The unholy trinity of business hats

Single lane traffic during rush hour metamorphoses into four to five lanes in seconds if an accident or any form of road obstruction occurs.

Owning a business is exactly like driving on Kiambu Road, or so I have concluded after running my own firm for the last 16 years. The indistinct, and often unholy trinity of shareholder, director and the CEO comes to bear in various daily, monthly and annual decision making points. As a shareholder, you only want one thing: a dividend every year.

As a director signing off the audited accounts, you want to maximise every single opportunity to make a legitimate after-tax profit, which often means you extract whatever inch of motorable space your income statement permits in the form of tax allowable expenses. The director also wants to ensure that the auditor returns an unqualified opinion post audit with no “going concern” concerns as it were thus keeping a tight watch over the management abilities of the CEO.

As a CEO, you want to ensure that revenue grows consistently, while tightly controlling the attendant costs required to drive that revenue growth. A basic requirement for growing revenue is having the human resources to manufacture the product or deliver the service. As the business grows, so too does the need to have more warm bodies fill up production seats. Either that, or you, the CEO, have to do the production yourself and be stretched beyond your physical and mental capacity.

You need space for these warm bodies to operate from so a rent expense slides in. You need the equipment for production whether in the form of machinery for manufacturing or personal computers for service delivery.

All this costs money, which the CEO can either generate in the form of more sales that yield a good profit margin, or go to the bank to borrow some working capital. As a last, and somewhat easier resort, the CEO can turn and ask her shareholder to inject more capital while facing the great risk of receiving a tongue lashing and rude retort along the lines of “Money doesn’t grow on trees, you know!”

This conflation of roles breeds a perilous cocktail of unchecked power and very blurred lines. The shareholder’s greed can eclipse innovation, while the director's decisions may favour personal gain over collective progress.

Governance can crumble under the weight of self-interest, stifling accountability and transparency. An example is the requirement that all employee statutory deductions such as pay-as-you-earn tax, pension and social health are remitted to the respective statutory entities on time upon deduction from an employee’s monthly salary.

Another example is ensuring that suppliers are paid on time and the business does not become a creator of “pending bills” that stifle cash flow down the value chain.

Both of these illustrations fall squarely in the operational remit of the CEO. However, they require governance oversight by the director who must demonstrate ethical stewardship of the business through annual audits of employee related statutory payments and constant tracking of outstanding accounts payable days.

The shareholder, well, he’s just waiting for his dividend and couldn’t care less about all these stories of governance, debts, employees, customers or supplier issues. Did the CEO use Kiambu Road, Thika highway or the Eastern bypass to get to the city? It really doesn’t matter. In fact, can we just hurry up and get to the dividend declaration part of the annual general meeting’s agenda? The end.

An entrepreneur has to chart a daily course of mental navigation throughout the life of the business. So never be surprised when you see an entrepreneur talking to themselves while seated in traffic. They are quite likely having their daily annual general meeting where the CEO and the director have to face an unhappy shareholder whose dreams of receiving a dividend are fading with every passing day.

The writer is a corporate governance specialist and a former banker. X: @carolmusyoka