Good Corporate Governance – Ultimately a Matter of Choice

 

Much has been said about making compliance with corporate governance compulsory.  The various Codes of Corporate Governance oscillate between compulsory adherence, “comply or explain” and more or less voluntary compliance. In truth, many companies take the trouble to comply for varying reasons. For companies operating in closely regulated sectors particularly the financial services, compliance is compulsory. The question then is, would these entities embrace corporate governance principles if there are no penalties for non-compliance? 

Conversely, should companies be celebrated for “ticking the compliance indicator boxes” even when they have not truly imbibed the culture of good Corporate Governance?  Beyond laurels, are there benefits attached to embracing good corporate governance? What is the intrinsic value of adherence to good Corporate Governance? Are companies who tow the ethical line not at a disadvantage in a society where corruption to all intent and purpose has become a way of life? What is “in it” for a company that pursues the ideals of good Corporate Governance particularly that of ethical corporate culture? 

Several empirical studies have established that good corporate governance improves access to capital; reduces the cost of capital; enables companies respond to external market pressures and balance diverging stakeholder interests; resolve governance issues in family-owned businesses; ensure business sustainability and enables companies achieve better operational results.

Corporate Governance reform emerged as a critical business issue, thrust on the world stage by a number of high profile corporate failures. While many regulatory efforts have been made to codify good governance practices to rebuild public and market trust, good governance is primarily about values rather than rules. If good governance flows from values, it is important to state them and live them – even when “no one is watching”. 

Governance must have an ethical backbone because good governance practiced as a technical or mechanical exercise results in Enron, considered by many to be a shining star in terms of technical governance. A “dream team” Board of Directors; all the appropriate Board Committees; A Code of Ethics – all the works. 

Ethical or value-based governance considers such issues as the kind of product and service a company produces, how it is produced and the social and environmental impacts of production. It considers how a company “wins” a lucrative government contract and indeed how the contract is executed.

A company that decides to adopt good corporate governance has made a choice to be guided by the values it has set for itself rather than rules and regulations. Of course, these values necessarily incorporate compliance with rules, but not from a mechanical “working to the answer” paradigm. Within the context of a system that does not genuinely reward ethical behaviour, it can be a tough choice. However, in the long wrong, it is the best thing to do.

The huge loss in value suffered as a result of recent corporate scandals drew attention to what can happen to companies that fail to be guided by ethical values. It is instructive that not only did these companies and their shareholders suffer huge loses, the Directors and Managers suffered reputational damage with some of them serving time.

Compliance with mechanical rules and regulations do not build brand loyalty and reputational capital. Rather, the defining principles that underpin a company’s operations beyond simple box-ticking, cause companies to extend their corporate vision to consider those affected by what they do and the decisions they make. The desire to build trust results in improved transparency, a robust system of checks and balances, and programs that build internal integrity, in effect, improved governance.

Ultimately, a sense of duty based on intrinsic motivations will serve to propel Directors to create and enhance shareholder value. Trustworthy and sincere Directors, will responsibly lead their organisations in a more appropriate and sustainable way, while enhancing total shareholder and indeed stakeholder value which include consciously pursuing and balancing economic goals with ethical principles to engender confidence and trust in their organisations.

ADEBISI ADEYEMI