All over the world, the corporate governance landscape is shifting, as efforts to improve business practices and policies gain support and renewed impetus. Lucy Marcus is of the view that Strong and resilient economies no doubt need strong businesses and to build these strong businesses, governments necessarily play a critical role in ensuring high integrity oversight of business activity.
More generally, it is pertinent to note that good corporate governance is critical to long term economic growth and prosperity. The question becomes this: what is corporate governance and its relevance to Micro, Small and Medium Enterprises (MSMEs) in Nigeria?
According to an endorsement of this principle by LEAP Africa, “corporate governance refers to the processes, systems and procedures that affect the way an organisation is run to fulfil its goals”.
Similarly, according to Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) the agency charged with overseeing emerging businesses in the country, Nigeria with the introduction of the National Policy on MSMEs has addressed the issue of definition as to what constitutes micro, small and medium enterprises. This definition adopts a classification based on dual criteria, employment and assets (excluding land and buildings) as contained below:
· Micro enterprises are those enterprises whose total assets (excluding land and building) are less than Five Million Naira with a workforce not exceeding ten employees.
· Small enterprises are those enterprises whose total assets (excluding land and building) are above Five Million but not exceeding Fifty Million Naira with a total workforce of above ten, but not exceeding forty-nine employees.
· Medium enterprises are those enterprises with total assets (excluding land and building) are above Fifty Million Naira, but not exceeding Five Hundred Million Naira with a total workforce of between 50 and 199 employees.
If there exist a conflict on classification between employment and assets criteria (for example, if an enterprise has assets worth seven million naira (N7M) but employs 7 persons), the employment –based classification will take precedence and the enterprise would be regarded as micro.
Recent statistics, according to the MSME clinic initiative being championed by the office of the Vice President, Prof. Yemi Osinbajo, says Nigeria has about 39 million MSMEs which employ over 54 million skilled and unskilled labour and contributing about 54 per cent to GDP of the country.
Needless to say therefore, that MSMEs are the “engine of growth and catalyst for socio –economic transformation of any country” especially a developing country like Nigeria. As such, improving corporate governance in my view is important to all types and sizes of enterprises not just large publicly listed companies but also unquoted private companies and family businesses, state –owned enterprises and agencies, MSMEs, local subsidiaries of multinational companies and also community-based enterprises such as co-operatives, micro-enterprises and the informal sectors.
Now, it cannot be disputed that the presence of many sustainable organisations in a country will lead to greater macro-economic stability, nevertheless, a good number of registered MSMEs in Nigeria have either functional Board of Directors (Board) or non-existent boards in most cases. To give some coherence to the many reasons for this unfortunate state of affairs, I will now proceed to identify the key excuses below;
To most MSMEs, setting up a board is for big organisations. This notion is clearly erroneous, as even small organisations stand to benefit from a proper governance structure. At the inception stage however, a board of advisers can be useful pending the formation of an actual board.
Another excuse is the fear of losing control of the business to outsiders. Indeed this business owner fails to recognize that seeking to maintain complete control over the business will ultimately hinder the business prospect for growth and sustainability.
Some other category of business owners, don’t have a board due to the preconceived notion that to get a board, you need to know eminent or rich persons to sit on the boards. This view is totally misplaced as successful business owners in modern times have rather than resorting to just rich and prominent people, carefully sought for committed experts who share their values and would be delighted to get on their boards.
Yet another group of thriving business owners are convinced that since they have a strong management team, then there is no need for a Board. This proposition does not appreciate the different roles and responsibilities of a management team and a Board. Regardless of a strong management team, an organization nevertheless, requires the higher level direction and oversight that a Board offers. Among the many benefits are; strategic direction, useful connections, technical expertise, fund raising support, access to credit facility, staff recruitment support and audit support.
Undoubtedly, a well-functioning Board establishes a strong broad-based governance structure in an organization, thereby boosting its resilience during tumultuous times and increasing its chances of outliving its founder(s).
Another issue of relevance to this discourse and validated by the Nigerian Code of Corporate Governance 2005, is the need for separation of the role of Board Chairman and Chief Executive Officer, the roles are now to be held by different persons as a combination of the two positions in an individual represent undue concentration of power. Furthermore, the 2013 Code of Corporate Governance makes it applicable to public companies and private companies. Various corporate governance codes have evolved in Nigeria and most of which are industry specific and are complimentary to Companies and Allied Matters Act (CAMA).
A major factor underpinning the macro-economic stability in the developed world is the practice of corporate governance. The European Union and its member states for instance, are taking an increasingly active approach to corporate governance, including regulations concerning boardroom diversity. Italy, France, Spain, Norway and others have all taken it a notch higher by enacting boardroom gender quotas, with companies required to fill 30-40% of independent board seats with women. The fact remains balanced boards are more likely to be effective boards, better able to understand their customers and stakeholders, and benefit fresh perspectives, vigorous challenges, and board experience. These in turn lead to better decision making.
Only recently, Apple Inc. from its small beginnings hit a huge milestone, becoming the first $1 trillion company in the United Stated, ever. Under the leadership of Tim Cooks as CEO. For comparison, it was worth about $330 billion at the time of Steve Jobs passing. This significant achievement cannot be divorced from the determination of Apple Inc. founders to entrench best corporate governance as laid down by the New York Stock Exchange and National Association of Securities Dealers Automated Quotations (NASDAQ). In 2003, Jobs (then CEO of Apple Inc.) remarked that “Apple makes the best personal computers in the world and there is no reason why it shouldn’t be among those companies with the best corporate governance in the world”. Little wonder then, that after several years of his demise Apple Inc. continues to soar beyond the point he left it.
What is required now of MSMEs in Nigeria is a shift in emphasis on best corporate governance practices, because this practices are real and they are here to stay. Moreover, the sector is attributed to be responsible for most advances in new products and process, provides most of the employment opportunities and also a key indicator of the overall performance of the economy. As such MSMEs must realise that the sustainability, growth and continued profitability of their businesses is intricately connected to their adherence to best corporate governance practice otherwise, their businesses filled with great potential stands a high risk of suddenly grinding to a halt in no distant time.