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Corporate governance in SMEs

THE concept of corporate culture is one that has come under significant scrutiny, more so with the rampant reports on corruption both in the private and public sectors.

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From revelations of corruption in government enterprises by auditor-general Mildred Chiri to revelations of massive corruption in the country’s football governing board — Zifa, there seems to be increasing scepticism with regards to the culture of morality within Zimbabwean business.

Indeed, these are only the stories that have made news headlines in the recent past. Since 2008, the business and finance sector has been plagued with stories of false accounting and irresponsible lending by most banks which have since gone under.

Since the launch of the National Code on Corporate Governance a couple of months ago, nothing much has happened in terms of operationalising the code to enforce compliance with universally-accepted standards of doing business, as well as cultivate a corporate culture in the Zimbabwean business environment.

Problems with corporate culture aren’t just present within large companies. While the consequences may appear more severe for firms losing tens of millions a year, there are also problems within small companies, particularly when it comes the culture surrounding payments.

What is corporate culture?
The parameters of “corporate culture” will differ significantly from organisation to organisation, but generally it refers to the systems of understanding within a company. This not only includes dress-codes and staff welfare, but the way in which the corporation goes about its day-to-day activities such as accountancy, legal work and how it deals with customers.

According to the Culture and Channelling corporate behaviour report (Acca 2014), “An organisation’s culture should be one of its most important assets as it is heavily linked to decision-making, productive capacity and its image.”

Boards should strive to ensure they understand their existing culture, have a clear vision of what should be, reflecting the nature and values of the organisation.

Why is corporate culture important?
Irrespective of business size, the corporate culture of an organisation can have a significant impact upon brand identity — particularly in markets where there is a high level of competition.
The culture of a corporation is often considered indicative of its unique values. This means when an organisation’s corporate behaviour is challenged, it can have a significant impact on the level of consumer engagement with the brand.

The impact that weak corporate culture can have upon a brand can be seen when looking at some organisation’s financial performance within the past years. Following claims of false legal letters and irresponsible lending to some customers who couldn’t pay back their loans, most financial institutions have seen their brands plummet significantly, leading to closures.

Furthermore, not engaging in responsible corporate behaviour can also have a significant impact on costs. Following a number of high-profile cases since the recession begun — particularly in the financial sector — regulators are making corporate culture a key issue with most boards now expected to assess and inculcate finance companies risk cultures.

Similarly, engaging in dubious corporate activity can have serious consequences for a company’s long-term financial results. At the end of last year (November 2014), it emerged that some organisations overstated profits by staggering figures to retain shareholder and public confidence. The consequence of such actions (under normal circumstances) would be to attract investigations by both the Serious Fraud Office and the auditor-general who could charge the company significant fines.

How is this being regulated?
While the stories of bad corporate behaviour have a detrimental impact on the perception of Zimbabwean business as a whole, the sheer volume of misdemeanour should act as a catalyst to overhaul the powers afforded to regulatory bodies so that they can act, punish and enforce compliance with the corporate governance code.

This will see a significant improvement in the transparency of reporting within the banking and finance sector, as well as other private and public sectors. More needs to be done to help managers comply with their commitments.

How do companies get it right?
Conquering corporate culture is dependent upon striking a balance between promoting the company’s goals and purposes and discouraging bad practice with those in more senior roles leading by example.

It is also important for companies to concentrate on both the culture they are looking to achieve and have an in-depth understanding of the culture they have while developing a plausible strategy to take action. This includes being honest and consistent about the company’s core values, track and monitoring the making of decisions, being aware of corporate behaviour and its impact on customers and suppliers as well as investing in training and hiring of staff members with strong reputation and industry knowledge.

According the to the British Financial Stability Board’s Guidance, “tone at the top” is one of the strongest influences on corporate behaviour. In a recent Acca survey, 60% of those polled agreed that this was the most important influence in the work-place.

Impact on small business?
In general, regulation for small businesses comes under less scrutiny than larger businesses; however the consequences of gaining a bad reputation can be more significant.

Unlike larger organisations, companies that are newer or smaller in size have weaker brand loyalty, meaning that if they get a bad reputation, consumers are more likely to take their custom elsewhere, particularly in instances where the service provided is slow, inefficient or the company continuously fails to deliver on their promises.

Similarly, the impact of an organisation’s bad corporate attitude can have detrimental results that spreads throughout the corporate community. Companies that have a more casual approach to corporate culture in terms of organisation are often associated with inefficiencies such as delayed payments. As a result, other companies are unlikely to engage in repeat business.

Robert Mandeya is a senior executive training consultant and communication in management advisor, a personal coach in leadership and professional development with the Institute of Leadership Research and Development. Email: mandeyarobert@yahoo.com, mandeyarobert@gmail.com.

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