Many people wonder what exactly is the definition of Corporate Governance, what is its scope and applicability. A number of new rules from legislators and regulators have added greatly to Board of Directors and key executives compliance burdens.
These rules have also increased their financial liability and as a result of which exposed them to severe penalties. Their role is undergoing a radical transformation as they are forced back into watchdog mode.
The Institutional Shareholder Services (ISS) has produced ranking of over 1000 companies in Europe and Asia depicting their compliance of corporate governance. It has taken the following criteria for ranking:
* Board of directors
* Audit committee
* Executive and director compensation
* Ownership structure
* Anti-takeover provisions
Are these rankings really making any difference? Do they provide direction to the corporate outfits to improve on their accountability and responsibility? The answer is YES, those looking forward to sustainable growth rate, perform social responsibilities and deliver what they are supposed to do care.
Take good business practices seriously. In the recent past, companies learned they could create better products more efficiently with the full mental participation of their employees. Today investors are learning that participation by shareowners also add value.
In one of the recently held conferences on corporate governance the session chairman stated, that Pakistan's performance was high in the ranks of developing countries vis a vis the focus and its efforts on maintaining and implementation of good business practices.
The credit should be given where it is due, in the first instance, the Institute of Chartered Accountant in Pakistan be hailed for coordinating with the Securities and Exchange Commission of Pakistan (SECP) and bringing out the Code of Corporate Governance.
The Institute's spade work should give credence to the Code. Simultaneously SECP focused attention on timely implementation should not go unappreciated. Three key ingredients emphasized in the Code of Governance issued by developing countries and developed countries include the following:
Shareholder rights Transparency Board accountability. In Pakistan the Code of Corporate Governance, was implemented through listing regulations in March 2002. Since then a lot of improvement and awareness has come about.
A lot of seminars and conferences have been held to delineate on the Code. Basically two groups have emerged from all this exercise, one that is not mindful and takes this as mere compliance.
The other one has taken heart and sees it as a transition to big and better future. In their thinking the world is a global village, Pakistan cannot attract foreign investment and participation until and unless we are good on Good Governance.
Similarly we cannot make a mark in our international trade and dealings until we are seen to doing what we are saying. In the words of Alan Greenspan: "Some practices and rules, have outlived the user friendliness and require updating.
But in so doing we need to be carefull not to undermine the paradigm that have so effectively governed trade voluntarily. Rewriting rules that have served us well is fraught with the possibility for collateral damage". Important changes in the Code of Corporate Governance include the following:
* Vision and mission statement
* Overall corporate strategy
* Statement of ethics and business practices' to be circulated annually.
* Establishment of audit committee
* New facet of role for the members of the board.
* Added responsibilities of key executives like CFO, Internal Auditor and Company Secretary.
The question is how do we address the skeptics? Through force or moral persuasion, and is it really going to work. Most of the outfits that have lived in the past on being away from professional approach, suddenly realize that they cannot do without it.
In the wake of the tremendous changes that have taken place in the business world, their focus needs to be now aptly directed. Notably the implementation and practice of good corporate behavior.
The Board and its membership have to assume more responsibilities along with accountability.
Shareholders have shown their anger and frustration on the lackadaisical approach and attitude of the Board. Completely oblivious of their responsibilities vis a vis the trust reposed by the shareholders. So charity begins at home, and coming back to the situation in Pakistan the first step is to bring a change in their mind-set.
Their seats on the Board are not for photo session, but they have a hard-core work to do. It has been observed that the members of the board, of very many companies lack an insight.
They still find it is easy to leave the compliance act to the outside professionals. This attitude needs to be changed, they have to get involved and carry out their responsibilities with care and attention.
The bar on accountability role of those occupying seats on board is rising. They cannot lean on the old traditional practices, and should realize that the business world is changing at a very fast clip, and it is open. They cannot dig their heads in the sand, if so far, not any more.
They will be exposed to the outside world and need to keep a neat line of communication with the stakeholders. One of the needs is the training and awareness to the members of the board of their role in the emerging business milieu, their responsibilities and accountability.
The sooner they learn and practice the better it is for them. The Chief of Shell came under severe criticism and has resigned. In the process the company has to redo its financial statements, the earlier not depicting the true state of affairs.
