Corporate Governance: The difference between good and great businesses!

If there is one subject that should be drummed into the head and heart of every entrepreneur, especially in this part of the world, it is corporate governance. It easily differentiates between good and great companies. Corporate governance is the only reason some businesses have survived the test of time, patience, adversity, fears and successes (successes could sometimes be overwhelming). It makes the difference between companies that span multiple generations and those that die with their founder.

Investopedia defines corporate governance as the system of rules, practices and processes by which a company is directed and controlled. It essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.

In an environment where most founders/entrepreneurs are lords to themselves, you can understand why it’s difficult to implement proper corporate governance. Several entrepreneurs argue they have such systems in place by which the company is directed and controlled but what most fail to explain is how those systems are developed, enforced and monitored. The reason is simple – they are defined by the whims of the founder. The founder decides what those systems will be, how they will be enforced and how they will be monitored.

This is where the importance of having a board of directors or advisers comes to play, no matter how small the business is. The board gives multiple benefits to the business. Depending on the selection of the board, they can offer credibility to the business, provide leads, de-clutter thoughts, foresee threats, inspire confidence, generate ideas and weather occasional failures. I know a business that survived only because of its board. The promoter of the business got to his wits end and was ready to call it quit but the directors, even though they had no equity, encouraged him to continue despite odds and today his business is one of the fastest growing in its sector.

It’s very critical that the entrepreneur not only thinks through the business plan, but also thinks carefully on the selection of advisers or directors. And these advisers are usually not only motivated by equity in the business, even though you might have to offer either cash or equity to some but others will do it pro-bono just to encourage the business. The entrepreneur should seek out advisers with diverse set of skills that complements him. This assumes the entrepreneur understands his/her weaknesses and his bold enough to accept people who will think differently from him, hence, occasionally challengd his decisions. The entrepreneur must understand that he will not be able to make key independent decisions and must be willing to be answerable to people who have not put in sweat into the business.

With proper corporate governance, both definition and implementation, companies increase their chances of surviving significantly but it comes at a cost!

Dysfunction in the Agriculture value chain: a call to expertise!

If you have invested time or money in Agriculture in Nigeria, here is a story that will resonate with your experience.

Adamu (not real name) is a vegetable farmer in northern Nigeria. He grows onions, tomatoes, ball pepper and occasionally chili pepper. Recently, he decided to raise his game and invested in some greenhouses to help him serve a new group of customers. At least now, he can sell into the fast growing number of hypermarkets such as Shoprite, Justrite, etc. Once he started producing, he realizes that it takes considerable effort to grow these vegetables in the greenhouse but he is committed so he stays. As the flowers started sprouting, it occurred to him that he had not secured any customer yet so he starts running around the country looking to sign contracts with the hypermarkets which took a considerable amount of time. Going about doing this takes him away from the farm considerably and had some impact on his crops, loosing 10% of the crops but he figured he can bear the loss. He was however glad he could sign a contract with Shoprite. As he was about to harvest, he realized he has to transport the tomatoes to Lagos and hence, quickly starts looking for a cold-chain distributor but found none. The few cold-chain distributors for dairy and beef were asking for ridiculous amounts that will wipe away his margins. He decided to stick with using a regular truck. 15% of his produce got destroyed during transportation but eventually sold the rest to Shoprite. At the end of the day, Adamu was asking himself if it was all worth serving this new segment”.

In case you missed it, Adamu functioned as a farmer, a marketer, and a logistics agent. In the end, he lost up to 25% of his produce and ultimately got wasted himself during the entire process. This highlights the big dysfunction in the Nigerian agriculture value chain. Imagine the story played out differently as below.

“Adamu decided to go into greenhouse vegetable farming and he put in all his efforts to get maximum output from the farm. Once the flowers started sprouting, he called Ajoke Enterprises(AE) who markets farm produce to all major hypermarkets in Nigeria and AE goes to secure the contract with Shoprite and Justrite because of her expertise in engaging these type of clients. Once the fruits were harvested, Bello cold-chain company (BCC) was waiting at his gate to pick up the produce and deliver to Shoprite and Justrite in Lagos. At the end of the day, 95% of his farm produce made it to Lagos and Adamu did not move one day away from the farm.

This plays out differently depending on the sector in question and there is no doubt that the government has a major role to play here, creating the enabling environment. However, there is also a call for individuals and companies to start looking for ways to create market linkages through expertise building, hence helping all players to get a larger slice of a larger pie!