Monday, 20 May 2013
Building Enduring Businesses In Nigeria By Chuba Oraka
I read the article Why Nigerian family businesses fail in the Punch Newspapers by Lekan Sote (December 18, 2012). It took me back to the many ruminations of the same subject that has been broached in several fora. The questions asked may come in different forms – Why do many businesses fail in Nigeria? Why do family businesses fail? Why do businesses founded in Nigeria scarcely last beyond the death of the founders? Why is it that businesses founded in Nigeria do not grow beyond sole proprietorship? etc – but the common denominator is a common fear of long term viability and growth of businesses owned by Nigerians.
While I listened to a popular radio program, the topic raised was why Nigerian businesses do not become multi-generational like the Procter and Gamble example given by Mr Sote. Callers into the program were asked to give their own opinions. The opinions and suggestions were similar to what was suggested by Mr Sote. They focused mostly on the founder – he had too many wives, he did not leave a plan for the future of the business, he did not get his children involved with the business, he did not dream the business would go beyond feeding himself and his family, etc.
There is value in a lot of the suggestions but since many of the multinational businesses also had founders with the same or similar failings, I thought that a lot of the suggestions were both off the mark and symptomatic of the real reasons Nigerian businesses do not endure. I wanted to call into the program or text in what might be considered a contrarian or even simplistic and impractical suggestion in Nigeria – Nigerian businesses fail to endure because we do not have a properly regulated stock exchange in the country – but the network problems prevented that. I was really hoping to redirect the debate beyond what it became but was unable to. I would explain more about my view as the article progresses.
There are many challenges peculiar to the Nigerian environment to starting and growing a business, and they are well known to all. The difficulty in raising capital, corruption and bad law enforcement that ensures losses due to pilfering and bad practices are not punished, unstable government policies even on importation that favour only big business owners with strong political connections, multiple taxation by different government agencies, lack of electricity and infrastructure like roads that make transport more expensive and the product less marketable than imported products, insecurity of lives and property, lack of antitrust laws and implementation thereof to protect small businesses from bad business practices of big business. This of course would have an additional challenge of ethnic interpretation of every implementation in Nigeria. But even for businesses that survive these challenges, the fact that a lot of them do not last beyond the founders is poignant. This adds to the declining job security in the land. So it is right for Nigerians to wonder why big Nigerian businesses do not last.
Businesses in all environments face challenges with changing times and new technologies and innovations. Only the most adaptive and innovative businesses survive for long periods. True, nothing lasts forever. Businesses and empires lasting centuries have eventually failed at one point throughout history, so it would be silly to expect any business to last forever. But even in these cases, they often fail in the face of new competition that create jobs which cushions the effect of job losses following the failing of old businesses. In Nigeria, on the other hand, the failure is usually due to falling standards after the exit of the progenitor. The founder keeps all company secrets to himself because he does not trust any employee, and he is afraid of giving any of them too much sway in the affairs of the company because of many others who get robbed by the same employees.
The fact that such infractions rarely get prosecuted and punished given our bad judicial system adds to this problem. This is why many Nigerians would suggest only the children of the founders should be involved with the running of the businesses. But this adds more problems of its own. What if the founder died without having children? Or, as is the most regular case, the children he left behind are spoiled and irresponsible? And the talk of the founder leaving directives on the management of the company to his children is a flawed solution as he cannot plan for the business in the future and anticipate all challenges no matter how much acumen he has.
The reason many family businesses fail is because they remain family business long after the management is taken over from the founder. The culture of nepotism that family businesses encourage goes against the principle of rewarding merit and hard work, principles that any business that is serious about recruiting and retaining qualified, hardworking and loyal staff should be guided by. Many of the businesses that have lasted generations started as partnerships or family businesses but were turned to publicly-listed companies, most of them before the passing of the founders. Nepotism and favouritism does occur in businesses listed on the stock exchange but it can more easily be fought against and criticised – along with all other retrogressive company policies – than in a non-listed company, and is therefore kept to the lowest level possible. A case in point was the outrage of shareholders of Shoprite when the majority shareholders Christo Weiss and Whitney Basson decided to appoint their sons as directors in the company.
The attitude of an average Nigerian to seeing someone else progress in their career or life in general is negative. An average Nigerian employer does not see or understand that an employee also has need for self actualisation. They expect the employee to be hard at their work, satisfied with whatever salary and position they choose to place that employee, and be loyal to the company. They do not imagine that employee having shares in the company or even eventually owning their own company. This is why many family-owned businesses are reluctant to go public. This is also why a lot of Nigerians see succession in terms of handing over their companies to their children, even if such children have shown no interest in the business. Some say it is risky to hand the management of a business to “outsiders” as they can pilfer from the company and run it down; I say if the “outsider” had a stake in the company, if they had bought shares and shown commitment to the company over time, would they would not try to run the company down. Steve Ballmer[the Microsoft MD] took loans and bought shares in Microsoft and had been in the company for many years. It is no wonder that he declared in one of his presentations, “I love this company!”
A practical solution to having long lasting businesses in Nigeria would be to encourage economic democracy. More stock exchanges should be allowed to spring up with different philosophies and management styles, even privately-owned stock exchanges. The fact that the Nigerian Stock Exchange was able to get the government to shut down the Abuja Stock Exchange is the reason they have monopoly on stock market operations and there is no alternative in the country to their shoddy management. Of course starting businesses in Nigeria should also be made more attractive both to foreigners and locals. This would entail fixing the judiciary, updating and upgrading infrastructure, fighting corruption in the government and the private sector, providing security to lives and property, streamlining the tax code and giving tax incentives to small business owners.
All in all, our democratic system would have to be strengthened if there is ever going to be a chance of our politicians feeling sufficiently beholden to the electorate and therefore able to fight against vested interests and powerful people resistant to change. This would limit or challenge the influence oligarchs have on government policies. The current political impasse on the leadership of the Securities and Exchange Commission (SEC) would be more quickly resolved in the interest of the country and not special interest groups in a stronger democracy and better regulation of stock exchanges would encourage enlistment of businesses on the exchange. This way we would not be talking, as we are now, of compelling multinational companies to list their shares on the stock exchange.
The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of SaharaReporters