Businesses seeking investment could lose millions in potential value if they fail to put proper management, governance and accountability systems in place, investors have warned.
Speaking at the inaugural Botswana Investment Forum, finance and business experts cautioned that strong financial performance alone is not enough to attract capital. Investors also want assurance that money is properly managed, decision-making is transparent and businesses can account for their operations.
The issue was examined during a panel discussion titled Governance and Investment Readiness: Building Confidence, Protecting Capital and Driving Growth, facilitated by Melissa Morapedi, Senior Investment Officer at the Botswana Development Corporation (BDC).
Manuel Makki, Senior Adviser at Alvarez & Marsal Middle East and Africa, said investors are not necessarily afraid of risk, but rather risks they cannot measure, manage or price.
Poor management structures, weak governance and unreliable financial information make it harder for investors to assess businesses, potentially increasing the cost of capital or causing investors to walk away altogether.
He illustrated the financial consequences using two hypothetical companies, each generating US$10 million in earnings before interest, taxes, depreciation and amortisation (EBITDA).
While a well-managed company could attract a valuation of eight times its earnings, giving it a value of US$80 million, a business with weak controls might attract a valuation of only four times earnings, reducing its value to US$40 million.
The example demonstrated how two businesses generating identical earnings can attract vastly different valuations depending on how they are managed. In this scenario, the weaker business would be worth half as much.
BDC board chairperson and founding partner of Desai Law Group, Rizwan Desai, highlighted several warning signs that often discourage investors.
These include excessive concentration of decision-making in one or two individuals, incomplete financial records, weak reporting systems, unresolved regulatory issues and unclear ownership structures.
Desai noted that family-owned businesses, in particular, may eventually need to evolve beyond founder-led decision-making.
Introducing independent directors can bring experience, challenge management decisions and strengthen oversight as a business expands.
However, he cautioned that weak governance is not always a structural issue.
In some cases, business owners are simply unwilling to share control.
While investors may be willing to help improve governance systems, resistance to outside participation can prevent transactions from progressing.
Thapelo Matsheka, Managing Director of Fiducia, said businesses must ensure that their ambitions are supported by the capacity to execute them.
Plans to expand into new markets or take on larger projects require more than funding, he said. Companies also need capable management teams, reliable operational systems and clear accountability structures.
Matsheka further argued that smaller businesses should not assume governance structures only become necessary once a company reaches a certain size.
Although governance arrangements should remain proportionate to the scale of a business, basic financial controls, clearly defined responsibilities and appropriate oversight mechanisms should be established early.
The panel also emphasised the role of boards in identifying problems before they escalate into crises.
Properly functioning audit, risk and human resources committees can help directors monitor performance, challenge management where necessary and protect shareholder interests.
Ultimately, the panellists argued that good governance should not be viewed as a regulatory burden, but as a competitive advantage capable of improving investor confidence, lowering financing costs and increasing business value.
