direction of implementation and monitoring. The regulations are issued, yes this is good, but is the implementation monitored at the corporate level and by regulators? There are a number of parties people can look to for answers regarding the role played in monitoring, following and respecting issued regulations. In addition to corporate boards and regulators, the roles of the following remain to be known: corporate risk managers, internal and external auditors.
Corporate Governance is an active and dynamic activity and so are the pertinent regulations. The regulations need to be reviewed and updated regularly. The board of directors of any corporation is fully responsible to undertake such review on a regular basis and update corporate codes as frequently as needed. The regulators' responsibility to monitor and update CG regulations cannot be overly emphasized. Most countries in the world issue corporate governance regulations in the form of directives to ensure speed for any further changes to be made. If CG regulations were treated as laws, the cycle of approval through legislative systems and governments would be very long and impractical.
As the reasons for the collapse of large and mega-corporations unfold in future, the current worldwide crisis could offer all of us many lessons to learn about corporate governance. CG would also gain more importance as a result of these crises, and we would witness more emphasis on disclosure and transparency. Lack of or inadequate disclosure and transparency may prove to be one of the major causes of this crisis.
CG Qualitative Issues
We covered in the previous pages the quantitative issues and elements of corporate governance and the impact of the current crisis worldwide and in the GCC. Let's now talk about the equally, if not more important, qualitative elements of corporate governance. We believe these are part of human nature and the personal qualities that are the most difficult to deal with.
Corporate Governance Quality Principles
The pillars of good corporate governance practice consist of:
•Fairness
•Honesty
•Accountability
•Responsibility
•Transparency
Board of Directors’ Duties - Leading Qualitative Issues
For a board director to discharge his duties in a quality way the following leading duties must be integral in all his actions and decisions.
•Good faith
•Care
•Skill
•Diligence
These duties are human competencies, i.e. they cause a director to act independently, responsibly and responsively - to act as a decent corporate citizen.
Duty of Good faith
The duty of good faith demands that the director is reliable, trustworthy, acts with integrity and does not seize corporate opportunities for his own self-interest. It further requires the director to act in the best interest of the company at all times and to avoid any action that causes or can cause any conflict of interest with the company. The shareholders and related stakeholders must be confident that the director will at all times deal with the affairs and decisions of the company in good faith and unquestionable trust. Without good faith and trust, no director has any business serving on the board of a company.
Duty of Care
Duty of care places the responsibility upon the director to apply serious attention to the details and matters at hand. His or her stewardship must be unquestionable. The duty further demands transparent communication with board members, management and any other stakeholders of the company. Protection of the company's reputation, assets and property are further requirements under the duty of care. The director becomes a custodian of the reputation and assets of the company and must hold these high at all times.
Duty of Skill
The duty of skill deals with the necessity of demanding from the management timely, accurate and complete information and data relating to the affairs of the company. The director's skill and knowledge must be used and applied in the analysis and evaluation of information and reports. Right decisions demand the honest application of brainpower and the most appropriate ways of conduct.
Duty of Diligence
The duty of diligence makes the director's knowledge of the industry in which the company is operating a prerequisite for his selection to the board. The director must use such industry knowledge to pay attention to the details of all proposals referred to the board for consideration. Part of the details that need to be considered to arrive at board resolutions are the company's relationships with its stakeholders. Those resolutions might be received by shareholders and stakeholders. The other dimension that must be looked at by the director in a diligent manner is the impact of the company's business and decisions on others - what kind of precautions he needs to consider to mitigate any negative impact on others. 'Others' here include customers, service users, competitors and the society within which the company operates. The social responsibility of the company's business must be respected and protected.
Corporate Governance Qualitative Issues
The CG qualitative side receives the lowest level of attention compared with the quantitative side. It's our strong belief that many corporate collapses are attributed to the lack of adequate attention to qualitative corporate governance. This aspect of CG deals with the most important element of governance - the human beings or, as modernly called, human capital. The human capital associated with corporate governance includes shareholders, directors of the board, executive management, regulators and internal and external auditors.
Directors and Senior Executive Management
The selection methodology of directors and executive management is the key and deciding factor in their success in discharging their duties to the corporation they serve. These questions highlight the importance of the selection process:
•Does the company have a written policy on the way the selection of directors and executive management is made?
•Are skills, qualifications and experience of directors and executive management prerequisites to suit the requirement of the corporate for these talents?
•Who handles the selection - shareholders, board members or consultants?
•How the appraisal of performance of the directors and executive management is handled?
•Are compensation schemes adequate and within market guidelines in which the corporate operates?
•Are directors aware of the requirements of corporate governance in the company? Are there any training and development programs for the directors?
•What is the role of shareholders in all the above? Do they exercise any activism to protect their rights and the rights of other stakeholders?
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