Small and medium-sized businesses (SMEs) are the lifeblood of most emerging economies, accounting for a significant portion of economic activity and job creation – especially in developing countries such as Namibia.
Previous studies acknowledge that SMEs in Namibia continue to confront significant barriers, including a lack of access to financing, market-entry, and business management skills and expertise.
While corporate governance is essential for the development and sustainability of any company, Namibian SMEs have yet to recognise the importance of corporate governance – especially when seeking funding or engaging potential investors.
With the development of Namibia’s unique corporate governance code, the NamCode, and the SME sector supplements under the King IV code on corporate governance, all SMEs, whether owner-managed or not, can benefit from and should mindfully apply the NamCode and King IV governance best practices.
These best practices will allow SMEs to enjoy long-term advantages, such as company sustainability and stakeholder trust, which will eventually increase the SMEs’ market share. It is an investment that will aid the organisation in avoiding mistakes and position it for growth and innovation.
It is also worth noting that even with the most outstanding business plan and a well-defined client base, a small company may only survive if it follows sound governance procedures. Inadequate governance procedures are often identified as the leading cause of substandard company performance, fraud, and unanticipated failures.
As recently reported in the media, Namibia’s corporate environment has seen outstanding business models and proposals crumbling because of conflicts of interest, inadequate controls, and a lack of checks and balances. The litany of corporate scandals across the globe, of which Namibia is no exception, also results from ill-defined and unclear corporate governance structures, which leads managers to make decisions outside the scope of their authority that is not in the organisation’s best interest.
When there are no early warning systems and governance frameworks firmly in place, the openness and visibility of critical choices become opaque. Therefore, effective governance can provide SMEs with a set of guidelines that can help them survive and flourish by considering some of the following issues:
The role, structure, and composition of the board of directors (including the role of independent directors), the CEO and board relationship, incentives, performance monitoring, and the development of succession plans.
By implementing the NamCode and King IV principles, SMEs may adopt good corporate governance on a rudimentary level without incurring significant extra expenses, thus debunking the long-held notion that corporate governance is too costly for SMEs.
In addition, for any organisation to grow, depending on the size and complexity of the company, it must have a strategy, a business plan, a performance management system, and risk management procedures. Governance improves risk management and may result in start-up innovators taking sensible entrepreneurial risks.
Effective governance in an SME may also be a significant selling feature and enhance the company’s image, particularly in an era of numerous failures caused by inadequate governance systems. Risk management contributes to the company’s long-term value by ensuring that risks are appropriately evaluated, managed, and mitigated.
To this end, SMEs should integrate sound corporate governance practices into their company operations rather than waiting until they become larger organisations or listed on the stock exchange. Due to the critical role played by SMEs in Namibia’s developing economy, these businesses should embrace good governance standards to stay competitive and profitable.
Therefore, all strategic partners such as the Development Bank of Namibia (DBN), the Namibia Investment Promotion Board (NIPDB), and other key players in the corporate governance ecosystem should be committed to achieving good governance for SMEs and further developing the SME Sector.
*Chisom Obiudo is an admitted legal practitioner and a part-time Governance Consultant and Trainer at Directed Governance Consultancy. She holds an LLB degree and a Masters degree in corporate governance and specialised certificates in compliance, non-executive directorship and legislative drafting. Reach her at chi@directedgovernance.com or visit www.directedgovernance.com
