FAMILY-OWNED ENTERPRISES

While state owned enterprises are in the command position over most African economies, family-owned enterprises account for the vast majority of the continent’s business community. In Kenya, there are over 140,000 registered companies. Just over 50 are listed on the stock exchange. Further, out of these 140,000registered companies, only 5,000 are public companies. That means that there are approximately 135,000 that are either family-owned private companies or small- and medium-sized enterprise (SMEs). Consequently, if corporate governance is not addressed in the context of family-owned companies or SMEs, the message is not reaching the vast majority of the business community. Reaching family-owned companies can be challenging. The centre for corporate governance (CCG) cites an example it uses in its training programs. A grandfather founded and has been quite successfully running the family companies since is inception. He is now spending a bit of money on his second wife. CCG asks, “What are the implications of his actions for corporate governance?”

Some participants often respond, “Well, if the second wife is making the old man comfortable and better able to work for the company, what does it matters, then, if he uses some company money to finance something that allows him to better contribute to the company’s success?” this is one of many real issues of corporate governance in family-owned businesses in Africa. Culturally, it is very difficult for a grandchild in the company to say to the grandfather, “you can do that. It is just not done. All the money, assets, and property belong to the company. You must account for every penny.” In addition to cultural challenges, succession in family-owned companies and formalized decision making processes are some of the other issues that must be addressed in building proper corporate governance.

REACHING THE BROADER BUSINESS COMMUNITY THROUGH THE CAPITAL BASE    

Unfortunately, in many African countries, the application of corporate governance guidelines has been limited to capital markets as a means of attracting foreign investment and, therefore, has a limited reach. (Outside of one or two countries, foreign investment in Africa is still nominal). Similarly, many people associate the enforcement of corporate governance with stock exchanges. But many companies in Africa don’t list on the stock exchange. The source of capital may instead be cooperatives, family, or banks. Banks are key to helping companies adopt good governance practices, because eventually, when business start to thrive, they all deal with banks or financial institutions of some sort, whether it is in terms of depositing money, transferring funds, securing loans. Banks thus have a major role to play in promoting corporate governance. There are two aspects of this role: how the banks themselves are governed and how the corporate governance practices of various clients factor into banks risk evaluation.

First, the implementation of good governance helps banks to develop a long-term vision. Simply put, corporate governance forces banks to properly evaluate clients, and rewards facilities long-term development rather than short-term exploitation of random transactions. In many African countries, the source of capital may not be banks- it may be a brother or cooperative. Nevertheless, transparent disclosure and accountability is still important. If corporative governance is not made applicable to the banking sector, state-owned enterprises or even the informal sector, people will continue to assume that corporate governance is crucial to job creation. Well-run companies create more jobs and better products, and can be held accountable for paying their taxes in a timely manner.