Thursday, May 10, 2012 Business

Effective corporate governance a must

Bangladeshi companies needs to adopt good corporate governance practices and standards as the country fixes its eyes on becoming a recognised emerging market, said a top expert. !n Bangladesh, there is a certain level of corporate governance, but the "uestion is, to #hat extent is it applied$ The country has the same challenges that many emerging markets have, said %hilip &rmstrong, head of 'lobal (orporate 'overnance )orum of the !nternational )inance (orporation *!)(+. ,e spoke to The -aily .tar in -haka last month on the sidelines of a regional #orkshop organised by the forum and the !nternational (entre for /ournalists. The forum is a multi0donor trust fund facility located #ithin !)(. !t is the leading kno#ledge and capacity building platform dedicated to corporate governance reform in emerging markets and developing countries. &rmstrong said corporate governance is a mechanism through #hich boards and directors are able to direct, monitor and supervise the conduct and operations of the company and its management in a manner that ensures appropriate levels of authority, accountability, ste#ardship, leadership, direction and control. 1(orporate governance ensures the company2s gro#th and stability, balancing economic and social goals by aligning the interests of all stakeholders3 employees, customers, suppliers, and communities.4 ,e said shareholders get higher return on their investment5 companies en6oy more robust gro#th, better access to capital, resilience to crisis and higher market capitalisation. ,e said corporate governance is not so much about the regulations or duties and responsibilities of the directors and sponsors. !t is more about articulating #hat are recognised good practices, #hether good practices run the board room and good practices in terms of the structure of the board and sub0committees, he added. ,e said corporate governance defines #hat one #ould expect of a good role of a director, ho# they conduct in the board and #hether they understand their role in the board. The 780year0old said in both the developed and developing #orld, the corporate governance issue is still challenging.

,istorically the 9:(- *9rganisation for :conomic (ooperation and -evelopment+ principles set the international frame#ork for good corporate governance practices and standards and it has gro#n in advanced markets. )ollo#ing the global financial crisis, a number of fla#s in the system have been identified.4 !n developing markets, corporate governance is a challenging issue, given that many of the markets are in various stages of development. &rmstrong, #ho #as born and raised in ;imbab#e, said corporate governance is not an issue that is unfamiliar to the developing market5 the "uestion is ho# to adopt and, more importantly, adapt international standards to local practices and customs. 9ne of the things #e promote is to ensure that the standards and rules of corporate governance are consistent #ith the stages of economic development of the country in "uestion. &rmstrong, #ho #as in the military early on in his career, said good governance is a health check on the business 00 it gives an investor the comfort that there are recognised practices taking places in the company. !t is generally for financiers in a #ell0run company. !t is beneficial in terms of lo#ering the cost of capital. 'enerally, investors and shareholders can feel comfortable. The "uality of the reporting and integrity of the reporting can be reliable. The board of directors can rely on the information received from managers in a #ell0governed company. ,e said family0run businesses should not be #orried about ceding control over the companies if corporate governance is established #ithin a company. The most important part is ho# you use governance #hen you make decisions in the company, #hether they are family0o#ned businesses, state0o#ned companies or private sector listed companies. !n my opinion, the real focus should be on ho# corporate governance practices enhance the "uality of decision0making and therefore, the benefits and results that derive from the #ell0informed board in terms of a #ell0structured decision process. Think about corporate governance as important for your business process. -o not see corporate governance as a compliance issue, but something that adds value to your business. ,e said there are a lot of corporate governance standards. Bangladeshi companies should look at those standards and practices that really add value to a business. 9vertime, you can look at the most sophisticated elements.

&rmstrong said good governance results in not 6ust good returns, but there is market recognition for it, as the market distinguishes the #ell0governed companies from the poorly governed companies, and makes appropriate choices in that regard. ,e said corruption is a challenge for most markets, including Bangladesh. )or companies #ith good governance and efficiency to manage its o#n integrity, ethical and business values, define its long0term sustainability. ,e said establishing corporate governance involves both the public and private sector. ! do not think it is the government2s responsibility alone or the private sector2s responsibility alone. ! do not think that one should be #aiting for the other. The government must demonstrate that it follo#s good governance practices in its procurement practices and #hen contracts and tenders are ordered. &t the same time, the private sector has the responsibility to its o#n governance to address the #ay it confronts its challenges and responds to them and resist certain temptations of corrupt behaviour. ,e said there is a big debate in the #orld at the moment over #hether mandatory rules to enforce good governance #ill be applied or #hether it should be left to the voluntary basis. The <. has some of the #orld2s most rigorous rules on corporate governance. &nd #e still see problems in corporate governance in the country. My personal vie# on corporate governance is much more about behaviour than about rules. !t is not that rules do not exist. !t is more about the attitude of the company. !t is the attitude of directors, boards and sponsors in terms of ho# they respond to re"uirements. ! believe corporate governance is not a narro# vie#, it is a broader vie#, in #hich the conduct of the company has conse"uences for the society 00 and it has benefits for the society. The father of three advised Bangladeshi companies to look for the conventional standards on corporate governance and look at the stage of development of the company and #hat the long0term interests and goals are. (orporate governance is a process. & company has many stakeholders and a #ell0governed board understands the market, competitors and customers and its duties and responsibilities very #ell.