How companies can succeed with corporate governance

  

District officials visit Igasa Bridge recently along Ruboona-Bukuuku road in Kabarole District that was washed away by the March-April heavy rains. Kabarole requires over Shs600 million to reconstruct its bridges. Photo by FELIX BASIIM

By Paul Njuguna

There is a saying that ‘Discretion is sometimes the better part of valor.’ Discretion is best exercised in a leadership position. That is why the way a business performs depends on the quality of ...

leadership. With the advent of corporate governance principles in 1999 as a prerequisite for listed companies in reporting their financials, major milestones have been achieved in safeguarding shareholders’ wealth.

On the flipside of the regulated listed companies at the Uganda Securities Exchange is a whole lot of unregulated owner managed companies whose requirement to adopt the corporate governance principles is left at the discretion of the owners. One can simply argue that it is their money at stake; therefore, no need to adopt stringent governance measures. But the stakeholders at play are definitely beyond the owners, namely; suppliers, employees, the government and many more not to mention the ripple effects. The question is: How can these owner managed companies apply these principles?
Application of principles

Envision a car without brake pads speeding downhill. The end result is catastrophic. Top of the list of is the need for an effective board of directors headed by the chairman who does not share the same responsibilities as the chief executive officer. This implies that at no point can the chief executive officer be in a situation make and implement uncensored decisions.

Next is the need to set up rigorous procedures to vet and appoint directors involved in running the business and those that are not actively involved, not to mention achieving a balance between the two categories of directors. The board once functional, should ensure there are sound risk management and internal control systems. These and many more principles, when followed, should be the backbone to good business performance.
The burden on whether to adopt these principles in SMEs falls on the shoulders of their owners. The problem is, most owners in private sector view them as just another set of red tape principles to curtail business speed. But for SMEs wishing to turnaround their fortunes, the institution of an effective board should be top of the list.

Paul Njuguna is a financial and cost accountant. Email:paul@paulnjuguna.com