Dig in for turbulence, boards told

March 25, 2009
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, LUSAKA, Zambia, Mar 25 – Corporate organisations have been urged to brace themselves for harder economic times and install sound corporate governance principles and practises that can assist them to survive in the challenging environment. 

Patrick Chisanga, a member of the Global Corporate Governance Forum Private Sector Advisory Group, says that by ensuring that their firms are well governed and that their shareholders interests, assets and investments are safeguarded, companies can expect to remain afloat in what is becoming an increasingly turbulent and competitive global market.

“Economic times are going to get much more turbulent and challenging before they get better. It is therefore the duty of every company to ensure that it installs robust systems that can enable it to survive,” he cautioned.

Mr Chisanga who was speaking to journalists in Zambia at a workshop on how to report on corporate governance, however said the onus was on the board of directors to effectively play their role in order to avoid an imminent collapse of their companies.

Pointing to the ongoing global financial crisis, which originated from the United States and primarily resulted from the failure of directors in the banking sector to adhere to their duties and responsibilities, Mr Chisanga challenged them to regularly review their firms’ strengths and weaknesses and how they are likely to impact on their operations both at present and in the future.

“As a matter of fact, the directors are responsible for corporate governance in their organisations. Many corporate scams the world over have been caused by negligence and the failure of the board of directors to fully understand and exercise their primarily functions and responsibilities,” he asserted.

He particularly emphasized on the need to regularly undertake a risk analysis as well as put in place a solid risk management system that would adequately inform the company about the potential dangers that the company is or might be exposed to.

For the directors to carry out their duties effectively however, Mr Chisanga recommended the need for the appointing authorities to select competent and qualified directors, ‘who add value’ to ensure the success of the companies they run.

Directors in State Owned Enterprises (SOE) are not exempted from adhering to good governance, he emphasised, adding that they too should be accountable and responsible for the performance and compliance of the company.

However, he argued that in such public entities, their powers would be enhanced if they were granted security of tenure.

Mr Chisanga pointed out that the directors of these organisations often bear the brunt of political interference which in effect affects their performance in the boards where they serve and therefore called for the need to establish legislations to ensure that they serve their full terms.

 “In many African countries, you will find that very often when they are changes in ministers in any docket, what almost always follow are changes in the composition of the affected boards. This tends to affect the independence of the directors,” he argued.

For a board to ensure the survival of the company it needs to be stable, autonomous and free to work without intimidation or interference from the political class, he maintained adding that the frequent change of the board affects its independence and stability, translating to the poor running of an organization.

He also proposed that directors, be they in state-owned or private organizations, should only serve in a maximum of five boards to ensure the persons’ competence as they execute their roles and duties as the oversight body in a company.

“The responsibility of a director is profound. It means that someone will need to do a lot of research and gather a lot of information about the industry in which his company is in. This is not humanly possible if he is sitting on say 15 boards,” he asserted.

Experts in the field (corporate governance) argue that by establishing good corporate governance, companies can compensate for ineffective laws and enforcement in countries they operate in.

He called upon all stakeholders to be on the lookout for policies, actions or decisions that are likely to exacerbate the economic problems around the globe.

In this regard, Mr Chisanga impressed upon the media to play an active role in exposing or highlighting corporate malpractices which have the potential to run down not only a firm but a whole economy.

“The media in any economy is an important stakeholder in advancing the objectives of sound corporate governance principles and practices. I therefore call on them to dig deep and earth the corporate failures in their countries,” he challenged.

His remarks echoed those by the Zambian Vice President George Kunda who observed that having such principles and practices has immense benefits to not only the firms in questions, but also the economy.

Mr Kunda said well governed organizations in Africa help to attract external financing investments and lower the cost of capital for the continent.

“There has been a proliferation of corporate scandals and failures around the world in the last 25 years. However, by reducing these scams through the effective risk management systems, firms can assist in the development and sustainability of African economies,” the VP told the reporters while opening the workshop.

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