The Director, Membership Service and Public Relations of the Nigerian Association of Small and Medium Enterprises (NASME), Mr. Nerus Ekezie, recently said that 65 per cent of new businesses in Nigeria die within the first three years of their existence.
According to Ekezie, the data was a product of some research conducted by the association on business longevity rate in the country.
Corroborating the view of the NASME director about high mortality rate of Nigerian businesses, Group Managing Director/Chief Executive Officer of FCMB, Mr. Ladi Balogun, said at a recent media parley that “One of the biggest challenges of businesses in Africa is succession, sustainability and the inability to continue to be relevant. Banking has one of the highest mortality rates in this country. I have been in banking for 22 years.
In that period, over 140 Nigerian banks have disappeared.”
High mortality rate vs high return on interest
Promoters of failed businesses in the country are wont to attribute the failure to issues such as poor infrastructure, epileptic power supply, high cost of funds, multiple taxation, security challenges and a number of other factors. However, many observers are of the opinion that these excuses fly in the face of the truth because in spite of these obvious hindrances, many companies still thrive in the country.
During a visit to Nigeria in June last year, Mr. Jean-Francois Van Boxmeer, the CEO of Heineken International, parent company of Nigerian Breweries Plc, observed that the country’s high rate of return on investment makes the country one of the most appealing destinations for investors globally.
According to him, Nigeria’s huge population and growing middle class are partly responsible for the high rate of return on investment.
He added that the high return on investment has been the rationale for the company’s increasing investment in the country. “We saw the analysis on Nigeria’s economic prospect, so we resolved to improve our presence in the country – hosting our second largest operations after Mexico.”
As a direct response to the country’s impressive return on investment, Heineken has over the past few years consolidated its hold on the industry with massive investments, building up a 64 per cent controlling interest in Nigerian Breweries Plc and also acquiring greater control in Consolidated Breweries and Sona Breweries.
Just as Heineken is increasing its investment in the country, so is Konga, a wholly-owned Nigerian company, that started with just seven employees and after three years has created 560 employment opportunities. According to Sim Shagaya, the pioneer CEO, in an interview with the Nigerian Tribune, “doing business in Nigeria is not a tea party but the opportunities are numerous here. So, as a business, we focus on the opportunities while we get ready to tackle the obstacles that may come our way. That is why we have been investing in the business and it has kept growing bigger and stronger. The return on investment in this country is high.”
Making a business sustainable
Businesses are like trees which can live forever if provided the right nourishment and appropriate environment. However, if it is sited in a toxic location and denied the necessary support, it will wither and eventually go the way of the flesh.
To build a sustainable business requires the following.
Management guru, Peter Drucker, differentiates between management and leadership thus; “Management is doing things right; leadership is doing the right things.” So, for a business to stand the test of time it must have a visionary and focused leadership that is determined to do the right things.
Doing the right things does not come naturally to individuals or organizations because it involves taking hard decisions; agreeing to losing a battle to win a war as well as moving against old friends and relations to preserve the business, among others.
The right leadership will act in the best interest of the company at all times. Until it gets the right leadership in place, a business gets nowhere.
Great organizations run on clearly defined corporate visions. But the visions are driven by people. So, if the vision is right but the people are not, the company will buckle and crumble because a company is only as good as its people.
How far a company will go is largely determined by how good the workforce is. A good tree will produce its like, ditto for bad ones.
So, in making people selection either for management cadre or other categories, it is important to get the right people.
Two factors are helpful in selecting the right people. One is skill, the other is attitude. Neither should be compromised if the desire is to build a sustainable business.
The skill is what is required to get the job done; whoever does not possess the right quantum of the required skill has no business being in the business. A team is like a chain and a chain is only as strong as its weakest link. To ensure that a business remains strong at all times, it is essential that it does not allow any weak link in its chain.
This is especially because the weak link will slow down the team and sap the rest of the team the required zest.
One very grievous fact about allowing incompetent people in a team is that they attract other incompetent people to the team.
An incompetent manager will recruit less competent subordinates so as to shield his own incompetence from any form of challenge. The immediate subordinates will also recruit those less competent than themselves and on it goes like that. This is what C. Northcote Parkinson calls Injelititis, the end product of which is the sinking of the business.
The second factor to be considered in choosing people is attitude. If the attitude of an employee is wrong, nothing can be right about him. Any employee with a wrong attitude is a poison to the system; any company that plans to go far should have nothing to do with such. Every negative trend in an establishment is traceable to employees with the wrong attitude. They are the ones who sow poison in the minds of others.
What determines attitude is the individual’s worldview, so a probe into the worldview of a prospective employee before being engaged will give an indication to his attitude.
Strong corporate governance
A business that will go far must of necessity imbibe the principle of corporate governance. Corporate governance, according to businessdictionary.com, is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its all stakeholders (financiers, customers, management, employees, government and the community).
However, it has been observed that corporate governance is very weak in Nigeria. This, more than any other factor, has been responsible for the demise of about 70 per cent of companies that have collapsed in the country.
The collapse of Oceanic Bank Plc has been linked to the abuse of corporate governance as the former Group Managing Director, Mrs Cecilia Ibru, was said to have given out depositors’ funds worth over N150 billion as loans to friends and relatives without collateral.
The trend was similar in most of the other companies that went down; the management engaged in insider abuse and that wrecked the organisations.
Speaking at the at the Second Annual Christopher Kolade Lecture on business integrity in Lagos last year, Ms Arunma Oteh, former Director General of the Security and Exchange Commission (SEC), said, “Integrity is an enabler of sustainable profitability.
Businesses that act with integrity are long term sustainable businesses while those that do not – for the purpose of short term gains – will eventually run out of business.”
She added, “Integrity is valued by all categories of stakeholders of a business. Shareholders clearly want their business to be properly governed, investors place a premium on companies that set and maintain the highest standards, the best talents want to work for ethically sound companies that they can trust, the government, regulators and civil society also appreciate and reward integrity in business. Above all, the customer, who businesses aim to please, values how a company conducts itself.”
So, corporate governance, nay integrity, is sine qua non to a business that wants to be sustainable. Those that embark on short cuts are not sustainable on the long run.
Connecting with the community
To be sustainable, a business must impact on the community where it operates. It must go outside its primary area of operation to embark on programmes and projects that will help the development of the community.
At a parley organized by the FCMB on Sustainable Banking in Nigeria: The Role of the Media in Lagos, the CEO, Ladi Balogun, observed that, “Banks in Nigeria need to change their narrative. Over the years we have always talked about how profitable our banks are, how big we are and the new products we are bringing out.
The fact is that these things don’t interest the communities where we operate. We need to change the narrative and talk more about those things that interest the public. Banks should talk more about their impacts on their communities.
We need to talk about what we are doing to empower the people, we need to talk more about how we are helping small and medium enterprises, we need to talk more about financial inclusion, we need to talk about gender balancing.”
As it is for banks, so it is for other companies.
However, a number of companies have construed connecting with the community to merely mean embarking on corporate social responsibility which they vigorously pursue. But it is much more than that. To connect with the community means to desist from manufacturing harmful products or conducting business in ways that are injurious to the community. There is no way a community can buy into the vision of a company whose activities result in the pollution of the community’s source of water supply, for instance. So, to be sustainable and enjoy the support of the community where it operates, a company must ensure that its operation is not in any way injurious to the wellbeing of its host communities.