One of the challenges faced in the Middle East at the moment is the need for “Corporate Governance” or “#Governance” which is on the tip of many tongues and being discussed at Board, Executive Committee and Management Committee level. Additionally a number of institutions and organisations have decided to jump on the “band wagon” and talk about the current “buzz Word”.
But what is the most important question at the moment? In my humble opinion it is a simple one. As there is no truly clear definition of what is Corporate Governance and how can I implement something without a common understanding across my industry, business or community.
In the last year within consulting circles, with clients and even some regulators/institutions I have had a number of frustrating and enlightening conversations about what does Corporate Governance mean to the Middle East. To-date I have not been able to come up with anything better than “do the right thing every time” which sounds simple but on the contrary it is one of the hardest things we will every do in a business. I will give some additional insight later in this article.
I believe some organisations are doing a better job than others in the area of implementing Corporate Governance, Ethics Programs, Anti-Corruption Programs and Ethical Human Resources Practices. These organisations should be commended, on the other hand are they perfect?
I don’t think any organisation in the world is perfectly implementing Corporate Governance as many of the practices and principles rely on the integrity, morals, ethics and behaviours of the collective community and the individuals within that community.
I also believe it is now a good time for the Middle East professional community to look at how we can tighten up on practices across each and every function within the organisation to create stronger organisations “doing the right thing every time” which will lead to economic growth for the entire region and all of the individuals living and working here.
Another question or challenge with having so many different concepts and understandings of what Corporate Governance is who do we ask for advice? This in some ways is the easiest question to answer. I don’t think it matter as long as that advisor is supporting you and your organisation to design better policies, practices, reporting structures, ethical programs, educational programs, awareness or behaviours across your value chain?
As an industry we need to move away from challenging the different definitions to agreeing on a direction. For example quality management and continual improvement has many different systems/formats/methodologies e.g. ISO 9001, EFQM, Lean, Six Sigma, TQM to name but a few which fundamentally have the same principles of;
- Identify what the customer wants.
- Design the product to the best economic level.
- Produce the product consistently within certain specifications.
- If things go wrong then investigate, correct and improve.
The direction I believe needs not to be in certifications to international standards (e.g. ISO 19600:2014 Compliance Management Systems – Guidelines, ISO 37001:2016 Anti-Bribery Management Systems – Requirements and Guidance for Use, ISO 38500:2008 Corporate Governance of Information Technology, ISO 26000 Social Responsibility) but the common agreement that business practices need to follow a set of moral, ethical, legislative, fairness and correctness principles where each organisation has the freedom to design their own culture while creating and environment of economic growth, stability for employees and the society and a positive competition.
I would like to share my opinion on Corporate Governance and hope this will give some insight into what is needed in your organisation large or small to support the implementation of more governance structures across your organisation.
What are the elements of Corporate Governance?
- Board of Directors – Do you have a Board to oversee you as the CEO or MD? The Board of Directors are the support to the Senior Management to challenge decisions, ensure risk management methodologies are applied, review financial practices and overall business performance. It does not matter if the Board has 3, 5, 7 or 9 members as long as it has the right individuals who all have the best interests of the business in mind.
- Board of Directors – Do you have the right people on your Board to challenge your decisions and strategy from a place of knowledge or experience? The Middle East region has a substantial talent pool of very successful professionals from every industry and function imaginable so why do many people not find the right Board members suitable for their organisation? Different industries need to recruit different skill sets in the Board of Directors, the challenge is finding the right Board Member who supports the business and his/her work ethic is the same as the management or owners. Example of the Board members of a FMCG business;
- A business, sales & marketing & general management, expert who has lead an FMCG business in the past with proven business performance. This person’s main focus is to drive and challenge the strategy development and execution.
- A financial or auditing expert who has lead the financial or audit functions within a successful business environment. This person’s main focus is to ensure the financial practices and internal audit practices within the business are appropriate and comply with the local and international best practices.
- A manufacturing expert who has been involved in building and operating large manufacturing facilities with the implementation of international best practice in manufacturing technology. This person’s main focus is the efficiency and short, medium and long term operations of the manufacturing facilities to ensure the organisation remains current and can achieve its strategic goals.
- A supply chain expert who has lead supply chain operations to efficient processes across countries, regions and globally. This person’s main focus is on the efficiency and productivity of the supply chain operations as this the supply chain operations can make or break a FMCG business.
