The Financial Reporting Council of Nigeria (FRC), in collaboration with Integrity Organization, the United Nations Global Compact Network Nigeria (UNGC NN), and with support from the MacArthur Foundation, has introduced new guidelines to bolster the corporate governance of Small and Medium Enterprises (SMEs) in Nigeria. These guidelines, though non-mandatory, aim to help formalize SMEs, establish robust business structures, and ensure sustainability beyond the founders’ lifetimes.
The Importance of Corporate Governance for SMEs
SMEs represent a significant portion of Nigeria’s business landscape, constituting 96% of businesses and generating about 84% of employment in the private sector. Despite their crucial role, many SMEs face challenges that lead to high failure rates. The SMEDAN National MSME Survey report (2017-2021) highlighted a loss of over 2 million MSMEs, attributing the issues to poor record-keeping and the lack of a business plan, rather than merely funding shortages.
Corporate governance is identified as a key factor that impacts the growth and sustainability of SMEs. Poor governance can disenfranchise SMEs from accessing capital and hinder their expansion, especially for family businesses that struggle to survive beyond the founder’s tenure.
Benefits of the New Guidelines
The SMEs compliant with these new guidelines, as part of the UNGC NN, will benefit from access to free and subsidized technical and funding opportunities. This support is intended to reduce the cost of governance and enhance business sustainability. The guidelines cover several critical areas including:
– Board Structure and Responsibilities
– Transparency and Disclosure
– Risk Management
– Stakeholder Engagement
– Ethical Conduct and Compliance
– Corporate Governance Policies and Procedures
– Succession Planning
Promoting Awareness and Training
To maximize the impact of these guidelines, stakeholders such as the Lagos Chamber of Commerce and Industry (LCCI) and Fidelity Bank are taking proactive steps to ensure SMEs understand and implement these principles. This includes:
– Providing training sessions in accessible languages to explain the guidelines.
– Incorporating the guidelines into Fidelity Bank’s SME Hub for comprehensive SME solutions.
– Partnering with LCCI to create widespread awareness about the benefits and practices of sound corporate governance.
Stakeholder Perspectives
Ayotola Jagun, Board Member and Co-Thematic Lead of anti-corruption and Governance at UNGC NN, emphasized the multistakeholder approach in developing these guidelines to encourage small businesses to formalize themselves. This initiative is seen as beneficial not only for the SMEs but also for the broader economic health of the country.
Osita Ede, Chair of the Financial Services Cluster at LCCI, highlighted the necessity of training and capacity building to ensure SMEs can understand and adopt these governance practices. He stressed the importance of SMEs embracing regulatory compliance and governance to achieve long-term success.
Dr. Rabiu Olowo, CEO of FRC, pointed out that these guidelines are particularly crucial for family-owned businesses, as they provide a framework for sustainable decision-making and ensure the integration of both family and business values.
The launch of the SME corporate governance guidelines represents a significant step towards improving the sustainability and growth of SMEs in Nigeria. By adopting these guidelines, SMEs can better position themselves for success, access capital more easily, and ensure their longevity and resilience in the marketplace.
