By Olufemi Mosaku-Johnson
Much has been written in recent times regarding the prospect of Corporate Governance as a balm needed to heal the nations of her woes, cure the organisation of its malaise and redeem the institutions of its misgovernance. There is the need to strengthen governance in the banks, corporations and financial institutions and to entrench the role of corporate governance in representing a rigorous challenge in organisation performance and to encourage building of institutions rather than personalities.
Worryingly, however, there has been too little debate – written or otherwise –
regarding corporate governance as a panacea for organisation performance.
The continued creditability of this approach, however, depends on there being a consensus that the contents of the governance structure and framework in organisations are congenial to best practice; to organisations disclosing their governance procedures in an open and transparent way; and to investors interpreting governance disclosures in an enlightened and objective manner. Another grey area is that of corruption which appears intractible in our body politic.
Further, it is of critical importance that there are both sufficient institutional and organisation must be willing to seek an informed external perspective on their performance issue.
Performance questions to be asked are:
Are board balance and with right composition; what is the frequency of director re-election; do the organisation conduct board evaluation at intervals; is ther comprehensive risk management and internal control mechanism inplace?
The following are also issues relevant tothis debate:
The Combined Code on Corporate Governance sets out standards of good
practice in relation to matters such as:
· board composition
· remuneration
· accountability
· relations with shareholders
Indeed, the problem is not with the substantive contents of the Combined Code, but with the way they are applied.
Good governance is a complex mix, but its essence can be distilled into two factors. The first is boardroom behaviour: are the difficult questions being asked? Moreover, is there effective challenge, or simply an over dependence on the management’s view? We heard a Chairman of a Council of a prominent membership body in Nigeria saying, I rely on CEO for everything.
The second is ensuring that the board has a clear line of sight. If the directors cannot see what is happening inside the business, and are thus not receiving the necessary information, they will not know what questions to ask.
Invariably, if the risk management processes are not organised in a clear and methodical way, then a small number of part-time executives do not stand much chance of overseeing them.
There is also this issue of Chairman of the Board usurping the role of the CEO. This ugly trend, I have witnessed in my previous employments. Another variables are – boardroom behaviour and connectedness to the organisation – are necessarily interdependent. Therefore, there will be no real challenge for the boardroom unless the company makes it possible, which
means that the management needs to want it to happen.
Practical aspects of performance engendered by governance:
· good interpersonal skills and the ability to manage conflict
· sound judgment
· the ability to influence through clear communication
· integrity the pillar of sustainabibility.
· the conviction to say things that need saying and, as a last resort, to vote
with your feet
· to be commercially aware.
Performance challenges:
Providing knowledge, insight and experience
Raising standards of governance
A good board should help to raise the standards of corporate governance within a company. This helps to ensure that executives understand their obligations in this respect and thus comply with the Code.
Advising on strategy
A business without a strategy is like a good soup without salt. Board can assist the executive team in articulating the strategy.
Challenging business plans
Executives can often produce business plans with goals that are comfortable
rather than stretching. Boards can push, interrogate and raise the performance bar. They can also challenge ambitions that they believe are simply unrealistic or goal that suffers from Grandio Delusion..
Key Performance Issues
What is Corporate Governace and how does it bring about the desired performance improvement in organisation:
“Viewed at a high level, corporate governance is all about accountability and stewardship” -Report of Royal Commission into HIH
Corporate governance represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations.
Corporate governance has both strategic and ethical implications.
Corporate governance represents the relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations.
Corporate governance has both strategic and ethical implications
Simply put, bad corporate governance leads to bad strategy formulation and implementation.
If strategy is about matching the firm’s internal resources and capabilities with opportunities from the external environment, then corporate governance should ask the following sorts of questions…
I must add that Corporate Governance is about alignment- aligning personal interest with the larger goal of the organisation.
A system of checks and balances between the board, management andinvestors to produce an efficiently functioning corporation, ideallygeared to produce long-term value- The Conference Board
Current Challenges in Corporate Governance:
Ø Insistence on forms and structures
Ø Overarching regulations
Ø Regulatory overkill
Ø Lack of adequate number of strong, independent directors
Ø Large liabilities for companies and officers
Ø Has the pendulum swung too far?
Governance and Performance:Good governance leads to good performance
Ø It creates an open and transparent system
Ø It improves communication and breaks down systematic barriers to flow of information
Ø Good governance allows decision making based on data. It reduces risk
Ø Good governance helps in creating a brand and creates comfort for all stakeholders and society
Governance and Performance measurement – issues
Ø Is governance behavior motivated by legislation?
o Do standards vary with jurisdictions or do you adopt the best option?
o Do you choose the right thing to do irrespective of whether it’s mandatory or not?
Ø Is performance evaluation limited to valuation metrics?
o Is it only ROE, Net margin, growth, shareholder wealth creation?
Ø Do performance measures need to be holistic?
o We need to encompass all stakeholders
o Governance is an enabler for holistic performance
Ø How do managers better understand governance requirements?
o Do we need market research for governance requirements?
Companies need to invest in good governance
Ø Corporate governance has a direct bearing on business performance and thereby ROI
Ø Leverage the power of IT
Ø On average, businesses with superior governance practices generate 20 percent greater profits than other companies- A study based on 256 companies conducted at the MIT Sloan School of Management
Ø Companies must emphasise ethics rather than figures
Strategic implications of corporate governance
• Simply put, bad corporate governance leads to bad strategy formulation and implementation.
• If strategy is about matching the firm’s internal resources and capabilities with opportunities from the external environment, then corporate governance should ask the following sorts of questions…
Ø Do we have the right strategy, given what we do well?
Ø Is our strategy matched to the external environment (economy, social expectations, etc.)?
Ø Are we capable of executing the strategy?
Ø Do we have the right top management team?
Ø If the answer to one or more of these questions is “no,” what do we need to change?
Bad strategy makes it harder for firms to fulfill their economic and ethical responsibilities to stakeholders, including shareholders and employees!
• Ethical issues in corporate governance
There are several key strategic and ethical issues in corporate governance, including
• how to align the interests of top managers and shareholders,
• the proper level and function of executive compensation,
• who monitors the top management team and how that monitoring occurs, and
• Inclusion of shareholders and non-shareholder stakeholders.
• The issue of conflct of interest
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