A guide to enhancing corporate governance in early-stage start-ups in Africa

It is allegedly reported that the Founder and CEO of “Dash” – a Fintech Start-up has been suspended pending an investigation into the operations of the company for financial impropriety.

This is a Ghanaian-founded company that raised $32.8 million in equity last year and provides an alternative payment network with connected wallets permitting interactions between mobile money and bank accounts in Africa.

Similarly, the Founder and CEO of “Flutterwave” – Africa’s most valuable unicorn was also reported last year to have been under investigation for financial and personal misconduct pertaining to the running of the pan-Africa Fintech company.

“Dash” and “Flutterwave” are leading examples of Africa’s growing early-stage start-ups with great potential of becoming global brands in the Financial Technology (Fintech) industry. And news of financial impropriety and related misconduct at the highest level of these companies portray the seeming lack of and/or failure of accountability, systems, and procedures that promote best practices in business management.

More importantly, occurrences such as those reported have wider negative implications for the funding and management of other start-ups in Africa and it is imperative such concerns are addressed with pragmatic initiatives that promote good corporate governance in early-stage start-ups.

Therefore, the purpose of this article is to assess the concept and practice of corporate governance as well as offer some guidelines for its promotion in start-ups and small and medium-sized enterprises (SMEs).

Corporate governance and its practice

On incorporation, companies are clothed with the legal personality to carry out their intended objects or purposes. However, the limitation of such legal recognition (artificial personality) implies that human beings must either be appointed and/or employed to steer the affairs of a company within a certain framework. Without this, no company will be able to carry out its purpose and operate.

The governance of a company, therefore, requires the effective implementation of arrangements that allow for the seamless management and operation of a company. To effectuate the proper governance of a company, officers are expected to comply with mandatory arrangements as required by law and permissible ones which may be considered as best practices depending on the operational requirements of a company.

The prescriptions of structures/organs, functions, and powers under the Companies Act are at best the basic expectation of a corporate governance system that companies can enhance in an attempt to build a good corporate governance one that promotes the best interest of a company and seek a balanced interest of all stakeholders.

To achieve the overarching objective and drive the benefits of good corporate governance, companies must ensure that their compliance with legal and non-legal demands of structures, systems, processes, and procedures are aligned to certain principles including a clear definition of roles, accountability, integrity and ethical leadership, fair and equitable treatment of stakeholders among others.

Therefore, any discussion concerning corporate governance is a call for strict adherence to the mandatory requirements of law and permissible best practices as they relate to the exercise of powers, the establishment of organs/structures, the performance of duties/functions, the institution of systems and procedures for the efficient and effective management of companies.

Ways of enhancing corporate governance

There is a cost to the effective institutionalization of a good corporate governance system. Apart from its monetary cost, the implementation has the potential to reduce the influence or exercise of power by founders of a company as it imposes strict procedures on how the affairs of a company are managed.

Nonetheless, its absence may lead to chaos, mismanagement, improprieties, and breaches of company and corporate management requirements. This may result in sanctions by regulators and create an unsustainable and unattractive operation, especially for funding.

To reduce the tendency of start-ups to suffer the consequences of not instituting good corporate governance systems at their early stages, I recommend the following initiatives as must-do to build a strong compliance culture to support corporate governance and its practices.

Building the capacity of founders: Start-up founders are the brains behind the pursuit of the purpose for which start-ups are incorporated. They have the idea and the know-how to deliver the required product or service.

In the process, founders assume the responsibility for not only working on the product or service but also, the management of the ensuing company including managing people, service providers, finances, sales, and marketing among others. And largely, these enormous duties are performed by one person or not more than three in co-founders’ situations.

Apart from this, most start-up founders are young people with limited professional experience in managing anything. Some are students and immediate graduates with little or no appreciation for management concepts and their practices.

Rightly, these inefficiencies or lack of capacity reflect in the management of start-ups and result in limited or no adherence to the mandatory and permissible prescriptions on corporate governance.

Therefore, a starting point for the promotion of good corporate governance practices will be the building of capacity for start-up founders to understand and appreciate the tenets and practices of corporate governance and be able to drive its implementation across their organizations.

Currently, most start-up founders are unaware of these demands and must be intentional about building their capacities on same as the practice of corporate governance is as important as the development of products or services.

STAFFING: The governance arrangement of companies permits the appointment and/or recruitment of officers and other management staff to support the overall management of a company. The need to appoint or recruit persons for the various mandated or permissible roles represents an opportunity for a start-up to bring on board, persons with the requisite skills and knowledge. This opportunity must be utilized to appoint or recruit highly skilled personnel with strong commitments to abide by rules, procedures, and practices that enhance accountability and transparency, integrity, and ethical leadership among others.

The role of personnel (staff) in driving a good corporate governance practice cannot be overemphasized. Therefore, start-ups should not miss the opportunity to appoint or recruit persons who can support founders in doing the right things.

If possible, a dedicated staff should be engaged as a compliance officer to ensure strict compliance with the demands of good corporate governance.

Systems and processes: Good corporate governance is best reflected in the adaptation and compliance with systems and processes. Therefore, the setting up of systems and processes offers the best indication of the commitment to comply with the demands of good corporate governance.

However, start-ups must ensure some level of checks and balances and/or the placement of limitations on the exercise of powers underlying the systems and procedures put in place.

Particularly, clear procedures must be in place for the management of the funds, recruitment of key management personnel, the exercise of key decisions, among others to forestall improprieties that could impair the company’s growth.

Prioritise the use of technology: Technology is simplifying our ways of work and life. Its innovations are providing cost-effective and convenient ways of performing tasks hitherto performed by humans. And the surge in the number of start-up companies is also attributable to technological advances. Therefore, start-ups cannot seek to use technology to provide innovative products or services without leveraging its usefulness in the management of their operations.

It is practically useful to use humans and paper-based processes to achieve compliance with corporate governance demands. However, it will be more beneficial to explore the use of technology by way of systems, processes, and procedures for managing the finances, decision-making, etc. of a company.

We are in a technology era; start-ups must explore the full advantages of technology to comply with demands and promote efficiency and traceability in their operations.

3rd party advisor: Establishing internal arrangements to comply with corporate governance demands is great. However, having an external person (3rd party) to serve as a second layer of compliance checks and balances will help provide feedback on and recommend improvements to internal compliance arrangements. So, start-ups must explore the option of having an independent 3rd party who serves as a chief compliance officer(s) and build the attitude to take and implement his or her feedback or recommendations.

Conclusion

There is no “one-size-fits-all” approach to building a great start-up. But there are no great and thriving companies without compliance with rules, procedures, and practices which are underpinned by the demands of good corporate governance.

Therefore, as many young people take on the challenges of entrepreneurship and pursue the provision of solutions – products or services across Africa, these founders must understand and appreciate the need to incorporate good corporate governance principles and practices into their operations as part of their early-stage initiatives to promote their sustainable operations. And some of the recommendations in this article must be highly considered.