Why corporate governance matters for businesses and governments

0
346

By: Abbas Sheikh Barre

Corporate governance needs to be incorporated in governments and business entities for it to have more impact and also seamless flow.

In January 2016 a survey conducted in Kenya revealed that 50 percent of youth in The country would easily amass wealth through evading taxes and corruption as long as they are not caught or jailed for the crimes. The findings of the study, which  was commissioned by Aga Khan University’s East African Institute (EAI) was a shocking revelation. The survey showed worrying trends among the young people in the East African nation.

The survey touches on an important aspect of the country’s society that eventually touches on governance. At the backdrop of the findings, we ask ourselves, why do countries matter so much when it comes to corporate governance? Countries matter because they influence the costs a firm incurs to bond themselves to good governance and the benefits they receive for doing so.

Anywhere in the world, better governance reduces an organization’s cost of funds only to the extent the investors expect the firm to be governed well after the funds have been raised.

What does this tell us about good corporate governance as far as managing a country is concerned? When considered in the context of a country or an organization, good corporate governance touches on areas such as efficiency and anti-bribery. Good corporate governance is intertwined in an organization’s DNA and it enhances its prosperity, accounting and long term value. Without the above, many organizations put their reputation and prosperity at risk.

In the same breath, a paper published in the European Journal of Business Management ( Vol 5. No4, 2013) observed that there was weak or non-existing compliance of corporate governance legislation in Africa. The study was conducted by Ayandele, I. A and Isichei Emmanuel. The study concluded that corporate governance in most African countries is ineffective, inefficient and has failed. The two authors recommended that for African countries to reap the benefits of effective corporate governance, there is need to look afresh into existing legislations and to strengthen the enforcement mechanism of each regulatory institutions.

As Africa grapples with the challenge of corporate governance, an international organization is busy studying the ethics of firms across the globe. Every year, Ethisphere names the world’s most ethical companies. It has done this for the last 10 years. This program honours companies that excel in three areas- promoting ethical business standards and practices internally, enabling managers and employees make good choices and shaping future industry standards by introducing “tomorrow’s best practices today.” Normally, honorees have outperformed others financially, which goes on to show the connection between good ethical practices and performance which is held in high esteem in the market place.