Following the high terminal rate of businesses in the country, Osifo Samson, an accountant and financial management expert in this interview with Segun James stresses the need for a new financial management structure. Excerpts:
What are the causes of business failures in the country and what are the roles of financial managers in these failures?
Well, we have to understand what financial managers do. If you want to succeed in any business at all, you need to have an understanding of how to manage your resources. Financial managers are just managers trained to manage resources and utilise those resources effectively in relating to the activities of that organisation in order to achieve the goals of that organisation. Now every organisation has a target. But to actualise those targets, you need resources. How do you generate such resources, and if these are generated, how do you manage them? These activities primarily involve financial managers. You must understand that managing resources is more difficult than sourcing for resources. For instance, I can go to the public market to source for resources or I can go to a bank to source for resources, but the most important aspect is how do I manage these resources effectively. That is the issue.
Now, “managing resources effectively,” in the African setting is an issue because we apply sentiments to a lot of decisions. If it is a one-man business, more sentiment applies. The individual comes and begins to tell you he needs some money “xyz” off balance, before you know it, you will find found out that the individual is spending more income of the company personally in opposite to what will improve and promote income of the company. That will lead to a deficit, eventually. The bottom line in this is that the objectives and goals of the company can no longer be met. So it will eventually lead to liquidation. The same thing applies to other businesses including government-owned companies and parastatals. If you cannot manage any resources very well, there are tendencies for the goals and objectives of that organisation to fail. For a company to fail by not managing its finances very well depends on so many factors.
For example, if an organisation goes to the stock exchange to source for N200 billion to improve its business; and it was able to generate it; I can tell you that most of what you expect is that this resources are put to effective use. But some of the directors of these companies are not sincere to the shareholders and to the company. Immediately the money is sourced, sentiment takes over. What you now have is the directors asking the financial manager to give them part of it for personal you. For example, if the director asks for N50 million and he is given, the problems begins from there. Before you know it, crisis sets in. But ordinarily, what the financial manager is supposed to do is tell that director to allow the money be utilised for the purpose it was source, but because we are in Africa, we apply sentiment to our decisions. What that means is that, once he is given the money, technically, the turnover of the company has gone down! Meeting the target of the company becomes difficult.
Now, the money that has been given to him will now be an issue and becomes a burden to them. If the money is running at 18 percent per annum, technically they will be force to pay N36 million interest on that money per year even though the company is not making any money in return of the N50 million that has been given to the director. So, most issues that financial managers face comes from sentimental decisions.
Now, how does a financial manager maintains and ensures that business grows?
We need to understand that debt plus equity makes up a company. But in order for the business to survive, we need to remove most of these directors from the funding and managing the funds of the organisations. If they are separated from that, most companies, including government owned organisations and even banks will not liquidate. You need to remove most of these people that are the owner, chairman/managing directors in managing resources for the companies for it to survive. Only this will ensure effective management control in Nigeria.
You talked about the removal of some people, especially the owners from the financial control of the organisations, but when the owner is government, how do you remove it? Also, if the owner of a company is the one that sources for the fund for the company and he is also the one asking for part of the sourced fund for personal use, how do you stop him?
That’s the problem. I’ve said something before that if you apply sentiment to business, you are bound to fail. Corporate management helps show how an individual or government official can be excommunicated. If the borrower is allowed to have a say in the management of the resources, the will help control this. Then you cannot come and tell a financial manager that you need money for private use, no. That money must go into business. That is what our institute, Chartered Institute of Finance & Control of Nigeria is advocating for. They are trying to control the powers of directors and the power of ownership overriding the decisions of workers and people working within that organisation. For instance, of late in the banking sector, it is said that most managing directors should no longer be the chairman of the bank.
These are part of the corporate governance structures that is in place. For example, if the managing director of the bank is also the chairman, he has the power to even ask the financial manager to leave the company because he has access to power. But separating the two has brought a lot of relieve for the banks. What that connotes is that there is a chairman and there an MD. If the chairman is imposing a decision on the MD, the MD has to come to the floor of the board of director to say what is your view on this? This also means that the chairman cannot also take all board members under his control. There will be some of them who will argue the issues for the effectiveness of the utilisation of the resources of banks.
