to attract the right Executive candidates (you get what you pay for) yet not conflict with their independence or ability to do their job.
A reminder to business owners…yes, you own the business, well shares in the business but you also work for the business so you are equally as accountable for your actions and performance as anyone else in the business.
This is a particularly pressing issue for African businesses. When you ask for a project, business or transactions risk register, the response far too often is
Companies should be regularly identifying and assessing the risks it faces including financial, reputational, environmental, industry-related, political and legal.
Corporate governance is imperative to businesses of all sizes at any stage. It does not need to be costly to implement, it is a matter of applying the right sized practices for your Company. Factors like the nature of the business, its size, stage of development, available resources, shareholder expectations as well as legal and regulatory requirements will determine which policies should be put in place.
Any investor considering putting money into a business uses governance as a gauge for the business' financial viability and the teams ability to successfully deliver the vision as promised. And remember, they will also have a seat on your Board, adding valuable inputs to ensure the business meets its objectives and makes the expected returns.