Corporate Governance for Small and Medium-Sized Businesses in African Economies
Promoting the Appreciation and Adoption of Corporate Governance Principles for SMEs in Africa
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INTRODUCTION: Governing Small Business Corporate governance tends to invoke a concept that is only relevant to large corporations and therefore not in the minds of most small business owners/managers, however, most of the issues on the mind of a typical SME (such as customers, funding, market share/penetration, operations, etc) can be addresses if appropriate attention is paid to the adoption of good corporate governance practices. My passion for seeking to understand the challenges that small businesses face with the adoption of corporate governance and searching for ways to ameliorate the burden was birthed as I contemplated the potential positive economic effect of having well run small businesses in Africa. Small businesses are struggling to obtain finance and not being able to because they do not have the structures that banks (and other potential financiers and investors) require. Small businesses grow and then decline very rapidly at the demise of the founder. It would be great if corporate governance is demystified and the related practices are described in ways that small businesses can relate with. This should make the adoption of good corporate governance practices easier for the small businesses. As an African, I want to see growth and stability in the African continent. It is often touted that SMEs are the engine of development because they play an important role in job creation, innovation and long-term economic development. Given that the economic contribution of small business depends critically on their profitability, growth, and cross-generational stability, it is unfortunate that only a small fraction of SMEs are successful in achieving exceptional performance, sustainable growth and effective successions. Existing literatures show that there is still a gap for effective ways to increase the size of that fraction and get African SMEs to move beyond the founders' generation. Various researches conducted in the last two decades indicate that good corporate governance structures bring many benefits to an SME. These benefits include the following: • access to external advice and access to wider networks, • Sustainability and proper management of succession • access to professional managers (beyond family members); • better overall decision making; • Access to external funding for growth and expansion. Despite these benefits, SMEs continue to struggle with adopting good corporate governance practices. It appears, therefore, that the challenges of adopting good corporate governance practices outweigh the benefits for these small companies. The major reasons which have been given by most SMEs, for not adopting or establishing corporate governance structures, include. 1. Inappropriateness, (a small-scale eatery or a grains supplier may not need a board in order to make viable business decisions); 2. Concerns that involving others in the running of the business or extensive disclosure of business information means "letting go" of control and/or losing autonomy, which is typically unacceptable to many SME owners; 3. The cost of establishing corporate governance structures is often seen to be an unnecessary additional cost to the business, considering the dearth of available financing. This book will address these issues and unveil practical ways that corporate governance can support an SME’s quest for long-term growth and competitiveness. Its focus will be on demystifying corporate governance and providing relatable perspectives of small business governance. This will be done by aligning the stages of business growth and the form of corporate governance that could support the business. An important addition would be a foray into what needs to be done to improve the adoption of corporate governance by SME owners/managers, regulators and investors.
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About the Book
SMEs play a vital role in the growth of economies and are often described as the engine of economic development. However, SMEs in emerging markets struggle to survive and grow for a variety of reasons, including a lack of finance and management skills. Most of the growth-constraining factors in small businesses can be traced to weak corporate governance (CG) practices. As a seasoned practitioner in the field of corporate governance, Dr. Almona sees the need to build capacity to enhance sustainability in the SME sector. SMEs need to understand that CG is not a destination but a journey SMEs need to grow and mature into CG practices that are relevant to their stage of business. SME owner-managers need to understand and adapt to the level of formality expected and required by potential employees and providers of funds. This book provides ways and models that will encourage the adoption of sound corporate governance principles and practices for SMEs in Africa, to the benefit of society.
About the Author
Dr. Chinyere Almona heads the International Finance Corporation’s Africa Corporate Governance (Advisory) Program. The program provides a variety of governance interventions across Sub-Saharan Africa. With almost three decades of work experience, she is a corporate governance professional with a strong vision and passion for helping clients adopt good CG practices. Before joining IFC, Dr. Almona was a Director at PricewaterhouseCoopers’ Advisory Consulting Practice in Nigeria, heading the firm’s Governance, Risk and Compliance Practice, which she established. She is passionate about the role of governance in supporting SMEs to grow and contribute significantly to their respective country’s economy. She is a board advisor, an international speaker, an IFC certified trainer, and a certified leadership coach.