What is governance and why it matters in your Nigerian and African business, including your SME?

When we hear mention of governance in Africa, our minds often think of governance in relation to societies. Certainly, building effective and legitimate institutions in Africa is critical to restore core government functions and generate equitable service delivery. Sadly, the corruption, conflict of interest and cronyism that has made many institutions ineffective is the reason our minds fly there. Institutional reform that has been underway now for two decades is essential and focuses not only on structures and processes, but on changing the incentives and norms that drive people’s behavior. In reality, this reform will be uneven and may take many more years to achieve.

As described by Butterfly Coalition co-founder, Olatowun Candide-Johnson, corporate governance is a system of rules, practices and processes by which a company is directed and controlled. Corporate governance is generally applied to a less complex system than government, and the behaviours are under the control of the company’s leadership – which includes you.

You need to ensure that insiders such as the CEO, senior managers and directors act in the company's best interest by instituting a system of accountability, responsibility, checks, and balances through policies, procedures, training, audits, reporting, and speaking up. Due process in decision-making and financial integrity are totally essential.

Are you yawning? Are you tempted to stop reading? Why should you give your time and attention to something so dull when there is money to be raised and products to be developed and sold?

Well, here is the kicker: there is an extensive body of research that shows that well-governed companies demonstrate substantially better long-term financial results. Conversely, the results consistently show that poor governance practices are linked to poor business performance, fraud, and catastrophic failures.

It has been proven that good governance brings better performance due to better decision-making. It increases the valuation of a company, making it more attractive to investors. It increases access to finance. Basically, it brings about lower cost of capital due to perceived lower risk. And of course, investors look out for accountability - improvement in the treatment of stakeholders, including, employees, suppliers, customers, as well as the number one stakeholder, shareholders.

Alignment of your Nigerian and African organisation with leading corporate governance practices will guide your company to establish a framework of processes and attitudes that increase its value, builds its reputation and ensures its long-term prosperity.

Many Nigerian women business leaders appreciate that governance is a driver of longevity and prosperity. Here’s some quotes from research conducted by the Butterfly Coalition in Q4 2020[1]:

"Governance is not the icing on the cake. It is the cake."

"If just for my son, I would like him to have a future where people actually say what they mean, do what they say and do the correct things."

"Governance basically affects human lives. Every day we see how poor people are getting poorer."

At the Butterfly Coalition, we also believe that women can be a true catalyst for building good governance in their companies. For example, it has been proven that women are more focused, more reliable, and are generally more ethical. In a recent study shared by Harvard Business Review[2], they found that financial institutions with women on their boards are far less likely to have issues of fraud.

Small and medium-scale entrepreneurs and founders need to understand the critical importance of governance structures to their operations too. And yet a familiar story for experienced Nigerian and African entrepreneurs and founders is that keen to get to market, many feel they don't have financial, team or time to execute processes and controls which feel “heavy” for a small to medium scale of business operation.

I know as I made the mistake of starting up in Nigeria without giving adequate thought or investment to my company’s governance system. I thought for my start-up scale, trust, transparency and training were enough. Once launched, I had so many hats to wear and crises to confront – even handling growth was a crisis - that I found myself spending weekends writing processes and procedures and designing training programmes and incentives. I was made breathless trying to put a stop to bad behaviours I suspected but could not prove as I had insufficient auditing and control in my systems.

I was always up against it; it felt like I was never winning.

My recommendation, based on my experience, is to set up the governance structure – including an advisory board if not a real board, including auditing function, processes, controls, a whistleblowing policy and plan and budget for training and more training to make the policies and procedures live in your team’s behaviours. Set it up as efficiently as you can - even before you sell your first product. Make corporate governance a fundamental pillar of your launch planning.

If you want to do good through business in Nigeria and Africa – no matter your scale of operation - be a part of the movement to good corporate governance for good reasons.

Learn about the Butterfly Coalition, and join other leading women being the catalyst for change. Listen to our discussions about why governance matters and on governance issues here and in our bi-monthly webinar series.

[1] Butterfly Coalition Governance Research was conducted in Q4, 2020. 76 women responded to online survey, 9 in depth, 1 hour interviews were carried out. All comments quoted here are words of 9 interviewees, senior women business leaders, executives, professionals and entrepreneurs operating in Nigeria.

[2] “Banks with more women on their boards commit less fraud” by Scott Berinato (Harvard Business Review, May-June 2020) https://hbr.org/2021/05/banks-with-more-women-on-their-boards-commit-less-fraud