Are you involved in the management of one of the over 37 million Micro, Small and Medium Enterprises (MSMEs) in Nigeria? If you are, then you should be interested in who takes over from you; the future partners the company can attract and its reputation in the market after you have vacated the saddle. If you are interested in the future of the company beyond you, then you must pay attention to the way things are done with regard to best practice in the industry.
Much of the issues in corporate governance are matters of general application. They are important to both big and small organizations, even if to varying degrees, and less to small businesses. This perhaps, explains why we often focus on big organizations, when we discuss corporate governance. Big companies make the headlines and take the centre-stage when leadership is in focus but the contribution of the MSMEs to the economy is very important. In 2015, they employed 60 million people, according to the then Minister of Trade and Industry, Olusegun Aganga, and accounted for 48 per cent of the nation’s Gross Domestic Product (GDP) – the value in current market prices of all final goods and services produced in the country at the time. That is a lot of contribution, which has not been well-recognized. For starters, MSMEs are marginalized both in terms of their natural domain and social overhead capital. They are the last to feel the presence of government in terms of infrastructure.The informal sector, where they operate is the least supported by public utilities.
What constitutes an MSME may be subject to controversy, especially as we cross borders into other jurisdictions. Therefore, the three components that combine to be called MSMEs are characterized differently in different jurisdictions. Nigeria’s microenterprises for instance, and in the view of the National Bureau of Statistics (NBS), are business entities employing less than ten persons and having assets (excluding land and building) valued at about N5 million. By contrast, our definition of small enterprises is one that employs between ten and 49 persons, and has assets, excluding land and building, worth between five and N50 million. The last category, medium enterprises, are those employing between 50 and 200 persons and have assets, less land and building, valued between N50 million and N500 million.
This compartmentalization may serve some purpose but it tends to mask the universal attribute of great diversity, which is hidden within these borders separating members or the division within the SME sector in our country. Within these brackets are a range of entrepreneurial activities spanning the micro, one-man owner-managed and probably unregistered businesses that employ only a few persons, through the small hyperactive growth-oriented, family-owned and controlled companies with limited liability; to the more sophisticated relatively mature but still vibrant and growing medium companies that sometimes pass for large companies. The challenges arising from this complex nature of the MSMEs is amplified by challenges that are associated with ownership structure and control, which get more tedious in family-owned businesses. Evidently, MSMEs, by their very large numbers and the ubiquity of their presence in every street corner, gives them reach. They could actually pass for the best place for the development and transmission of good corporate governance culture. However, this does not appear to be the case as a number of factors, including atomistic sizes and ownership disabilities rob the sector of this pride of place.
To start with, the legal personality of most MSMEs is a matter of conjecture. Most microenterprises are not registered. This makes the directors often forget the fact that the company is separate from its managers, shareholders and capital owners. This is the first lesson on corporate governance that hardly gets learned in this sector. There is an increasing demand on all companies now, including SMEs, to go beyond what the law requires of them. Greater burden is now placed on directors of even small companies to give good leadership. Good governance goes beyond performing one’s duties as prescribed by law for directors. The concept of best practice developed from this basis and it is intended to present something above the regular. If one’s duty as prescribed by law is short of best practice, good corporate governance expects one to go beyond the prescription of law and do what is best practice in the industry. All over the world, there has been tendency to associate company failure with poor leadership and governance. Most successful companies are however known to be well-governed.
Without doubt, small companies have good business case to pursue good corporate governance. It reflects on their image to the external parties they may wish to deal with. It helps set the foundations for their future survival. Effective succession planning is a product of good corporate governance and even small companies need it even more. And for society in general, SMEs may provide a better platform to disseminate the culture of good governance, given their numbers and spread. A lesson learned by SMES is more likely to be quickly and widely spread than by the few big companies that are few and far apart. This is why it is important to encourage SMEs to find their place on the corporate governance ladder as the benefit to society is great.
Emeka Osuji
