Governance Now More Important Than Ever
Introduction
Humanity isn't a stranger to corporate governance and so aren't human beings. Governance as a system is imbedded in the way people, families, companies and even government affairs are conducted and run. Good governance stems from simple principle of behaving within acceptable standards of ethics. These ethics have a very simple principle to follow "treat people the way you wish them to treat you". Simply put, any governance system must be built on the principles of honesty, fairness, accountability, responsibility and transparency.
These principles apply in the dealings of individuals with each other, between families and by corporations with all their stakeholders. To manifest good governance, the government must be the undisputed leader. The government sets the tone from the top by ensuring that public governance is conducted in an accountable and transparent manner.
Democratically run countries are expected to manifest and demonstrate the highest principles of good governance through their governments. However, if governments fail to discharge their responsibility in abiding by principles of good governance then hopes of other organizations doing so is questionable.
Looking closely at the stakeholders under any governance regime, we find them virtually the same for individuals, families and corporations with varying degrees as regards their size and sophistication. Any corporate governance environment is basically constituted by individuals who lead and direct any enterprise. If individuals are raised with a high degree of integrity and ethical standards, and the family business is conducted within these standards, the businesses will benefit from these qualities.
The parties responsible for the establishment and implementation of a corporate governance standard are the various stakeholders: shareholders, directors, senior management and other members of staff. Other groups of stakeholders include but are not limited to:
•Customers of all kinds
•Suppliers of various goods, commodities, raw materials and services.
•Creditors and all parties who provide credit or financial facilities to the company such as banks, financial institutions and others.
•Supervisory and regulatory authorities whether government or non-government bodies.
•Public services, interest groups and consumer protection associations.
•Distributors and sellers of the company's products.
•The company's auditors and lawyers.
Why Corporate Governance Now
The collapse of high profile international businesses, giant banks and megamultinational companies over the past several years, the current unprecedented worldwide financial crisis, the power shift from public to private through converting state-owned enterprises to joint stock publiclyowned companies, the transfer of technology and globalization are compelling reasons for good corporate governance practices to be applied. In fact these developments have helped corporate governance to shift from the backroom to taking central stage in every boardroom around the world. More than ever, governments everywhere are very keen to revamp their corporate governance laws and regulations to address the shortcomings that surfaced. It is obvious that the majority of business failures can be attributed, in a large part, to poor corporate governance and lack of adherence to its standards and practice.
Corporate Governance has become the famous buzz word around the world, particularly as a result of the financial crisis of 2008/2009. A fundamental shift in the way corporate governance is viewed will be made and no country can afford not to revisit its existing laws and regulations.
Expected Future Actions
Out of necessity, countries around the world have already started looking into amendments needed to their existing laws and regulations on corporate governance. For those countries that did not implement them, there will be no reason or excuse to miss the train now. The cost will be very high.
The developed countries will have to live up to their responsibility by first setting their own house in order and then extending their support, financial and otherwise, to the rest of the world to ensure a complete upgrade in CG regulations. Globalization and the presence of corporations of developed countries in other corners of the world, make the support to other countries more conducive in the business of their own corporations.
Banks and financial institutions had their large share of failures and losses; in good measure due to lending to corporations with little or no corporate governance. Hopefully, they have learnt that lesson. They will now have to exert efforts to ensure that their clients are compliant with good corporate governance practices. Such action will give a much needed boost to improving CG practices.
Undoubtedly, the financial crisis has unveiled, among other things, the fragility of CG practices within companies and poor monitoring by regulators. Hence, we expect that regulators and interest groups will become more active in rectifying the situation. However, we urge that more attention be paid towards the qualitative side of corporate governance. As reported most countries have CG codes with clear guidelines for the proper selection of directors and executive management on the basis of "fit & proper", integrity, fairness, accountability and responsibility. All these preconditions were not respected and even violated. The regulators were preoccupied with too many regulations, the Boards were hard driven to achieve financial results (conveniently called value creation) and interest groups were either absent from the scene or their attention was directed towards achieving narrow-minded gains for their followers. The actual adherence of corporations to the requirements of corporate governance was not monitored or fully respected. The crisis at the end of the day can also create opportunities and challenges. We sincerely hope that regulators, boards of directors and all stakeholders treat the crisis as a wake-up call and make an honest effort to pay more attention to best business practices so that governance of all organizations is improved.
Chapter One
Corporate Governance: Quantitative Versus Qualitative Issues
Over the past fifteen years, corporate governance gained continued importance and attention from all stakeholders and those concerned with establishing good foundations. In other words corporate governance evolved from being a boardroom issue to a public concern.
Many countries introduced corporate governance codes regulating the desired corporate practices in companies of all types operating within their boundaries. Some countries opted for gradual introduction of laws and regulations dealing with various aspects of corporate governance, in the hope of adopting a complete code over a period of time.
Corporate governance seminars, conferences and many other forms of gatherings are the evidence of what we witnessed over the past years. The output of these gatherings gets intensified with every announced financial disaster around the world. Financial disasters cause countries to further tighten their corporate governance laws, regulations and compliance requirements.
Have all these actions - issuance of corporate governance codes, new laws and regulations and seminars - reduced failures in companies worldwide? This is a fair question to ask. An accurate response is more difficult to give. It is safe to say that failures would have been much higher in number and intensity in the absence of corporate governance regulations.
Let's think
