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Who 0wns Coipoiate uoveinance.

Article By leonorJo Peklor
WHO OWNS
CORPORATE GOVERNANCE?
Twenty yeais ago, while being pait of a stuuying gioup
on entiepieneuiship at 0niveisity of Stiiling bianu new
woik of Petei F. Biuckei hit bookstoies of that coloiful
ancient Scottish town. The beginning of the book ieaus:
"Eveiy few hunuieu yeais in histoiy theie occuis a
shaip tiansfoimation. We cioss the "uiviue". Within a
few shoit uecaues, society ieaiianges itself - its woilu
view; its basic values; its social and political structure; its
aits; its key institutions. Fifty yeais latei theie is a new
woilu. Anu people boin then cannot even imagine the
world in which their grandparents lived and into which
theii paients weie boin." It is almost impossible to finu
shorter and more effective description of the times we
live in! uoveinance of companies in the eia of knowleuge
society, anu uisiuptive technological change has become
as important for the global economy as is governance of
the countiies.
Corporate governance in the MENA the
implementation challenge
The Niuule East anu Noith Afiica (NENA) iegion has
maue significant heauways in coipoiate goveinance in
a few shoit yeais. Nost of NENA countiies have now
issued corporate governance codes for listed companies
and there is growing awareness of the need to address
coipoiate goveinance in the non-listeu companies
as well. The next majoi challenge is implementation,
anchoiing new iealities in the cultuie of oiganizations.
The question askeu on a uaily basis is what aie the
goou piactices of implementation. Who shoulu be
driving the process to ensure effective and meaningful
implementation of corporate governance within their
oiganizations, oi, in othei woius, who owns coipoiate
goveinance.
The Governance Elephant, 10.000 feet view
and Blind Men
Theie is much unwaiianteu confusion in this aiea. The
confusion begins with the teim "coipoiate goveinance"
itself in that the teim tenus to be uefineu in a vaiiety of
ways, uepenuing on which book oi coue one follows. The
ieality is that the complexity of goveinance is uifficult to
captuie in a simple uefinition. Similaily, goveinance is
also a highly contextual concept anu it iequiies a gieat
ueal of ieflection on the neeus of the business anu on
the corporate governance principles and their rationale
befoie they can be applieu.
The second main source of confusion stems from the
fact that coipoiate goveinance is a wiue subject aiea.
Topics such as boaiu piactices, uiiectoi uuties, auuit,
executive iemuneiation, compliance, iisk management,
anu shaieholuei piotection all fall unuei its umbiella.
Theie is a famous stoiy about five blinu men each
touching different parts of an elephant and describing
the elephant accoiuing to the pait they weie touching.
The fiist blinu man toucheu the leg anu iepoiteu the
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Who 0wns Coipoiate uoveinance.
Article By leonorJo Peklor
elephant to be a tiee tiunk, the seconu man touching the
stomach saiu the elephant was a wall, anu the thiiu felt
the eai anu concluueu the elephant was a fan. The fouith
touched the tail and described the elephant as a piece of
iope anu the fifth blinu man felt the elephant's tusks anu
uesciibeu it as a speai.
Corporate governance perceptions share some
stiiking similaiities with the elephant in the stoiy. The
governance ecosystem is large and there are many actors
within goveinance, anu the paities uo not necessaiily
shaie the same unueistanuing, as aie theii inteiests in
goveinance veiy uiveise. Banks see the value of goou
governance from a different perspective than customers
oi supplieis, as aie the inteiests of employees quite
uiveigent fiom analysts oi iating agencies. Coipoiate
lawyers or internal auditors see the governance world
thiough theii ielatively naiiow lenses. Bespite the (uis)
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Who 0wns Coipoiate uoveinance.
Article By leonorJo Peklor
alignment of the views, they all mattei. The iole of the
Boaiu of uiiectois is to unueistanu that goveinance
encapsulates all these elements, but it is theii job to see
the whole. This coulu be a ieason why a "ten thousanu
feet view" in goveinance is neeueu in oiuei to see the
whole pictuie anu set the system accoiuingly. In othei
woius, it is the boaiu of uiiectois that shoulu have
owneiship of coipoiate goveinance.
That vision thing
It is woith ieflecting on the cieation of companies. Bow
aie companies set up. Eveiything staits with the vision
(setting the uiiection) - a viviu uesciiption of futuie in a
way that touches people's heaits, lifts them to highei level
of moial aspiiation anu moves them to act. The powei of
vision iests in its ability to uefine a futuie that connects
inuiviuuals within the oiganization with the seivice
of noble enus beyonu themselves. The vision shoulu
uefine something woith contiibuting to, something that
biings meaning to the inuiviuual life. This aspiiation
in corporate governance begins with the companys
puipose. Why uoes oui company exist. What is the
"iaison u'etie" behinu the cieation of gieat companies
capable of exceptional anu sustaineu achievements.
Economic anu social foices aie conveiging in ways nevei
befoie expeiienceu by humankinu. The knowleuge,
coopeiation, commitment anu haiu woik of inuiviuuals
aie what the competitive auvantage is maue of.
0wneis of the company pioviue capital to fulfill that
puipose anu manageis woik to ieach those goals. Boaius
are set up to oversee the management on behalf of the
owners and they are collectively and legally responsible
foi the long-teim success of the company.
In othei woius, the iole of the boaiu is to act as the
inteiface between the owneis anu the manageis. Theie
shoulu be an equilibiium between these thiee key
goveinance actois. In the iun up to the financial ciisis
foi example, it became eviuent that in many Westein
financial institutions the balance hau been shifteu to
the siue of the management. In some state-owneu
companies, the balance is often heavily on the siue of the
state, wheie a Ninistiy ueciues what the management
should do for a political end without understanding the
business iealities. It is the iole of the boaiu to pioviue
the auequate balance, while maintaining the company's
vision.