- Board of Directors – Are all Members of the Board dedicated, supportive, available and involved in supporting the business succeed? One of the guidelines of the Securities and Commodities Authorities and Stock Exchange Authorities is that the Chairperson of the Board should make themselves available equivalent to 50% of the time of a full time employee, this means your Chairperson is actively involved in the management of the business and is providing approximately 20 hours a week to supporting and guiding your senior management. Similarly the need to all Board members to attend all meetings and be available to review information prior to the meeting to ensure conversations and informed decisions are made collectively. Being a member of the Board of an organisation is not a privilege it is a job like any other job that you are compensating the Board members for their time.
- Executive Committee – Clear and structured short, medium and long term strategy (not sitting on the shelf gathering dust) that is the primary measure of success on a daily, monthly, quarterly and annual basis. Any decision which is not in-line should either require an updated strategy or a decision not to follow that path.
- Executive Committee – Clear decision making processes where each employee is empowered through a suitable Delegation of Authority Policy/Matrix allowing decisions to be made timely and at the right level within the organisation.
- Executive Committee – Measurement and decision making where analysis of fact and actual performance leads to decisions rather than perceptions and assumptions. Moral and ethical decision making should be included to assist each senior manager to understand the moral or ethical aspects of making decisions.
- Policies & Procedures – All organisations should be policy driven where the strategic intention of the organisation is converted into “How To” guides for the entire organisation to know what is expected and what is not permitted. The myth that policies and procedures are the enemy of creativity and innovation needs to be dispelled within your organisation. There is a place for ridged processes in some activities and a need to allow flexibility within certain guidelines in other processes. Policies and procedures can reflect and encourage creativity and innovation if designed, implemented and governed correctly.
- Regulatory Compliance – Understanding each and every regulatory requirement is always a challenge but “ignorance of the law” is not a defence in court. The preventative measure of hiring legal counsel before the fact is cheaper than the fees after the fact. Convert legal requirements into policies and procedures so each employee knows the requirements.
- People – People are your biggest asset and your biggest risk in Corporate Governance and compliance. The organisation needs to create functional implementable policies, procedures and practices for people to understand, follow and be measured against. Monitoring processes need to be implemented to ensure all processes are in control at all times and breaches of polices or procedures are actioned to bring them back under control.
- People – Fairness, equal opportunities and transparency are critical to creating compliant employees who have the flexibility, work within specific guidelines and preform to the highest level. Additionally performance management and disciplinary process need to be in place which are clear while being consistently implemented. Motivated, engaged and empowered people will trump demotivated, disengaged and un-empowered people every time.
- People – It easy to overlook superb performance for “minor infractions” of company polices even as simple as working hours where the high performer is arriving late for work on a regular basis, or does not complete every section on that from/record we need. Overlooking minor infractions can lead to a culture of “the rules are only there for show” which can lead to larger infractions in the future which can have a major impact on the business. It is important to create the rules and policies suitable to the culture your wish in the organisation.
- Enterprise Risk Management – Business Continuity Plans, Risk Registers and Mitigation Plans are part of modern business which in many cases are ignored. The implementation of an enterprise risk management system can be done cost effectively and will provide rewards.
- Internal and External Audits – Internal & External Audit is seen as a necessity in many organisations rather than a valuable resource, which could be due to the lack of understanding of the purpose of these functions. Internal Audit is there to support the organisation to grow and provide an independent evaluation of the activities across the business activities. External Audit is the review and evaluation of the financial performance and activities of the business by an independent authority.
In conclusion is there a possibility to eliminate unethical behaviour in every organisation in the future? No not while we are organisations run by humans with personal aspirations and needs.
All we can do is create environments where policies, procedures and practices are clearly defined across the organisation and unacceptable behaviours or practices are challenged, investigated and eliminated from the value chain one at a time. Additionally creating structures in the organisation where collective decision making principles are implemented ensuring no one individual can drive an organisation into strife.
Remember the need to have the right person in place within every role in the organisation from the Chairperson of the Board to the front line employee who believe in the strategy of the organisation and their part in achieving it within the guidelines of the Corporate Governance systems being applied.
My suggestion is to take some time to review what you wish from our organisation and create a plan of action to address each element over the next year or two. Corporate Governance or “doing the right thing every time” as a moto or guideline will support you and the organisation to create an environment where each and every employee of the organisation is aware what is required of them and what will not be tolerated, this will be your success factor. (© William Baldwin, Partner – Senior Consultant, WPB & Associates, 22nd September 2017)