Just because your company is not listed on the Lusaka Securities Exchange does not mean that your company should be immune to corporate governance. This is the statement that has been heavy on the mind of TFHZPC as we pondered on how the importance of corporate governance can be communicated to premier startups in Zambia.
According to Warner and Hussain in their 2017 “The Finance Book”, they indicate that although there is no requirement in the UK for private companies to follow the UK Corporate Governance Code (The Code), they are encouraged to do so,especially when private companies become large in the public eye. The essence of this is that their very existence in the event of insolvency can impact various stakeholder groups such as employees, customers and government.
Having a code of conduct that is legislated is important for premier listed companies.In the same vein, unlisted Zambian companies can learn through aspiration as they build the next premier company. The Code is quintessential to the survival of companies and as Warner and Hussain discuss in their book, failure to follow it has led to corporate collapse of notable company’s such as Maxwell Communications in the 90s and Northern Rock in the late 2000s (not forgetting Enron in the latter era).
For investors in premier companies listed on LuSE, it is important to monitor your company’s compliance to corporate governance principles. Although these principles are not the silver bullet that leads to companies recording increased revenues or attractive earnings, they give investors’ confidence and reassurance that the company and its directors are running the affairs of the business in accordance to what may be considered as “best practice” according to Warner and Hussain. Furthermore, they provide recommendations on how a firm should be directed and managed (leadership), how its directors compensation should be structured (remuneration), provide for stronger financial reporting and audit (risks and going concern) as well as the management of the shareholder relationships (stewardship). Needless to say, the corporate governance section of an annual report can be rather boring to non-astute investors but it is essential to the understanding of whether the company you have invested in is running the company in an orderly manner.
SMEs in Zambia that chose to adopt the tenants of good corporate governance may benefit in ways that have not been able to imagine. Speaking to sources in the LuSE,the Alternative market (AIM) has not enjoyed participation from small to medium sized companies for the simple reason that many avoid the discussion of corporate governance. The proverbial question is “what are they hiding”? Better still, “what is it that they do not understand”? This inevitably becomes a missed opportunity to raise finance from the capital markets which would be welcome move in the era of tighten liquidity. However, in other discussions on this website we have also addressed the small matter of the entrepreneur’s dilemma of not wanting to let go of the going concern that he or she has created. However, if you do not have checks and balances in place, how certain are you that the going concern you covet will last the long term?