Corporate governance is a big word referring to the way a business (or a company) is managed. It is the set of processes, customs, policies, laws, and institutions that affect the manner in which a corporation (or company) is directed, administered or controlled.
This is crucial in the growth and development of a business entity and by extension, the economy.
It also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. Contemporary business leaders need to identify the external and internal.
External stakeholder groups are are shareholders, debtholders,trade creditors, suppliers, customers and communities affected by the corporation’s activities. Internal stakeholders are the board of directors, executives, and other employees.
In the midst of all the competing needs, the important theme of corporate governance has to be the nature and extent of accountability of particular individuals in the organisation, and mechanisms that try to reduce or eliminate the principal-agent problem(s).
The current financial crisis and it pre-cursor, the not so distant high profile collapse of big corporations and corporate scandals have served to create an avid interest in corporate governce of modern corporations.
This is especially because most of these cases involved accounting fraud. In the U.S., these include Enron Corporation and MCI Inc. (formerly WorldCom).
Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance.
Comparable failures in Australia (HIH, One.Tel) are associated with the eventual passage of the CLERP 9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (Parmalat in Italy).
We have our own stories to tell in this regard and that is all history. The more important question is; how do we run our corporations and indeed businesses today?
As an illustration; let’s take a church choir or any music group for that matter. To sing well, whether solo or in a group, one needs to practise and practise well.
Unfortunately, not everyone manages to do this. In this case one has three choices; one, they can put in more effort and time to get it right.
Two, they can forfeit singing either at mass or the show for which they have not practised. These two are very honourable options.
The third, which is less honourable, is they can keep up appearances. In Kiswahili we call it kubabaisha which loosely translates to bluffing.
S/he can act in a manner that makes them appear like they are singing well without singing well.
This involves but is not limited to lip-synching which even some popular contemporary artistes have been nabbed doing. It is just plain wrong.
We have a similar trend in our business world today. There are executives who are disciplined and will endeavor to undertake their duties very seriously or if they cannot say so clearly.
They deserve a standing ovation from us. However, there are others who are always busy, too busy to make a decision, give feedback or provide leadership. How many times do we see executives asking for documents/ proposals/ feedback from other executives, suppliers, colleagues that are needed make decisions under a ‘certificate of urgency and important’ and then and just go cold and out of reach? This group is always in a rush, nay, near crisis. A friend of mine calls them ‘lastminute.com’.
At fast glance it does look like a classic case of management by crisis but closer analysis especially, when you look at it with other cases of corporate ‘misgovernance’ like Enron, Parmalat and indeed the financial crisis in mind, you will notice that we need to be afraid, very afraid of people who specialise in keeping up appearances.
An indicator that we are on the right track would be a reduction on the need to have very little thing signed and stamped. Good corporate governance, just like good governance demands that your word is your bond, you say what you do- imvugo niyo ngiro.
Sam Kebongo is a skills and business advisory services consultant. He also teaches entrepreneurship at Rwanda Tourism University College.