Many small businesses struggle to survive in harsh operating environments, and their failure to adhere to corporate governance has worsened the situation. Deborah Dan‑Awoh writes about how SMEs can leverage corporate governance to navigate Nigeria’s challenging business climate. In Nigeria, the business environment is notoriously difficult, especially for small enterprises that have barely survived their first five years. Last year, the Small and Medium Enterprises Development Agency of Nigeria reported that poor management and inadequate governance practices caused the demise of two million SMEs over the previous two years, noting that most of these firms fail 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 any business’s success. According to the Corporate Finance Institute, it guides the conduct of people within an organization and the organization’s overall direction, distinct from daily operational decisions made by management. Its purpose is to ensure effective management of entrepreneurial and startup activities for long‑term success. A report by the Organisation for Economic Co‑operation and Development (OECD) links the adoption of corporate governance by SMEs to their growth and sustainability, stating that “better governance is not a panacea to all problems faced by SMEs, but it is an undeniably important ingredient to their success.”
While large firms can more easily implement robust corporate governance, small businesses often find it challenging, contributing to many folding before their fifth anniversary. High‑profile collapses such as Enron and WorldCom illustrate the consequences of ignoring governance guidelines, and Cadbury Nigeria nearly failed after its leadership allegedly breached governance principles. Experts argue that poor corporate governance among small businesses hampers their vital role in the economy.
Jide Oladapo, a director at Comtrade Group—a SME dealing in agro‑products—explained to The … that most small‑business owners are unprepared for entrepreneurship. “Our education system does not teach corporate governance in business. Many people enter business out of necessity, not because they planned to. In school they dreamed of corporate jobs; when the job market proved harsh, they turned to monetising their skills, but a wide gap remains in managerial expertise,” he said.
Solomon Aderoju, Vice‑President of the Nigerian Association of Small and Medium Enterprises, South‑West Zone, emphasized that corporate governance involves the processes, systems, practices, and procedures that many small firms lack. He argued that governance helps direct and control businesses, enabling profitability and long‑term growth. “Transparency in decision‑making and an effective control system stimulate business survival,” he noted, adding that many SMEs downplay governance, often operating with a “one‑man board.” Aderoju observed a general lack of awareness about the link between governance and performance, with SMEs citing finance, infrastructure, capacity building, tax regimes, and corruption as more pressing concerns.
Bode Ayeku, President of the Institute of Chartered Secretaries and Administrators of Nigeria, stressed the need to embed corporate values and ethics in all businesses to ensure sustainability. He said the only guarantee for continuity is to establish management structures that protect stakeholder interests and foster collaboration.
The Companies and Allied Matters Act (1990) serves as Nigeria’s guide for corporate governance, yet experts claim it has failed to sanction non‑compliant companies effectively. Challenges to governance include corrupt practices, complex ownership structures, slow judicial processes, and weak enforcement by regulatory bodies.
Nerus Ekezie, acting CEO of the Institute of Directors’ Centre for Corporate Governance, highlighted the monumental impact of good governance. “Corporate governance is crucial for SMEs to enhance performance, profitability, and survival. Transparency and effective controls provide the stimulus needed for business longevity,” he explained. He added that strong governance improves credit ratings, reduces the cost of capital, attracts quality human capital, adds social value, and protects the environment. In the public sector, governance curbs corruption, boosts productivity, attracts foreign direct investment, and promotes social stability, ultimately benefiting families and the youth.
Seun Kuti‑George, Vice President of the Nigerian Association of Small‑Scale Industrialists, argued that corporate governance can give SMEs a competitive edge by leveling the playing field through flexible regulations. He distinguished internal governance—systems built within a business—from external requirements such as company registration and tax compliance. “Less stringent external requirements benefit small businesses; overly strict rules, like costly NAFDAC product registrations for each package size, burden SMEs,” he said. He also pointed out that excise duties disproportionately affect small producers; while large brands can absorb a N100 per litre tax, an SME producing 30,000 litres a month would face a heavy burden.
In summary, the government must promote the adoption of corporate governance among small businesses to reduce the high mortality rate of SMEs. When SMEs thrive, the broader economy will experience significant growth.
Comments are closed for this story.