The Director-General of the Institute of Directors, Bamidele Alimi, in this interview with HENRY FALAIYE speaks on how poor corporate governance practices have been affecting the growth of startups
How can startups establish a corporate governance structure, considering the responsibilities that come with it?
Establishing a robust organisational framework right from the beginning is crucial for effectively managing your business and ensuring its long-term viability. In fact, it serves as the foundation for streamlining various aspects of your enterprise, as mentioned earlier. By intentionally designing a strong governance structure, you can implement sound administrative, accounting, and marketing processes that adhere to industry best practices, ultimately contributing to the success of your business.
What are the challenges Nigerian startups face due to poor corporate governance?
The challenges faced by startups in implementing a corporate governance structure are significant. Without a strong foundation in corporate governance from the start, the likelihood of failure increases. Corporate governance is crucial for establishing a well-rounded structure in all aspects of the business. It provides guidance on how to operate the business profitably while also considering the needs of stakeholders and being a responsible corporate citizen.
Companies that neglect proper corporate governance often fail to adhere to the best standards and practices in their operations, leading to severe and difficult consequences. While everything may appear to be going well initially, the absence of robust systems rooted in best practices eventually leads to disintegration, resulting in financial losses, job cuts, stagnation, and ultimately, the demise of the business. Startups frequently seek shortcuts and overlook the importance of instituting best practices. Consequently, they encounter challenges such as limited access to finance as credit providers require a solid structure, regulatory issues, excessive expenditures, high staff turnover, declining income, and even corruption.
Many established businesses still have issues with corporate governance. If established businesses are struggling with corporate governance issues, how do you think startups cope with it?
It is commonly said that corporate governance is not a sprint but a marathon, emphasising the long-term commitment required. Despite corporate governance being a prominent focus in some regions for many years, instances of misconduct persist. However, this should not undermine the importance of implementing effective governance practices. As you rightly pointed out, even major corporations occasionally falter in adhering to good corporate governance principles. Nevertheless, the numerous cases where poor governance has caused the downfall of seemingly invincible firms highlight the necessity for organisations to embrace and practice good corporate governance, if they want to maintain profitability and sustainability.
For startups, these cautionary tales serve as valuable lessons, urging them to establish a strong governance structure from the outset. By learning from the failures of larger corporations, startups can set their sights on success and prioritise implementing sound governance practices from the very beginning.
Aside from corporate governance, what other areas should startups pay attention to in their businesses?
Startups need to be focused, committed, and disciplined to succeed. It is essential for them to continuously enhance their business management capabilities and stay updated on industry developments, particularly in challenging business environments like Nigeria. Operating in isolation is not advisable. Instead, startups should actively seek mentorship from accomplished business individuals, including their peers.
During the startup stage, it is crucial to maintain unwavering attention and avoid any lapses, as even a small mistake can potentially lead to the demise of a business. Perseverance is also a key virtue that startups must embrace. Although the initial phase is often challenging, with consistency and a strong dose of discipline, these obstacles can be overcome.
At what point do labour laws interfere with corporate governance in an organisation?
There should be harmony between labour law and corporate governance principles, as they both serve as guiding frameworks for organisations in effectively managing their workforce and resources. It is crucial, however, for practitioners to be mindful of the points where these two areas intersect to ensure that the organisation consistently operates within the boundaries of the law. While instilling discipline and upholding good governance practices and principles are important, it is imperative to uphold fundamental human rights and promote fair labour practices. Striking the right balance between these aspects is essential to ensure a legally compliant and ethically responsible approach to managing employees and the organisation.
Do you think it is necessary to establish a special regulatory framework for startups to enhance their efficiency?
I believe that startups should receive dedicated attention and resources to navigate the challenges of the rapidly changing business landscape. However, it is important not to compromise on standards in the name of special treatment for startups. In my view, what is needed is a framework that offers guidance and mentorship to startups, helping them understand and adhere to compliance requirements. Due to their unique nature, specific programmes can be designed to facilitate their comprehension and adoption of good governance practices. These programmes may include training initiatives, mentoring programmes, and membership in relevant organisations, among other supportive measures.
What is your take on the improved ease of business registration in the country?
The introduction of CAMA 2020 and its subsequent implementation have greatly enhanced the business registration process in Nigeria, marking a notable advancement. The utilisation of technology by the Corporate Affairs Commission deserves commendation, as it has significantly improved the overall procedure. This positive development has contributed to the establishment of robust corporate governance practices in Nigeria, further enhancing the value of the system.
How can startups manoeuvre poor corporate governance in their favour?
It is not recommended for organisations, regardless of their size or stage of development, to intentionally manipulate or bypass proper corporate governance practices. Poor governance structures should not be implemented under any circumstances.
How far has poor corporate governance impacted startups?
The inadequate implementation of sound corporate governance practices is a major culprit behind the alarming mortality rate of startups in Nigeria. When organisations lack proper governance structures, negative behaviours and tendencies are allowed to thrive, creating a breeding ground for problems. It is only a matter of time before these issues begin to exert immense pressure on the organization. And if left unaddressed, they can escalate to a point where the organisation starts haemorrhaging and, eventually, succumbs to failure.