(The author would like to thank The Organisation for Economic Co-operation and Development (OECD) for the promotion of policies that will improve the economic and social well-being of people around the world including the proper implementation of Corporate Governance)
Despite being popular for more than a decade, many corporations still tend to view Corporate Governance as some "legal constraints" on them. While this is not entirely true, we still find corporate leaders and the executive board fear the auditors with the notion that they might have broken the law or some misdeeds may have occurred.
As a result we still see corporations winding up - some did not even have to. It's shocking to find corporations being liquidated simply because they did not submit the proper papers on time to the authorities.
Citing OECD - Implementing Governance, Chapter 6, Page 162. 2nd para :
"Following the series of scandals in the US and elsewhere involving big corporations, the market has become increasingly demanding regarding improvements in corporate governance practices and INTERNAL CONTROL to increase investor confidence. The awareness that followed the scandals created an environment conducive to better governance. This was seen in Latin America, in countries like Brazil; after the initial period when investors were pushing for basic governance measures, they now are refining their requests by seeking improvement in QUALITY of disclosure, composition of boards and more. Lessons learned from the BENCHMARKING process can be used as the starting point and as a CONTINUOUS LEARNING PROCESS."
When corporate governance been too intertwined with rules and regulations, there is no room for management tools to come in. Corporate Governance is not merely about legalities as "hijacked" by scholars, company secretaries and authorities.
Corporate governance prevailing practices ironically failed to be seen as a management science - as it should have been. It is about achieving corporate democracy for shareholders and "other interested parties".
It is not always about the Board of Directors but it also concerns a network of supply chain as well ("Other Interested Parties" - such as employees, consumers, surroundings and even community at large.
Now the laws are there in place...what's next?
The issue now is how to MANAGE it?
Whenever there is a law, there will also be suggestions of the usage of standards and codes of practice. Standards give birth to Manuals, Procedures, Work Instructions and Checklist - all under "controlled conditions" (Refer to ISO 9001:2008)
Let's look back at the 5 core pillars of Corporate Governance:
1) Rights and equitable treatment of shareholders : Corporations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings
Keyword : Communication (internal and external)
Communications can be complicated especially dealing with information being ambiguous or inaccurate. In my experience, communication is mainly the highest contributing factor towards the failure of a management system - especially dealing with unhealthy office politics.
A corporation has a business to run based on a certain core business process as stated in the Manual. It requires inputs to flow from one process and outputs to flow to another process. There is a continuous (communication) flow regarding tangible (materials and product) and intangible (information) inputs and outputs taking place within a corporation.
Thus, the board of directors should come out with methods and resources using the process and deploy these methods through ICT; logistic and HR processes (documents, meetings, directives, e-mails, intranet, visual etc) Get feedbacks from recipients and incorporate them in the policy, objectives and goals. Make your staff feel important that they are the 'guardians' and 'watchdogs'.
2) Interests of other stakeholders : Corporations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.
Keyword : Stakeholders
This MUST be stated in corporate’s mission and relays the processes used to get the corporation there. Let the values guide the culture and not vice-versa. Stakeholders should always be put first. They must be made aware of what is going on in a corporation especially any new management system to support the law. They must be well briefed of the long term benefits seeking and achieving the recognitions from the relevant bodies.
3) Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment.
Keyword : Commitment
A successful implementation of systems and methods can positively affect the corporation’s reputation, growth and profitability. This can only happen if there is a strong commitment from the board. The willingness to invest for a long-term management program that will positive affect the corporation is very important rather than meeting the minimum, mediocre, or sub-standard requirements. And this should be communicated throughout the organization.
4) Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.
Keyword : Professionalism
There is a need for a code of conduct to be developed. A typical code of conduct should not be viewed as an expression of a set of laws but also implying the management methodologies as well.
a) Duties and Responsibilities - A proper Job Description, Organizational Chart and Master Responsibility Matrix - should be in place - to also reflect the Board, Associates, Officers and Corporate Compliance Officers.
b) Honesty, Ethical Conduct, Fair Dealing
c) Procedures dealing with a bunch of issues such as Human Resources, Environmental Health and Safety, Gifts/Gratuities/Entertaintments, Records/Documentation Management, Reporting and Training
5) Disclosure and transparency: Corporations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
Keyword : Transparency
Once again, a proper Job Description (JD) and documented procedures are required. When making a Job Description, ensure that the duties are arranged according to their utmost priority. A simple percentile management tool would help via a brainstorming session.
Once the JD is in place, use the cascading principle so that the JD is related to other tools such as (pick one) - Key Performance Indicators, Key Result Areas, Balance Scorecard etc.
Secondly, you need to develop procedures with simple templates such as process flow, responsibility and reference documents/records. (Again, refer to ISO 9001:2008 Standards)
Nik Zafri is an Associate Consultant with TIJ Consultants Group (Malaysia and Singapore)