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  • Kinsley Chinkuli

Zambian Growth Companies Need Activist Type Investors

As he celebrated his birthday this past month, I would like to pay homage to one of the world’s most renowned activist investors. He is considered one of the fathers of modern-day activist investing, a man whom over the years has built a reputation for being a shrewd investor; and has been an influential figure in the success of some of the biggest American companies such as: Nabisco, Texaco, Blockbuster, Revlon, Time Warner, Herbalife, Netflix, and Motorola. The man has caused much stir and intimidation amongst many a board member over the years. - Carl Icahn turned 85 years old this past February. And as one of the prominent activist investors in the global community, I thought we could take a page out of his book and adopt it to the Zambian investment scene. Corporate governance is an important topic in business these days, and it is governance that allows an investor (like Icahn) to engage in the necessary actions enabling them to prompt change and add value to an entity. In doing so, the many growth/start-up companies in Zambia can take note and begin to look at this matter more seriously when considering their endeavours in sourcing finance from a potential investor.

Carl Icahn at the DealBook conference hosted by Andrew Sorkin, image courtesy of

Activist investing is a concept that has risen to fame in the global world of investing in recent years. What most had not known is that activist shareholders had actually existed since the 17th century during the days of the Dutch East India Company with the likes of Isaac Le Maire. Le Maire was an entrepreneur and investor whom had a sizeable share ownership in the Dutch East India Company. He is well known for the dispute he had with the Dutch East India Company concerning a Naval officer by the name of Wijbrant van Warwijck. Le Maire was sued by the consistory regarding malpractice on one of the journeys completed by Warwijck where Le Maire failed to produce evidence of his share in the costs of one particular journey taken by Warwijck. Cut a long story short, he was soon voted out of his position as governor of the company, and he settled the matter with fellow shareholders in private. None of us were around during this time but one can’t help but notice that governance and oversight was at play here and was definitely the influencing factor that ultimately lead to the removal of Le Maire.

Activist investing strikes at the heart of the importance of corporate governance. The two go hand in hand, there cannot be one without the other. It is corporate governance that permits the voice of the shareholder and gives them the opportunity to have a say in the manner in which a company is operated. These governing structures that uphold the ability for shareholders to be heard and have their views and concerns considered have to be exercised upon and initiated in growth companies from the get-go. In my experience dealing with growth companies, the lack of corporate governance is one of the stumbling blocks that these outfits have to overcome in order to make themselves investment ready. The venture capital community places a premium on this, as it is paramount that accountability and oversight within the company is exemplified. The reason for this emphasis is easy to understand; Sound corporate governance in a company suggests a framework that is more likely to ensure that necessary functions within the business are set with oversight and direction. This is a foundation from which the growth company can begin to move to the next level. The other benefit is that it ensures that decisions are made with the best interests of other shareholders in mind. And if conflict does arise the governing structure will make sure that the necessary procedures are in place to resolve them amicably. It will also make sure that management is held accountable and that founders do not just do what they want, this too could lead to unnecessary conflict. Without these structures in place, the company is akin to a kite-dancing-in-the-wind. Icahn himself said it best; “When you have no one to answer to, vendetta as investment strategy is as legitimate as anything”. Corporate governance thus must be an important focus for growth companies to help unleash operational effectiveness.

As an analyst I have seen a few companies walk through the door that have various ownership structures but lack the oversight. I am not much of a betting man but if I was, I would be willing to go all-in and suggest that a lack of governance in a growth company has been near the top of the list for investors who shied away from closing a few deals not just in Zambia but in sub-Saharan Africa in general. Founders are beginning to realize this though and are soon finding that having these steps in place is key to attracting investors. Institutions are more likely to invest in a company in a second and third round where other investors initially have taken the first step in the process. In my opinion Corporate governance is the security blanket investors and shareholders need in order to feel secure with placing funds with a growth Company.

Investment readiness programmes

Now I have to say I am considerably thankful for the numerous efforts on display on the Zambian venture capital market that help growth companies with their operational and governance models. And if there are founders of growth companies reading this right now, I would like to recommend that you explore these initiatives and see what they offer. These stakeholders on the Zambian market are here to offer a lot of value to your companies and will be beneficial to your operations. The ultimate goal is to have growth companies fine tune their operational standing and help them become investment ready to acquire financing.

The good folks at BongoHive (a business accelerator/incubator) have numerous programmes for businesses in the different stages of their start-up life cycle. Their “Discover” programme is designed for aspiring entrepreneurs looking to build an idea into an entity that can thrive and grow within its business environment. “Launch” was created for early-stage start-ups that have a viable business model and platform from which to launch and scale into a growth business with the capability of expanding nationally and indeed globally. They also have a programme for “late-stage start-ups” called “Thrive” that works with socially responsible enterprises providing training to develop their business models, financials and other operating aspects of the enterprise.[1] These programmes help start-ups and growth companies establish operational aspects such as governance which helps them get to the next level and become investment ready.

Prospero, one of the prominent “enterprise building” initiatives here in Zambia is part of the British government’s development Aid programme. “Prospero incentivises and facilitates investment in innovation, driving profitable growth for businesses and inclusive growth for Zambia”[2] they provide these services across five sectors of the Zambian economy, these being: Food & agriculture, Mining and mining services, Tourism & Hospitality, Investment services, and Business services. Prospero has a platform that brings growth companies closer to the investment market to enable them to receive various forms of assistance. Prospero partners with leading private sector players, government agencies and business associations to design synergistic initiatives that support strong business model development to attract quality investors.

Through the ICA (Impact Capital Africa) and indeed offered by Prospero themselves, TA (technical assistance) is available to growth companies by way of grants to help them scale their operations. A colleague and I recently tuned in to the ICA’s “Impact Investing Virtual Roadshow” where the message was “Delivering Impact Capital to Grow businesses”. The aim of this roadshow was to expose SMEs and help them gain access to finance from impact investors. One particular theme stood out for me, this came from most of the investors that spoke on a number of the panels at the roadshow. One participating investor shared a number of concerns regarding the eligibility of growth companies in their pursuit to obtain finance. Her message was that it is crucial for growth companies to have their “house in order” before coming to market to be able to attract the right investor to participate in financing rounds. She reiterated that corporate governance was a crucial point that investors needed to see in order for them to feel secure in allocating capital to these businesses. Corporate governance, as I too can attest, is right at the top of the check list for investors when considering the allocation of capital to a potential investee. This of course is the catalyst to bring an investor on board which subsequently will spur on more investment in second and third rounds. Emma Parker, CEO of the ICA, reiterated this message as she announced that programmes through Prospero will be enacted to connect investors to SMEs to help them in an advisory role to ensure that oversight and governance, amongst other things, are in place facilitating the acquisition of financing.

And so again, I would strongly recommend any SMEs keeping up with current trends on the Zambian market to have a look and seriously consider some of the programmes I have mentioned above. They will be beneficial to getting them on the right track in having these crucial factions in place. This makes our job as investors much easier and will help us feel more secure in allocating capital to your needs. Good corporate governance, therefore, will help entice us as investors to initiate the right change that will be needed in order to create value through the right channels that will ultimately lead to ROE (Return on Equity). In order for this to happen, the right frameworks and governing infrastructure must be in place to hold management accountable. This I believe, will be the shot in the arm as a starting point that most growth companies need to move them along their growth trajectory. I can promise you however, that we will not be as aggressive as a Carl Icahn, but I can definitely assure you that we too as investors will be making sure that management is accountable to ensure progress is delivered to create value. Corporate governance therefore is something we will definitely discuss with you once you walk through our door.

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