Poor corporate governance worsens small business woes

In Nigeria, the business environment is usually challenging. It is even worse for small businesses that have barely survived their first five years of operations.

Last year, Small and Medium Enterprises Development Agency of Nigeria disclosed that poor management and inadequate governance practices were responsible for the death of two million SMEs in the last two years. It noted most of these businesses experience a high rate of failure during their early stages.

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Effective corporate governance is critical to the success of any business. According to the Corporate Finance Institute, it is a system that guides the conduct of the people within an organisation, as well as the direction of the organisation itself.

Corporate governance is altogether different from the daily operational decisions and activities that are executed by the management of an organisation. The purpose of corporate governance is to ensure effective management of both entrepreneurial and startup delivery for long-term success.

The Organisation for Economic Co-operation and Development stated in a report that the adoption of corporate governance for SMEs is positively linked to their growth and long-term sustainability. “Better governance is not a panacea to all problems faced by SMEs, but it is an undeniably important ingredient to their success,” it noted.

While it is easy for large firms to put in place good corporate governance, it is often challenging for small businesses to adopt good corporate governance. It has been linked to the reason many of them fold up before their fifth anniversary.

Some thriving businesses such as Enron and WorldCom have died because of failure to follow corporate governance guidelines. Cadbury Nigeria almost went down after its leadership allegedly decided to breach corporate governance principles.

Experts have argued that the poor corporate governance among small businesses has inhibited them from carrying out their critical role in the economy, being the livewire of any economy.

A Director at Comtrade Group, a SME that deals on agro-products, Jide Oladapo, told The PUNCH that most owners of small businesses were not prepared for business.

“The kind of education system we have does not prepare young people to imbibe corporate governance in business. Most people find themselves in business today out of a need to survive.

“When they were in school, they had lofty dreams to work in corporate organisations. None of them planned to venture into the business world until the realities of the job market hit. At this point, they discover strong skills that can be monetised, but when it comes to the managerial aspect of business there is a wide gap,” he explained.

The Nigerian Association of Small and Medium Enterprises, South-West Zone, Vice-President, Solomon Aderoju, claimed that corporate governance is concerned with the process, systems, practices and procedure that governs any business entity, which many small businesses do not put in place.

According to him, corporate governance would help to businesses be directed and controlled to enable profitability and long-term growth.