Thread by @yinkanubi

A few weeks ago, I was invited to a media event organized by the Financial Reporting Council to present the exposure draft of the Nigeria Code of Corporate Governance. If you missed the thread I did on that event, you can check it here. #FRCGovernanceCode

https://twitter.com/yinkanubi/status/1006915407993851906

As a follow up to that engagement and subsequent thread, I thought I should expand on why I think this code is very relevant to a critical sector of the Nigerian economy, the SME’s or MSME’s as some may like to call them. Two premise comes to mind. #FRCGovernanceCode

ONE: I was privileged to facilitate a panel session on “policy framework for MSME’s” at the @TactNigeria SME conference co-founded by the camera shy @toyosilagos. I recall the engaging conversation I had with Segun Alimi (SCALE Lead at @FATEFoundation) on SMEs. #FRCGovernanceCode

Segun and I discussed at length on the challenges faced by SME’s. The Statistics for MSME’s is Nigeria is scary. Allow me to state a few. According to the NBS, there are over 37m MSME’s in Nigeria which accounts for over 80% of the total number of Enterprise. #FRCGovernanceCode

That number accounts for 75% of Nigeria’s total employment base as well as almost 50% of our GDP. So with these enormous potential, why is it that according to NASME, 65% of SME’s don’t survive past their first 3 years. That was the center of our discussion. #FRCGovernanceCode

The answer could be found in the fact that according to SMEDAN, 99% of MSME’s are not formalized. And without formalization, your chances of raising capital or attracting investor funds are greatly limited. This is where the #FRCGovernanceCode becomes very relevant as a guide.

TWO: The imminent signing of the ACFTA. My thoughts had less to do with why Nigeria delayed to sign the deal (because I know we would eventually sign it), it had more to do with the implications of signing this deal for our SME’s. The implications are obvious. #FRCGovernanceCode

Signing ACFTA will indeed open up the entire Africa as a potential market for the SME’s. While that is fantastic, when you consider the fact that SME’s account for less than 5% of our exports, you might be concerned slightly of the implications for SMEs. #FRCGovernanceCode

IMO, the ACFTA will benefit the SME but it's not a given, it is conditional. In a free trade environment, your competitor would no longer be the seller in the next stall, it could be a trader in Nairobi, a business man in Kitwe or an exporter in Kinshasa. #FRCGovernanceCode

This is the more reason why everybody (micro, small, medium or big) needs to pay attention to the “Nigeria Code of Corporate Governance” (exposure draft) which was released in June of 2018. All things being equal, the code will be operational by Jan 1 2020. #FRCGovernanceCode

Unlike the previous code which was prescriptive, the new code is based on 28 principles with 230 recommended practices stating how companies should implement the principles. If the principles are the "What" to be done, the practices are the "How" to do it. #FRCGovernanceCode

Out of the 28 principles,
- 16 are about the appointment of Board of Directors.
- 4 are about “Assurance” as it relates to framework for management of risk, effective internal control, effective internal audit and even whistle blowing.
#FRCGovernanceCode

- 3 principles covers the relationship between shareholders
- 2 principles deals directly with ethical Business conduct.
- The last two principles deals with Transparency and Disclosure requirements.
What is the whole point of this?
#FRCGovernanceCode

The whole point is to achieve a high level of national, continental and global competitiveness which will not only make the SME (or any other company) access funding easier, but also make them more competitive in a market that is already going global. #FRCGovernanceCode

The current code was crafted to be in line with what other countries are doing and why is this so? Because it is not just about competition, it is also about investors who are typically attracted to places where internationally agreed standards are observed. #FRCGovernanceCode

In simple terms, the more compliant you are, the more competitive and attractive your business will become. The challenge for the SME is that with globalization, your headwinds are no longer just local, they are international as well. And you need to be ready. #FRCGovernanceCode

The adoption of the #FRCGovernanceCode could be a game changer. I have been opportune to mentor young entrepreneurs and starts up and one of the re-occurring problems I see with many has to do with corporate governance. The fact you are small is no excuse to discount it.

Take for instance, our concept of what it means to be the "Chairman" of the Board as compared to what is in the code. 3.1.2-3 of the code says that “The Chairman shd be a NED (Non Executive Dir) and not be involved in the day to day operation of the company”. #FRCGovernanceCode

It goes on to say that “the MD/CEO or an ED should not go on to be the Chairman of the same company. However, if in exceptional circumstances the Board decides to make an ED a Chairman, a cool-off period of 3 years should be adopted”. #FRCGovernanceCode

One of the important practices in the code has to do with the appointment of INED into d board. While the code (unlike the previous one) doesn't prescribe a number of INED, it however goes to great lengths to ensure that the INED is really & truly independent. #FRCGovernanceCode

For instance, it says "The INED must not be a close family member of any of the company’s advisers, Directors, senior employees, auditors, customers or even substantial shareholders.” I'm sure some of you are laughing 😂😂 right now. But it is what it is. 😎 #FRCGovernanceCode

What about the need for engagement of shareholders through AGMs and the protection and the preservation of the rights of shareholders (esp minority)? For instance info pertaining to ownership of more than 5% must be disclosed to all shareholders in a form that's secure and clear.

If you have ever been part of any arbitration process to settle dispute among shareholders, you will understand why the last tweet is extremely important. If governance codes are enshrined at the beginning of any org, it is likely that the org will last. #FRCGovernanceCode

In terms of Business Conduct, the code confirms the Fiduciary duty of the Directors to the company as stated in CAMA to ensure that there is no “conflict of interest” and that they do not take advantage of their position for personal gain and to compete. #FRCGovernanceCode

I can go on and on reflecting different parts of the code and how it is important to all orgs to implement But it's important we study the doc with the aim to implement because evidence exist that in doing so, the market reward the most compliant organisations. #FRCGovernanceCode