Time Somalia embraced progressive corporate governance

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By: Abbas Sheikh Barre

Corporate governance has over the years become an area of interest among individuals and organisations across the world. Somalia is no exception.

In the recent years, the country has taken advantage of relative levels of security to rebuild itself. Mogadishu is alive with the sound of people refurbishing their businesses and shops. Given the progress, there is a likelihood of the country’s business growing to great heights.

Such growth requires good corporate governance. This involves informing the society about the operations of corporate entities, their motives and principles, reporting lines and who they are accountable to.

Good corporate governance also entails giving information on how these firms manage profits and remuneration, and in case of financial institutions, how they handle other people’s money. So important is this area that the OECD Observer published an article titled, “Corporate Governance: Lessons from the Financial Crisis”. Stressing its importance, the publication noted: “If there is one major lesson to draw from the financial crisis, it is that corporate governance matters.”

Corporate governance expert, Mr Karugor Gatamah says that when it comes to formulating good corporate governance and basic practice guidelines, a framework on the same would be important. “These are generic structures, and each organisation should adopt what enables them to attain their stated mandates,” he was quoted in an article published in a past edition Management magazine.

Gatamah, who is also the Chief Executive Officer at Africa Corporate Governance Advisory Services Limited, linked poor governance to lack of quality leadership. This, he explained, has been brought about by the concept of democratic control where guided democracy has been missing.

A study conducted by the University of Nairobi on the relationship between corporate governance and performance of international non-governmental organisations in Somalia indicated that failure to implement good corporate governance principles can affect performance of those organisations. The study’s objective was to establish the corporate governance practices and their impact on performance.

The population of the study was obtained from a list of international non-governmental organisations that were members of the Somalia NGO Consortium. According to the study, majority of the international NGOs had implemented four corporate governance practices: board size and composition, board meetings, audit committee, transparency and disclosure.

For the Somalia cases, corporate and board wars are a phenomena that can only be addressed through rigorous and well-stipulated corporate governance roles and responsibilities. Most companies in Somalia die before their first birthday. This is a clear example of the need for good corporate governance to undo this trend.

When it comes to state-owned enterprises (SOEs), the African Peer Review Mechanism (APRM), Country Review Reports (CRRs) provide insights into corporate governance. The peer review is categorical that SOEs are important in Africa’s economies, and common problems such as uninformed regulatory systems, politicised board appointments and unclear mandates are a good indication that more still need to be done to realise progressive corporate governance regimes in SOEs.

This, the report further indicates, can be mostly achieved through pushing for the professionalisation of Africa’s State-owned enterprises, bearing in mind that the boards should be depoliticised and clear regulations and mandates adopted. Such enterprises should also demand for socially defined outcomes. APRM argues that SOEs can be potentially powerful tools in state development inventories.

On the other hand, Melvin  Ayogu, a Professor at the University of Cape Town, South Africa, is of the opinion that the problem of corporate governance can be linked “to the design” of institutions that entice management in their actions to consider the welfare of stakeholders, such as investors, employees, communities, suppliers and customers. Ayogu’s views are contained in an article published in the Africa Development Bank-Economic Research Papers.

On the other hand, the current shortage of experienced and skilled directors is said to be one of the major hurdles to strengthening corporate governance capabilities.

The African Corporate Governance Network (ACGN) deputy chairperson, Jane Valls, says they are keen on playing a positive part of carrying out research and creating an information database on corporate governance. It is through this role that ACGN hopes to create resource for its members to use, especially when it comes to supporting training of its pool of directors.

Valls observes that there is no continent-wide standard of corporate governance. “The continent’s economies are very diverse in terms of economic and political maturity,” she says.”

ACGN plays the major roles of lobbying legislators and educating members of the private and public sectors on the benefits of corporate governance.

Shareholder Value
Contributes towards an increase in the financial and operation performance. This will boost investor confidence in the organisation.

Risk Mitigation
Allows corporates to render services to their clients as one unit rather than seen as fragmented corporate departments that work uncoordinated.

Unique programme knowledge and expertise
Once corporate governance knowledge has been institutionalised, it can be shared with a large number of companies and this increases its scope of operations.

Investment services
Can contribute towards building capacity to support regulatory bodies and also develop standards.