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THE LAST WORD with Saeed Al Muntafiq
Multi-billion dollar companies and SMEs alike should look at corporate governance as a must-have.
September 8, 2013 9:54 by kippreport
Despite the fallout of the last economic downfall still in the minds of many across the region, corporate governance and risk management remain under-utilised tools of business. Former executive chairman of Dubai-based Tatweer and current chairman of Rise UAE, takes Kipp’s sister publication TRENDS through his four-step governance formula.
At the heart of the economic collapse several years ago was not just careless economics, but more importantly the severance of basic fiduciary responsibility. What lesson we should take from that crisis is that, we as human beings cannot always be trusted to self-govern. As such, governance systems are essential, and in the world of business, checks and balances are vital.
Multi-billion dollar companies and SMEs alike should never look at corporate governance as an option, but as a must-have. You have a family-owned business, or perhaps a small business controlled by just a handful of people and believe corporate governance doesn’t apply to you. You prefer to keep it simple. Within this region, family owned businesses dominate, but they also have the worst track record for governance implementation.
But think twice. With increasing globalisation, family businesses have had a growing need to become more ‘corporatised’ – while best practice and accountability are crucial elements of any business, large or small, family or publically owned. The fine fruits of making money have often trodden on the rotten duties of corporate governance. Yet, this is a key part of ensuring a successful future for you and your firm. Here are four tenets of governance that every business should keep at the forefront of their business:
Get the structure right
A lot of family business owners remain at the helm for several decades and implement measures such as corporate governance for the sake of it; if you are going to do it, then do so for the right reasons.
Bring top-notch non-executive directors on to the board as soon as possible – and ensure they make up a balance of industry knowledge, along with generic expertise in core functional areas such as finance, HR and IT. The board might be anywhere from 7-15 people, depending on the size of the business.
The biggest mistake is to make family members non-executive directors. The board should be directly accountable in terms of its governance to the laws of the land – not the business owners.
Law of the Land
Because are a developing economy laws that perhaps should be in place are not always visible; whether or not they are explicitly present and known, more than often adhering to basic fiduciary and moral principles will keep you aligned with the law. Ignorance to the law is also no defense to a crime and as a business owner, or independent director, it is your responsibility to make all laws applicable to your line of business known.
Minimal thresholds will also not guarantee exoneration from your responsibility to your employees and/or shareholders. Exercising prudence, in line with your fiduciary duty, is as important as strict obedience of the explicit laws.
Not everyone likes lawyers; n terms of corporate governance however, you need one – and not just someone with a strong brand.
Many companies hire a law firm based on its international reputation. Yet from a more regional perspective this could be your downfall. In terms of corporate governance, go local. Hire a legal firm that really understands the mechanics and culture of the market you’re operating in.
Your legal representation also needs to be an integral part of your corporate governance set-up – from signing of board member contracts through to all the functional liability aspects of the company.
Make auditing key
The same principle applies to auditing. Companies notoriously don’t enter into the spirit of auditing for the right reasons and, with emerging markets in particular, the attitude that auditing is somehow a policeman or big brother, serves only to deny basic transparency for the betterment of your business.
Auditing is the only single function within the company that should be totally impartial. Internal auditors should never report to the owner, but to an independent director. They should also be responsible for assigning external auditors and monitoring their performance.
Neither should internal auditors be simply ‘policemen’. Rather than being reactive, they should be able to carry out strategic and preventative thinking across all functional areas.
Cover all bases
How many companies have a dedicated risk management department that can anticipate the downside in order to strategize the upside? Most people think of financial risk, but in reality it involves every area of the business and each risk should be addressed systematically.
The importance of reputational risk cannot be underestimated; your name, your character, your logo, your employees. Reputation is at the heart of your ethics and value system and its is a major deal-breaker with much of this region’s operations.
What is your business sensitivity to customer risk? Political risk? What about the increasingly important technology risk and cyber-attacks? Go through each and every one.
Interestingly, the Chinese symbol for risk consists of two characters – one for downside and one for upside. So don’t forget to plan for the risks that come with the upside.