There’s never been a time in the history of Africa’s tech ecosystem when good corporate governance has been more necessary than now. Recently, several allegations were levelled against founders on grounds such as sexual and non-sexual misconduct (Risevest) and gross misappropriation of funds (Healthlane and Kloud Commerce), among others.
For Kloud Commerce, the rot had already eaten too deep before a board of directors was set up to salvage the situation. Like Healthlane, the startup was run solely by its founders. Without a board of directors to oversee their affairs, the founders could spend company funds as they wished.
Cases like these highlight the importance of corporate governance. Corporate governance is the set of rules and procedures by which a company is governed, and it is laid down and enforced by the board of directors. Corporate governance helps balance the interests of all the major stakeholders in the business, such as investors, staff, vendors, and customers.
In a bid to strengthen the ecosystem and prevent such cases from becoming the new normal, TechCabal and Ecobank hosted the second edition of the Ecobank Fintech Series. The event focused on two key areas: the role of good corporate governance in the fintech industry and what fintechs need to know about securing investments. Speaking at the event were Tosin Iyayi, a partner at Aluko & Oyebode; Yemi Keri, co-founder of Rising Tide Africa; Yele Oyekola, co-founder and CEO of Duplo; Lexi Novitske, general partner at Norrsken; and Chinedu Onuoha, managing director at Mzuri Solutions Limited.
On how early-stage startups can abide by corporate governance practices
It is common knowledge that for most early-stage startups, funds and resources are scarce. This might make it difficult for these startups to divert attention from building a product to setting up corporate governance practices. When asked how these startups can still abide by these practices, Iyayi said, “For startups who are just starting out, you don’t really have to expend a lot of money in order to comply or to have corporate governance structures. What you really need at that stage, is to actually have things clearly defined and know what policies are going to guide your company.”
She added that priority should be given to compliance with regulatory policy, and appointing directors that won’t demand remuneration. “Just be sure that you’re also complying with what your regulator requires of you, those sorts of things don’t really need finances. For your board, members could be unpaid, or maybe you just pay stipends when you’re able to. At the beginning stage of your company, some of your investors could sit on the board with a future goal in mind without necessarily expecting to draw from the organisation at that point.”
On the mistakes that founders typically make
Iyayi said that the most typical mistake founders make is the refusal to adhere to advice from the board of directors. She added that the role of the board is to curb excesses and act as a check and balance, and as such, their role in the success of a company cannot be overemphasised.
She advised that this system of checks and balances would come in handy when a startup is looking to raise money. She stated that founders might need help when conducting due diligence on would-be investors. “For best practices, you need to actually ensure that not only do you have a board, you need to be listening to that board, and that board needs to be deliberating on things that are important. When you want to take money, you need to be sure that the funds are not proceeds of crime, you need to be sure that you’re not running afoul of the law. I find most times that as founders you need to be managed by the other members of the board,” she said.
On who founders should select to be on the board
Iyayi advised founders to take their time and select people who will add value to the organisation. She added that founders should look beyond big names and seek out people who will be committed to attending frequent meetings to discuss the affairs of the company.
She also suggested that founders go the extra mile and ensure that they do not have an all-male board. She said this might detract foreign investors from investing in such startups and that several studies have shown that a gender-diverse company is more sustainable and successful. She however noted that founders should not take the diversity route just for the sake of it, but rather consider people who will add value to the organisation.