Corporate Governance: A Veritable Tool for Africa’s Renaissance

Can Africa overcome her developmental challenges in the current century?  This is a question every African who is sufficiently enlightened to understand our shared humanity should be bothered about.  Yet it is a question that few business leaders and even fewer political leaders charged with governance at various levels seldom ruminate upon.

According to Shanta Devarajan, Chief Economist at the World Bank, Africa is the region with the highest poverty rate, and its rate of poverty decline is too slow.

The twin forces of ignorance and integrity deficit in leadership continues to limit the human potentials of the continent.  The dream of a renaissance in Africa begins with ensuring that a sufficient critical mass of the continent’s population develop the strength of character needed to lead with integrity.  It is my opinion that such leadership can influence the political class in the long run.  The private sector and organized business can lead the way in engendering a culture of transparent honesty which is the corner stone of corporate governance.

There are few countries with a robust system of social security in Africa.  The African entrepreneur and especially the successful one is often required to support a large number of extended family members.  A comfortable (and kind) relative is the only security the typical African has against hunger and lack in the event of any personal incapacitation.  The other “security” for the unemployed is the hand-out that may be made by the typical unscrupulous politician scurrying for his votes.  In Nigeria, this anomaly has assumed a frightening dimension with the coinage of the term “stomach Infrastructure” by the political class.  Systemic failures in governance by the political class has led to the emergence of an entitlement mentality by many of that country’s uneducated young.  It is now a norm for relatives of land owners to demand perpetual rent from investors even when the particular piece of real estate was disposed of via an outright sale.  It is for this and several similar reasons that discerning companies engage a specialized “community liaison officer” to engage with the communities where they operate.

The lesson coming out of Africa is that a responsible business exists to solve the society’s problems in a sustainable manner.  True profit is not measured in monetary units.  True profit is reflected in the human development indices of the society that supports the business.

Unfortunately, in our experience, we are unable to find good examples of companies leading the way in terms of CSR in Africa.   The profit motive continues to propel most African owned businesses.

Dr Stanley Milgram, a psychologist at Yale University, conducted his famous experiments on “obedience to authority” in 1961.  The lessons of that experiment are especially potent for Africa today.  The results of this famous experiment indicate that the average human, irrespective of his or her level of education, would comply blindly with orders to commit sadism and even murder if he or she is acting under the authority of someone who is paying for the services and willing to accept all responsibility for such acts.  It appears that beyond all reasonable doubt, character is the single biggest factor needed for leadership.

When people of strong character lead a corporate board, decisions and governance are made on the basis of balance.  Risk is minimized where the personal integrity of the individual board member is impeccable.  Africa needs particularly strong individuals to lead the boards of its corporations so that such people can stand up to corrupt regulators that foster much of the systemic failures in governance.

Character has no gender preferences.  If boards are constituted more on the basis of the individual’s strength of character, than on technical competences or sex, then we should see more companies resist the corrupting influences of their operational environment.

In the course of my consulting work for small business owners, I am surprised by how short the visioning horizon for most business owners are.  Japan has a plethora of corporations that have existed for several centuries.  Such large, well governed corporations have contributed in no small measure to the country’s resilience.  Perhaps, if business founders and those charged with business governance understand that a well-managed business can exist more or less perpetually – for as long as there are humans- they will do more to enshrine systems, processes and procedures that will confer enduring agility.

What do I want to hide? Why do I want to hide it? When the facts are finally known by all- as is often the case- How would it impact my reputation? We humans, as a social specie will often relate with ourselves on the basis of our perception of the other party. Perception is fueled by reputation.  These are some of the issues, which in our opinion, business leaders should always consider.

Where the regulatory environment is weak, either as a result of willful corruption or an honest lack of capacity, a business leader will need to establish a strong code of personal accountability and responsibility.  Honest Communication is the tool that fosters accountability and responsibility.  Even at the level of the individual.

In our experience, there appears to be an intentional refusal of corporations to communicate transparently with their stakeholders.  On a consulting project for one of the largest national oil companies in Africa, we were prevented from assessing the historical financial statements which we needed to deliver on the terms of our engagement.  We were forced to advice on the basis of hypothetical scenarios rather than on actual results.  This is akin to a patient concealing vital information from a doctor.  In that particular corporation, the financial statements are regarded as so sensitive that even senior managers are not allowed a complete view of the document. 

To analyze and understand risk in Africa, particular attention should be placed on the acronym RISK. Resources, Information, Systems and Knowledge will need to be tailored to operate smoothly in the terrain.

Open and honest communication is today a buzz word. In practice, many companies are anything but open and honest in their quest to maintain secrecy.  Yes the fear of competition is one factor companies commonly cite as a hindrance.  In reality, the companies that survive in the long run do not spend time meditating on their competition but on creating and innovating.

Information on executive remuneration and board compensation are masked and rarely disclosed.  Some companies in Africa refuse to submit to compensation surveys on the basis that personal harm could come to their employees if such information should leak out.  The reasons are not unfounded in the face of rampant criminality and kidnappings.  However, a company that is committed to dealing honestly will find a way around excuses to do right.

Africa needs a renaissance. Such renaissance will begin with having more men of strong character and integrity leading boards.

Eben F Joels. Eben was Managing Stransact Partners in Nigeria. He now runs Boston Knowledge Company LLC. An early stage management consulting firm dedicated to helping African companies create value.