Good Corporate Governance Makes Business Sense
As the curtain comes down on 2016 most Kenyans would agree that the need for strong corporate governance has never been greater for both the public and private sector as the wave of malpractices takes its toll.
While most of the talk has centered on state agencies and corporations in the private sector not much has been talked about at the investment group or chama space and well as micro as well as in the small and mid-size enterprises sphere.
Since there is limited data on the latter mentioned sectors it is hard to quantify the level of mismanagement but anecdotal evidence shows that even at these levels there is a need for inculcating the need for strong corporate governance practices.
Some of the malpractices that are afflicting chamas and chama-run businesses include members defaulting on contributions, signatories colluding to defraud other members failing to pay suppliers or intentionally selling substandard products and services.
It is no surprise that innovators in the tech space are coming up with apps and other software that can enhance transparency amongst chama members as well as aid in tracking processes for small businesses.
Innovation and technology does help but even before investing in such systems chama members and entrepreneurs should know that there is an economic incentive to uphold strong corporate governance practices in addition to the ethical aspect.
Studies have shown that there is a link between profitability, sustainability of the enterprise and strong corporate governance practices.
The collapse of the three banks this year has shown an example of just how weak corporate governance practices can negatively impact businesses and the general economy.
Strong corporate governance reduces the cost of doing business through lesser leakages in the form of theft or incurring unnecessary costs e.g. fines, legal fees when once is taken to court and lost time incurred in the course of setting the business back to track.
If this money that is lost through leakages was to be ploughed back into the business it would boost working capital needs for such chama-run business, increase funds available for research and development and dividends to owners.
Additionally some of the good practices that can increase the mortality of chamas and the small businesses they run include timely contributions by members as well as prompt payment of statutory deductions such as taxes.
Finally a code of conduct for members as well as evaluation of management is other useful tips for chamas and chama-run businesses.
Members should also avoid conflict of interest where possible e.g. directors of companies should not supply or source for goods or hire relatives and acquaintances who are not qualified.
Putting aside personal differences when running an enterprise or when making investment decisions are other practices that chamas and small businesses should encourage.
Living up to these standards is not a walk in the park but is a daily challenge but just as in life, this approach requires continued effort.
On the flip side the more chamas and their businesses make corporate governance practices the norm rather than the exception the more their ventures will flourish.
There are large banks, energy firms, real estate companies whose roots can be traced from humble beginnings by founders who stuck to strong principles on how they conducted the affairs of their ventures.
With an estimated Ksh300 billion in assets under management Kenyan chamas have a lot of potential and these funds can catalyse rapid economic growth but all these depends on just how well funds can be utilised.
The Writer is the CEO Unaitas