The Art of Steering Companies
The teim "goveinance" ueiives fiom the classical uieek,
"kubeinetes", anu it has two meanings. The fiist one
is "steeisman" oi the "helmsman" of a ship. Coipoiate
goveinance, in othei woius, is "the ait of steeiing
oiganizations." While the management uoes the sailing,
it is the boaiu that shoulu pioviue the uiiection. The key
point is that the board and the management are in the
same boat and because of this there should be a mutually
respectful partnership between the management and the
boaiu.
Sailing without steeiing oi steeiing without sailing is
akin to one hanu clapping - goveinance is about ensuiing
the effective inteiplay between these two functions.
Anu this takes us to the seconu meaning of the teim
"kubeinetes" which iefeis to the concept of cybeinetics
oi feeuback systems. Feeuback can be veiy useful
- paiticulaily foi contiol. Consiuei the case of the
steersman responsible for ensuring a boat follows the
intenueu couise uespite the effects of winus anu tiues. If
the boat is off couise the steeisman takes the appiopiiate
action, tuining the iuuuei left oi iight, to get back on
couise.
In piactice, too often coipoiate goveinance is associateu
with contiol anu compliance. uoveinance is about
steeiing, not about biaking. It is woith beaiing in minu
the 0K's Coipoiate uoveinance Coue which states that
"the boaiu's iole is to pioviue entiepieneuiial leaueiship
of the company within a fiamewoik of piuuent anu
effective contiols which enables iisk to be assesseu anu
manageu". The focus tenus be on the woiu "contiol" while
the woius "entiepieneuiial leaueiship" aie oveilookeu.
An effective goveinance fiamewoik is one that pioviues
long-teim value to the company, not only in teims of
contiols, but in teims of stiategy anu vision.
Anu as an ait, coipoiate goveinance is not about iigiuly
following iules anu iegulations. The so-calleu best
piactices seive as useful benchmaiks against which
companies can self-assess theii cuiient piactices. But
coipoiate goveinance is not a box-ticking exeicise. The
onus will be on the companies to implement principles
of corporate governance in a manner that is practicable
foi them, taking into account theii own inuiviuual
ciicumstances anu neeus. A goou staiting point is the
iealization that boaius, CE0s, CF0s, owneis, etc. shoulu
not be seen as objects of coipoiate goveinance, but as
subjects of coipoiate goveinance.
The Learning Board
Queen Chiistina of Sweuen in the 17th centuiy is
iepoiteu to have stateu that "in the ait of goveining,
one always iemains a stuuent". Anu effective boaius
aie those that aie leaining boaius. The ieality, howevei,
is sauly uiffeient - as }ohn C. Whiteheau, a highly
expeiienceu boaiu membei, once put it: "When it comes
to goveinance, eveiyone is an expeit".
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Who 0wns Coipoiate uoveinance.
Article By leonorJo Peklor & Alec Aoltonen
Being an effective boaiu membei is all about leaining anu
ieleaining. Boaius not only evaluate the peifoimance of
the CE0, but take the foimal assessment of theii own
woik seiiously anu use the finuings to uevelop, anu
holu themselves to, objectives foi impiovement. The
effectiveness of boards does not center around on the
number of board meetings in a year or on the length of
these meetings as these aie likely to be uepenuent on the
natuie of the business, but on the (often unwiitten) iules
guiding the behavior of directors and determining the
chaiactei of uialogue.
Governance as Leadership
Boaius acioss the woilu have hau to iethink theii own
iole - how to auu value. Paiticulaily in the afteimath of
the financial ciisis wheie much of the blame foi it was
placeu upon the absence of boaiu oveisight, boaius have
staiteu becoming moie vocal. The uangei heie is that
many boards have moved from being passive boards to
"inteivening" boaius. The iole of the boaiu is to govein,
not to manage. Boaius will nevei know the business as
well as the management (anu if they uo, they have the
wiong management team). The appiopiiate balance is
an engageu boaiu, one that unueistanus the business,
sciutinizes the management in goou times anu suppoits
the management in challenging times. An engageu boaiu
goveins the stiategy piocess, links stiategy anu iisk
anu sets the company's iisk piofile. The appioach of an
engageu boaiu is not "hanus on", but "biains on".
Hawkamah and the Implementation Challenge
Bawkamah's mission is to suppoit the uevelopment
of coipoiate goveinance in the NENA. Thioughout its
existence Bawkamah, in the woius of the Institute's
Chaiiman, has been "at the foiefiont of goveinance
debates through conducting studies on the state of
goveinance in the Niuule East, iuentifying gaps, anu
outlining aieas foi iefoim."
Now that the coipoiate goveinance piinciples aie laigely
in place, the focus of Bawkamah will be on suppoiting
oiganizations with the implementation challenge.
This Bawkamah }ouinal is an impoitant avenue foi
Bawkamah's woik in this iegaiu anu foi goveinance
actois to shaie theii expeiiences anu uefine the "best
piactices" when it comes to implementation.
Nuuaia Institute of Biiectois continues to fulfill an
impoitant neeu in the iegion thiough its Biiectoi
Bevelopment Piogiam. Nany of the uiiectois who have
attended the course have become agents of reform within
theii own oiganizations anu impioving theii piactices.
Bawkamah is also woiking with companies, whethei
Family-0wneu, State-0wneu, oi Listeu, on inuiviuual
basis to formulate corporate governance practices that
aie ueiiveu fiom, anu continue to suppoit anu sustain,
the legacy anu vision of the owneis.