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Why it matters for businesses and governments

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

Abbas Sheikh Barre

In January 2016, results of a survey conducted in Kenya showed that 50 per cent of the country’s youth would not mind amassing wealth through corrupt deals if they had the chance.

This was a shocking revelation of the study commissioned by Aga Khan University’s East African Institute (EAI). It showed a perception worth worrying about; that the young people in the East African na­tion showed little appreciation of good corporate gov­ernance. Yet one day in future, some of these youths will be leaders in various institutions.

Anywhere in the world, good corporate governance is what drives not only success but also progress. It is anti-bribery and promotes efficiency in the deploy­ment of organisational resources.

Good corporate governance must be encrypted in an organisation’s DNA to enhance its prosperity. With­out this, many organisations put their reputation and prosperity at risk.

A paper published in the European Journal of Busi­ness Management ( Vol 5. No.4, 2013) observed that there was weak or non-existing compliance of corpo­rate governance legislation in Africa.

The paper followed a study by Ayandele, I. A and Isi­chei Emmanuel. The two concluded that governance in most African countries was ineffective, inefficient and had simply failed. They recommended that for African countries to reap the benefits of effective corporate governance, there was a need to look afresh into exist­ing legislations and to strengthen enforcement mech­anisms of each regulatory institutions.

As Africa grapples with corporate governance, an international organisation is busy studying the ethics of firms across the globe. Every year, Ethisphere Insti­tute names the world’s most ethical companies. It has done this for the last 10 years.

This programme honours companies that excel in three areas: promoting ethical business standards and practices internally; enabling managers and employ­ees to make good choices; and shaping future industry standards by introducing “tomorrow’s best practices today”.

Normally, honourees have outperformed others fi­nancially, which goes on to show the connection be­tween good ethical practices and performance.

This year, Ethisphere named 131 honourees from 21 countries across five continents. The companies that emerged tops in the ethical rank represent more than 45 industries.

Ethisphere named the top ethical companies as L’Oreal, Colgate-Palmolive company, Dell Inc, Kellog company, LinkedIn, Mastercard, Microsoft, Pepsi Co Inc and VISA Inc.

Ethisphere Institute is an international organisa­tion that advances the standards of ethical business practices that inculcate progressive corporate cul­ture and promote marketplace trust and business success. The institute is reputed for its knowhow andelaborate expertise to measure and define important ethics and standards. It does so through data driven insights.

Generally, organisations that practice good corpo­rate governance gain traction in performance and be­come increasingly attractive to investors. Commitment to sound and effective structures and systems provides the confidence that the company will minimise risks and maximise performance.

In the same breadth, countries that exhibit good corporate governance in public service and state institutions stand to attract more investments. They also gain the support of the international community.

TALKING POINTS

  • A survey in Kenya reveals worrying perception among the youth about corruption
  • Journal paper observes weak or non-existing compliance of corporate governance legislation in Africa
  • Countries that exhibit good corporate governance in state institutions attract more investments

This is supported by an article published in a Poli­cy Brief of the Organisation for Economic Cooperation and Development (OECD).

The article by Oman C. et al published under the title: “Corporate Governance in Developing, Transition and Emerging economies”, explains that corporate gov­ernance matters not only because the condition of a country’s corporate sector is of importance to its econ­omy, but also its institutions of governance.

“The ability to move from heavily relationship-based to predominantly rules-based institutions of corporate as well as public governance is central to the success of long-term development process in all countries,” the authors write.

Somalia’s corporate landscape is today dominated by relationship-based organisations.

Corporate governance consists of internal and external mechanisms and controls that give direction to the institution. Ayandele and Emmanuel explain that the internal mechanisms and controls refer to mea­sures taken within the organisation by the owners and managers of the enterprises, aimed at monitoring the activities of organisational players with a view to pick­ing out sources of inefficiencies and taking corrective actions to accomplish the firm’s goals. These factors specifically touch on the board of directors, manage­ment systems and code of ethics.

External mechanisms refer to controls that external stakeholders exercise over the organisation. These are government regulations, including those imposed by regulatory agencies, actions by competition, pressure from the media, criteria for listing organisation’s in the stock exchange and strong regulatory laws that pro­mote good governance, and a whole range of other externally driven activities.

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