I do recovery for most banks and I have realised that the way we do recovery in the country is not the same way in other countries. It is worse when the company is owned by government. To me, and if I have my way, I will say we should separate government from the management and ownership of the companies, and put people that are effective to manage such organisations. In fact, privatise all government parastatals. What I’m saying in effect is that we want effectiveness; we want people who are resourceful to manage the business.
What can be done about bank failures?
I want to cast your mind back to Oceanic Bank and others. Why did the bank fail? That bank and others failed because some people that are in banking are not supposed to be in banking. With due respect to them, I repeat, some people in banking are not supposed to be in banking. Now let’s start from this; financial system creates economic system. This implies that financial system gives birth to economic system. So, technically, if our financial system is bad, our economic system would be bad if we don’t change it.
What makes a banking system and economic system effective is policies. Now if these policies are not followed, then you have a failed economy!
So why do some banks fail when there are laws in place that are supposed to safeguard them?
Well the truth is that some people in banking are not supposed to be in the banking at all. That is why they fail. For instance, on getting a N1 billion loan from the bank, the bank is giving me a condition that I’m going to pay 25 per cent interest on this money per annum. The banker that is giving me this interest rate is also part of the economy. He or she knows that the economy is bad, yet he is giving me a 25 per cent of that money per annum; and that is N250 million. What business can you do to earn N250 million per annum, in Nigeria? Now, that is where the CBN comes in, to encourage small and medium scale enterprises. How many people will go into agriculture business for instance with such loan and be able to pay back? I don’t see the person paying back that money. The banker approving this money knows that the man cannot pay. But truth is this – they will tell the man to bring his property that is worth N2 billion because they want to give him a loan worth N1 billion. And they know that the man cannot pay but they are rest assured that if this individual cannot pay, they will go back to his property. What we do in our country is that they give you facility that is worthless and collateral even though they know that technically you cannot pay.
After five years that they know you cannot pay, they come after their money by forcing you to sign your property for them. Now if that individual employs 5,000 workers, they become unemployed from that day. Unemployment is increasing in the country every day because of financial failure. These are the reasons for the companies that AMCON has acquired over the years. AMCON acquired those companies, appointed a recovery manager to go after those people. AMCON has told us that they have taken over those companies, yet they are making losses, what is the value of those companies? Sincerely, the takeaway of these companies is a way to kill the economy more.
So the synergy between the banks and the economy must work in tandem because the banks are there to support me and not to kill me. They know that giving me that facility will mean that I will employ more people as part of the expansion. If I employ 100 before, it will increase to 200 that will help drastically to reduce unemployment within that area. For a bank to give you a facility, they will look at your financials. What went wrong? Why is the man not performing any longer? Those are some of the critical issues that we need to identify. Then we come in as a government to ensure that that company don’t go down; but unfortunately, we don’t do it here. Most of the companies that borrowed money outside Nigeria, government come to assist them so that they won’t create unemployment within that environment. So where are the Dunlop, Michelin and other companies of those days? Most of the banks that took over Dunlop didn’t even know what to do about the company.
I must reiterate that banking is not about liquidity. Our system is killing. We are not encouraging people to grow; rather, we are encouraging them to die. Businesses in Nigeria cannot grow under this kind of atmosphere.
Anybody you see doing business successfully today, must be part of government. He may be getting free fund from government. Business cannot grow because you need a facility to grow, yet the man what is coming to make your business grow, technically is coming in to kill you! A lot of people have committed suicide. If they were doing their business alone without going to the banks for facilities, maybe they would have been successful.
So what is the way forward?
The way forward is for the Governor of the Central Bank who controls monetary policy and the Minister of Finance who controls the fiscal policy to sit down together and begin to look at issues without sentiments. We must a way to ensure that industries such as the textile industry and others which employs 50,000 and even 70,000 people are revived. The financial regimen we run in this country is killing them.