POOR GOVERNANCE BEATS LACK OF CASH FOR OUR BUSINESS COLLAPSE

 In the wake of some high-profile companies’ assets going under the hammer last week, our knee jerk reaction seemed to be government should step in to bail them out as major tax payers and employers.

The business community is grappling with a lot of challenges, but somehow it has come about that we think that the greatest of which is lack of capital.

We are under the illusion, including government, that if we just give people money everything will be ok.

The Uganda Bankers Association (UBA) conducted a study that shows this may be far from the truth.

"According to the study “Dealing with Financial Distress” released earlier this year showed that in every single case of financial distress in companies there were questions poor management and decision making...

The usual suspects of high lending rates, high taxes and macroeconomic factors were much further down the line as cause of financial distress.

For some it may be something to brush off but it has repercussions on whether the company can be salvaged.

"The same study reported that the major challenge of supporting distressed firms to recover include limited and poor information from the clients, which is a function of governance. Coming a distant second were capital adequacy, increased risk, high and increasing operational costs, cashflow challenges among others.

It came as no surprise therefore that the report led with a recommendation to rethink management process with emphasis on staff performance management, before other recommendations for financial rescue were suggested.

The full report is on the UBA website and should make for good reading for anyone interested in the latter.

In more organized business environments good governance came about as a need to be more accountable to shareholders. Which makes sense because if you want my money, I better have full disclosure to make an informed decision. With time this accountability spread to other stakeholders like the financiers, employees, government and the tax man.

This was important because to take advantage of growing markets, one needed to stay onside with the shareholders, who one would have to resort to for more and more funds.

In our local situation the demands on accountability are less because our businesses are often begun on our own resources and because our markets are not growing that fast or our businessmen are not ambitious beyond feeding their own families, the need to go out in search for funds is limited to the banks, whose interests are short term and limited to whether you can make good on the loan or not. Strategic issues are all see through these tactical lenses.

Many businesses have introduced outside shareholders, thinking it will business as usual after the monies land in the coffers, but are shocked when their new partners want more information about the business’ workings. The differences have often led to collapse.

"It is often hard for them to come to terms with the fact that their days of dipping their fingers in the till on Friday evening, are over...

Sadly, as with many transformational changes they need to be prompted by crisis. One would argue we have enough crisis to prompt these movements here. Slow post covid recovery, increasing regional and foreign competition, high cost of funding among others.

As has proven over and over again when we get organized, meaning mostly that our governance practices are easily understandable, lending comfort to potential partners, the funds follow as if by magic.

We fail because we don’t want to release control of our enterprises. It is not unique to us. Business promoters in more developed economies release absolute control of their companies because the market economies dictate it.

As mentioned above to compete and expand there is a need for more long-term capital and calling in more partners is often the best way to do this. This takes a certain level of sophistication that can only come with practice and experience.

None of this is to downplay the struggles that our businessmen are going through now. But if they were to take a step back from their babies and ask themselves if they are running them the best way to maximise their efficiencies, better still get an outside pair of eyes to look at the business and give an objective opinion on the matter, we may see the change we want happening.

It cannot be over emphasized that with increasingly open borders, survival will only become tougher. Calling for protection from outside players sounds good but it is increasingly impractical, because if we put barriers against others’ goods what will stop them from doing the same to us...

Easier said than done, of course. But that’s the reality our businessmen are faced with and clearly they are going to do the things they don’t like to get the things they want.