Imagine that you launched a thriving consulting business in 2015 focusing on strategic planning and organisational development.
You garnished top-tier clients in Nairobi, Kisumu, Eldoret, Nakuru, and Mombasa from technology firms, NGOs, and companies listed on the Nairobi Securities Exchange.
By 2018 you grew from five to 35 employees. Headquartered off Thika Road, you desire to enter two new industries: government and agriculture. You assemble a team of leading agribusiness consultants to go after the large agricultural conglomerates from Sasini Tea and Coffee to Del Monte Foods to disrupter Twiga Foods. By the third quarter of 2019 you see a tripling in the amount of consulting revenues generated from the agriculture sector.
However, the government sector proves harder to successfully enter. You struggle to win tenders. Your firm garnishes all the correct certifications to provide services to government, but you fail to break in. Pondering your dilemma at a recent board meeting, the Board Secretary brings up the idea of appointing a former, though still influential politician to the board. The idea sharply divides the board with six voting yes and the other six voting no. As the founder and main shareholder, you hold the thirteenth and deciding vote. But should you agree to appoint someone from the political sphere onto your private organisation board?
The two dichotomous sides of business in our capitalist economy are categorised by success or failure. Companies go to great lengths to minimise failure risk. In as much, organisations often try to diversify their Boards of Directors to represent a wide mix of skills, networks, and resources to ensure successful continuation of the firm. In that diversification process, the allure of going into business with a politician excites some entrepreneurs and would-be investors.
In our Kenyan context, politicians often join corporate boards through proxy and trusts. By involving politicians in corporate governance, some envisage doors opening up for them, easier permits, and clamouring customers due to the politicians’ networks and people seeking favours from him or her. Organisations also often utilise political appointments of former politicians to cement government relationships that safeguard their perceived economic interests.
However, until recently, scientific study lacked clarity on uncovering the usefulness of putting politicians on corporate boards either via their direct investment or by appointment by other shareholders to represent their interests. Research just published by Omar Nayal, Hans van Oosterhout, and Marc van Essen shows an interesting duplicitous result.
Politicians do serve, on average, as valuable resources for advice having during their career encountered and interacted with many diverse groups and types of people.
The study confirms that a politician does indeed often know vast extensive depth and breadth of types of different stakeholders. The research shows that politicians do indeed open doors to government and private sector contracts for firms. Resources and contacts flowing into a firm does increase commensurate with the politician’s appointment to the board.
However, more negatively, politicians often serve their own perceived future political careers and public images rather than the interests of the shareholders. Further, countries in the study with higher corruption rankings often saw the actual cash flow costs commensurate with bringing political board appointees into the boardroom exceed the benefits. The scenario means that in more corrupt environments, the politician’s networks and contacts prove valuable, but also hold a real tangible cost that must be extracted from the firm to realise the benefits.
Therefore, companies should look at the specific gaps and needs they must have through a board vacancy. If good advice, resources linkages, and government connections represents the biggest need, then a political appointment may be beneficial. But if representing shareholder factions or objectivity are required, then other categories of board members make more sense to appoint. Likewise, the more corrupt the operating environment and industry sector, the less useful, in terms of net company gain, are politicians to the success of the corporation.