Growing need for corporate governance

July, 2016

  • In the wake of the Global Financial crisis and the major financial scandals among some top multi-nationals, GCC countries have been challenged to pay greater attention to Corporate Governance.
  • People have realized the importance of holding organizations accountable to their stakeholders.
  • But, what is Corporate Governance? Corporate Governance is responsible, 360 degree corporate conduct on the principles of accountability, fairness and transparency while achieving business objectives.
  • However, there are two things which need to be taken note of. The first one is that corporate governance should go beyond the technical definition and needs to be embedded in the company’s spirit. The second is that conformance is no substitute for performance.
  • Why do we need Corporate Governance? Corporate governance is needed for both internal and external reasons.
  • Internally, it allows us to “sleep in peace” knowing that we’ve done no wrong and also because an organization is a collective of people, its conscience too is the collective conscience of all its individuals.
  • Externally, good corporate governance helps to attract and retain capital, customers, talent and a superior supply chain.
  • Generation X, Y and Z are known to display “activist” traits and care deeply about major issues such as work conditions, and global warming etc. Thus, they will only flock to companies which share the same values as they do.
  • Why now? The lack of corporate governance, to a large extent caused the global financial crisis. Irresponsible credit and creative accounting led to melting markets and record redundancies.
  • This apparent lack of governance resulted in enforced governance by law makers, increasing regulatory and compliance costs.
  • As a first step towards establishing sound corporate governance, companies must conduct a risk management audit across 6 key areas: Board, Shareholding, Information integrity, Performance evaluation, Remuneration and Audit Committees and Reporting & Disclosure mechanisms.
  • This will help shine light on areas that need fine tuning which will then lead to the development of a very stringent, flexible and ethical corporate governance code for the organization.