the board and executive management play the most important and vital role in directing the company's business. Unless the company has in place comprehensive governance policies that are implemented and monitored with audit and control units that give the shareholders a level of assurance of the soundness of these policies, the company runs the risk of disappointment or even failure.
Regulators
The regulators' role in corporate governance is important and complicated. It's important in that they issue the quantitative CG regulations. They also give guidelines on best practices and expected qualitative measures but not as much as they do for the quantitative side. Some regulators, in assuming their role towards issuance of CG regulations, tend to import these regulations from other countries and regions and expect companies to apply them "as is" in their ready-made status. Due to globalization the world is becoming standardized on major regulations, such as international accounting standards, anti-money laundering and others. We cannot say the same for corporate governance as yet.
Countries such as the United States and those in Europe are at a different and higher level of sophistication in terms of civil, commercial and company law. The Gulf region still needs many years to catch up. Hence, regulators need to reach out more to companies and introduce CG regulations that take into account international best practices and local requirements. The gradual introduction of CG regulations along with pertinent laws will be more beneficial and practical. To its credit Bahrain follows such an approach, and it's hoped other GCC countries follow suit
Several questions that regulators can benefit from are
•Do regulators have adequate human capital with the right knowledge of requirements of CG?
•Are such resources' training and knowledge continuously upgraded?
•Is the human resource adequately compensated and motivated?
•Is compliance with CG issued regulations monitored? How frequently?
•Is there a statement of compliance requirement issued by the Chairman and CEO of companies?
•Is there any recognition of those companies that comply?
Qualitative Issues – Transparency & Disclosure
For transparency and disclosure of information to have value and quality, clarity of the purpose of disclosure is a must. Information and data disclosed need to be clear, complete, accurate and timely. Investors, the press, shareholders, stakeholders and the public at large need to come to decisions based on disclosed information. Therefore the quality and accuracy become crucial. We look at some of the issues relating to disclosure and how they relate to good governance practices.
•What to disclose is the first question to ask, and Why is the second. Responses to these two questions help to establish the information the corporate needs to disclose and for what purpose.
•Periodical and corporate annual reports give various information and data: lists of shareholders, board members, names of executive management, financial highlights including balance sheet, cash flows and profit and loss account, operational reports for the year ended and the external auditor's report. These are mostly quantitative disclosures that deal with past periods. They are history that is dead and provide very little benefit to readers to base meaningful qualitative decisions. In particular, decisions to invest in the stock of the reporting company or even to enter into new business with it are not addressed. What would make the information disclosed of value is the amount of information about the future plans of the company. Major changes in the future direction, i.e. entering new markets and re-organizational plans would give more meaningful tools for the public to make well-informed decisions to deal with the disclosing company.
•The annual reports talk about the work of the board and its committees. They do so inadequately and again only about the past. They give vague, general remarks about the operation of the board but very little about the actual process of such operations. For example, the reports fail to give the number of meetings the board and its committees held during the previous year, the percentage of attendance of the directors at those meetings and changes during the year in the composition of the board, i.e. resignations and new memberships. This is quality information that should be included in the reports. Such information will give the reader solid information on the governance practices within the company, thus providing the necessary guidance to make better decisions.
•Another piece of important information that is absent in most corporate annual reports is the "Statement of Compliance with Corporate Governance Requirements". The regulators in some countries make such a statement mandatory and call for its inclusion in annual reports. The statement is signed by the Chairman of the board and the Chief Executive Officer of the corporate. The statement normally lists the corporate governance practices that the company complied with during the past year and any plans for future governance enhancements.
•The related-party material holding in the company and large business transactions between the company and its related parties receive very little disclosure coverage. Only a minimum amount of detail is given making it difficult for interested parties to make quality decisions about future business deals with the company.
CG Qualitative Issues and Social Responsibility
The number of corporations around the world taking steps to establish social responsibility divisions or committees is on the increase. As often said and quoted: Corporations are social institutions, incorporated by society for the benefit of the society, and they have no business existing if they stop serving the society".
These committees and divisions are fashionable, however, it is almost always the case that they believe "it is good to have" not "must have". With such thinking the noble idea of having them as part of the good governance of the company is completely shattered.
Companies need to believe in the merits of social responsibility as responsible, corporate citizens for social responsibility is everybody's business. Look at the following questions that the corporations can ask themselves and decide why they need to address this very important element of good governance.
•The purpose of establishing a social responsibility division or committee needs to be spelled out clearly in its charter. Some companies consider it a public relations and marketing tool to attract more business and gain acceptance by the society. There will be a big problem if it is looked at that way only. Society will soon understand such a purpose and shy away from showing interest in the concerned company. The purpose must have sincerity, reliability and a noble approach directed in an honest manner to the service of the society. Society expects to see the positive contribution the company makes to the life of its workforce and their family members and the social needs within the environment in which the company operates. Society will watch the actions taken by the company, not only intentions, and judge accordingly.
•The membership structure of a social responsibility division must be carefully thought through. Is it enough to leave it to management to handle or does the board need to be represented as well? Will it be left only to senior management or will line management be involved? These questions about structure and their answers lead to a clear and workable structure.
•The written charter of the division must specify the scope and services of the division and to whom these services will be provided - only to staff members or to their families as well? Any other stakeholders and society interest groups?
•What is the role of social responsibility
