Embracing Sustainable Governance: Implications for African Businesses
The term Corporate Governance (CG) appears overwhelming but it is rather a natural day-to-day approach to business than a set of rules. Spanning from imbibing the right business practices to proper organization structuring, the essence of Corporate Governance resonates all through any business operation and corporate performance. In Africa, according to Qudrat-I Elahi (2009), good governance first came into a formal report in the World Bank Report of 1989 and through the 1990s become more popular. However, even though Corporate Governance has been embraced on this continent, it is still seen as more of a business world practice.
When corporate governance tenets are considered, the following elements must be prioritized: transparency, accountability, efficiency, integrity, and responsibility. There are three (3) main points why Africa as a developing continent needs to firmly embrace and improve corporate governance practices.
A successful country requires the joint efforts of its government, its corporations (businesses) and its people. CG requires a good relationship and governance between its shareholders and stakeholders on one end and a good relationship between its shareholders and the people. It takes a company with good CG to attract investors because these elements assure investors that the organization is capable of sustaining its investment for expected profits. Today, international corporations investigate a country’s CG framework before committing themselves into such countries; every investor wants an assurance that his/her investment is used in a transparent, accountable, efficient, and reliable manner. If investors are not confident with the level of disclosure, capital will flow elsewhere (Arthur Levitt, Former Chairperson, US Securities Exchange Commission). This is why sound corporate practices attract investors. An analysis of investment processes reveals that CG plays strong importance in an investor’s decision:
- Mobilizing Capital: A well-structured corporation puts effective models in place to ensure that investment capital is well mobilized. Potential investors are always comfortable doing business with a corporation that has effective capital mobilization structure in place with right governance.
- Allocating Capital: It is only a transparent team and a team with integrity that will allocate capital appropriately. A corporation without a good CG structure is less likely a good option for any investor as proper allocation of resources by the right people for the right purposes is important to an investor.
- Monitoring investment: Investors only want to put their resources with an accountable and trust worthy team.
Economic growth in Africa cannot be sustained if the continent does not improve its reputation for corporate governance (Ansie Remalho, CEO of the Institute of Directors in Southern Africa (IoDSA). To access economic growth, the way all stakeholders are treated is crucial. Stakeholders include directors, shareholders, employees, and more importantly customers. When directors are rightly appointed, first for competence and expertise, they can better manage corporations by ensuring the smooth running of the business. When there is an assurance that no one shareholder will exploit others, all shareholders will be committed just as, when there is proper management with employees treated well, conflicts often reduce and there are high chances that performance levels will increase and good services will be offered. When customers are offered good services, they keep returning so that profits can keep increasing; impacting lives and circulating the economy for economic growth.
Long Term Development
CG is important in both the private and the public sector although it has mostly been restricted to the Private Sector possibly because of the word “Corporate” which makes it seem as just a private business affair however, if CG is considered as imbibing the principles of good governance, then its importance to the Public Sector will resonate stronger. Encouragingly, African Heads of States have recognized that one of the causes of loss of opportunities for financial resources from both domestic and international markets has been the absence of good Corporate Governance practices. This development has stunted Africa’s growth and informed the institutionalization of CG as a part of necessary obligations for all countries in its New Partnership for Africa’s Development (NEPAD) initiative (African Development Report 2011).
Although the continent has the poorest of social infrastructure in the world, yet the ones available are not properly managed. These require a proper management structure of public resources to improve maintenance and provide more basic amenities either through public procurement or public private partnership initiatives. According to Oman (2003), the quality of local corporate governance critically affects a country’s ability to achieve sustained, real productivity growth and the success of its long-term development efforts. Thus, proper governance in public sector increases stability, boosts economy, and increases responsibility among stakeholders, which are what African economies require for development.
Government corporations need sound governing frameworks and organisations to ensure the smooth running of economies. An accountable public sector gets trust from its citizens and reduces challenges of taxation remittances or evasion. Africa’s multiple problems of bad economy, poverty, absence of good infrastructure, and other social problems call for a review of corporate governance practices especially in the public sector. On the flip side, it may be argued that the current corporate governance model(s) may not be feasible for the African continent. This provides a basis for the emerging school of thought that a new standard or best practice may be required in the form of Sustainable Governance.
From North to South, East to West, both in the Private, Public and Nonprofit Sectors, sound Corporate Governance practices are a fundamental element for African development and should be a primary focus at this stage.
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