Corporate governance should be considered as a Strategy than Compliance

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A previously held Corporate Governance seminar in association with WOB. | Image Source: WOB

Maldives is at a stage of transformation in terms of corporate culture while the economy is gearing for a double-digit growth backed by the acceleration in tourism and construction. It is noteworthy, that the financial services industry and other support services including the trade and education sector.

The transformation is observable in three different angles. First, the many family owned businesses are being transformed to limited liability companies by the take over of the next generation to suit the present-day business environment. Secondly, the change in the resort operation from foreign to local.  All these times Maldivians leased the resort islands from the government and sub-leased out to international resort operators. Now, increasingly, the emerging local entrepreneurs are trying to establish their own resorts. Finally, there is a slow but very steady movement towards large Companies becoming publicly listed. These are transformational changes to the corporate structures and culture.

Therefore, it is very vital that the corporate community install right culture at the strategic level at this point of stage of transformation proactively as for the culture change starts from the leadership. Installing best practices and proven governance principles becomes vital at this point in time among the Corporate Companies.

It is a myth that the Corporate Governance should be implemented to comply with the regulations and the practical scenario could be different. It would be useful to understand the benefits of implementing Corporate governance as part of strategy than compliance to regulations.

In essence the ultimate aim and responsibility of the Board of Directors is to steward the senior management and the business towards achieving the corporate objectives while being transparent to the Shareholders and other stakeholders in a fair and equitable manner. Implementation of Corporate Governance best practices underpinned by the governance principles will ensure achieving the same. A few specific advantages of such implementation of the Corporate Governance Best Practices are listed below from a Strategic Management perspective:

  • It will help the directors to be more vigilant in terms of all the risks ahead of the business including financial, business, operational, and compliance related risks.
  • When the Board is serious in what is being discussed, It will help develop a healthy and performance driven culture within the organisation.
  • This will help to keep the top managers on an assertive mode at all times
  • It will strengthen the internal control system of the organization thereby ensuring highest possible efficiency.
  • It will help maintaining healthy relationships with the key stakeholders like the banks, auditors and government authorities.
  • It will provide a good platform for all the directors to effectively contribute towards the corporate objectives in a transparent manner. Thereby, the strategic decision making will be very effective.

It is important that the present and potential directors of Boards of the Private Companies, regulators, policy makers are well aware of Corporate Governance codes and best practices. However, it is not only the Directors who should learn the Corporate governance requirements but also the Senior management also should be educated in this area. Because, they are the ones who set all the systems and procedures in the organization including at Strategic decision-making levels. Further, the senior management team only feeds the reports and all information required to take key strategic decisions by the board. It is important that they are conscious of the Corporate Governance principles and the code and significance of the responsibilities of the directors are well understood in preparation of such reports and information. Though the directors are ultimately accountable for corporate decisions, the senior management could share the responsibilities.

There is also a misunderstanding that Corporate Governance is relevant only Public listed Companies. It is very vital that all medium and large-scale Companies adhere to the CG codes and best practices. When there is a large amount of capital, people and other resources involved in a business it is very important that the people in charge of governing the business take additional care. This is exactly what the primary objective of these Corporate governance principles and codes. In my view, the authorities should insist on compliance of the CG codes beyond a capital value or at least beyond a certain level of Borrowed Capital from any Commercial bank.

Should you need further assistance in educating and/or implementing Corporate Governance best practices and the Codes, feel free to contact the author via [email protected]

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