Absolute truths about corporate governance

A lot has been said and written about corporate governance, but very little has been done about it, at least in Zimbabwe.

People management issues with Robert Mandeya

Given the prevailing highly-competitive operating environment characterised by value-realisation, good corporate governance ceases to be just a buzz word spoken only when it is convenient. Worldwide, questions are being asked around issues of accountability, transparency, value addition, legitimacy and overall credibility of organisations by government, shareholders, investors and taxpayers.

Operational efficacy

Good corporate governance has emerged not only as an essential tool to enhance professionalism but, more importantly, to ensure that organisational functional practices are effective, sustainable, efficient, and positively perceived by all stakeholders. The credibility of an organisation can be enhanced by adherence to the principles and practices of good corporate governance.

Defining governance

The dictionary defines governance as to control or rule. Among the many definitions for govern are: to exercise authority over, rule, control, manage, to influence the action or conduct of, guide, to hold in check, curb and to be a rule or law.

Governance structure

Much of the literature on corporate governance is associated with the corporation’s board of directors. The most talked about trends are the independence of the board members and the separation of the chief executive’s position from the chaiperson of the board of directors. Many shareholders believe the primary purpose of board of directors is to protect shareholders’ interests by providing independent oversight of management and the chief executive.

Role clarity

An integral component of corporate governance is the clarity of roles and responsibilities of boards, management and staff.

How these roles are defined and executed determines the power relations, balance of authority and the extent to which an organisation will be run smoothly, effectively and efficiently.

There is increasing global attention on how corporate bodies are being run particularly in respect to their performance, service delivery and social accountability. Through the code of corporate governance manual and the recently promulgated State-Owned Enterprises Corporate Governance Bill, the business community and government in Zimbabwe are making efforts to improve corporate governance within the business sector in Zimbabwe.

Justification

Problems such as conflict of interest, non-performance, abdication of responsibility, suspicion and mistrust, interference in roles and responsibilities, rubber-stamping tendencies and unfettered individual authority over staff, can be addressed in part practicing good corporate governance. Not least the rampant corrupt practices in both government and private sector can be curtailed through the practice of good corporate governance.

Emphasis worthwhile?

The consensus of lawmakers is that an increased emphasis on governance is needed to avoid a repetition of the recent accounting scandals and other corporate improprieties. The emphasis of the law in corporate governance covers the following:

l Create greater independence of the board of directors;
l Prohibit public accounting firms from performing consulting work for the coporations they audit;
l Improve the financial reporting required from corporations;
l Make the CE and CFO accountable for the adequacy of the system of internal control;
l Encourage and protect whistle blowers; and
l Place more importance on the adequacy of the organisation’s systems of internal control.

Driving forces

The driving forces for more emphasis on corporate governance are the regulators or lawmakers and individual or organisations that have a vested interest in the success of the organisation, such as shareholders.

While the lawmakers can dictate governance practices and reporting, shareholders and others with vested interest in the corporation want to be more assured that the directors and officers of the corporation are making decisions based on the best interest of those having a vested interest in the corporation.

Governance, profitability

Recently, numerous studies have been undertaken to determine whether corporate governance is a contributor to corporate profitability.

The results are mixed. Some studies show there is no relationship between improved governance and profitability; while other studies show that improved governance does in fact result in increased profitability. However, the positive effect of increased governance will certainly be felt as corporates evolve into efficiently run entities.

Mandeya is an executive coach, trainer in human capital development and corporate education, a certified leadership and professional development practitioner and founder of the Leadership Institute for Research and Development (LiRD). — robert@lird.co.zw, info@lird.co.zw or +263 772 466 925.

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