• Thursday, May 23, 2024
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BusinessDay

Delusion of grandeur in corporations

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An organization is a complex network of people that are working in different departments and locations. However, the performance of any organization is only as good as those who lead it. The quality of a company’s board is often an important evaluation factor for corporate investors. It is those who are at the “board of the organization that determine the vision, decide the strategy and goals, manage the risks, and create the culture of every organization”. If these are the responsibilities of a board, why is it that most boards cannot perform?Most companies have realized that their success in the corporate world depends to a large extent on their staff, while reflecting stakeholders’ interest in decision-making process in order to act in the best interest of the company.

Until the year 2008, some business tycoons have often believed that their organizations are on top of the situation when they are not. The recent world-wide credit crunch and economic recession left much to be desired about the integrity of most boards. Some experts have argued that the economic recession at that time was “a reflection of the shallowness in understanding of risks taken by company executives in pursuit of profits or failure to monitor their risk profile effectively”. This was common in the financial sector as there were instances where loans were given to customers, board members and cronies without adequate collateral to back-up the loans. Other problems include the inability of the board to proactively examine the worsening economic situation, its implications for business and its strategy; lack of experienced board members; and abuse of corporate power amongst others. In our society, lack of transparency and accountability coupled with poor attitude of a few “powerful” individuals in high places were responsible for the collapse or near collapse of the financial sector and this had a reverberating effect on other sectors of the economy.

Corporate governance in its simplest form will enable external observers look into the company with a view to confirming that those in control are making decisions on an intellectual honest basis and are thus, applying knowledge, skills and experience in making business judgments. The failure of Enron of America and Cadbury Nigeria Plc are examples of intellectual dishonesty within the context of corporate governance. There are other several cases that cannot be discussed in this article. To forestall failure however, it is vital that the activities of corporate executives are under constant, vigorous, and public scrutiny because those activities are crucial to the economic well-being of the society. If anything, contemporary developments in the corporate world underscores the need to continuously update and upgrade corporate governance standards.

Good governance processes in an organization are likely to create an environment that is conducive to success. However, it does not follow that those who have good governance processes will perform well or be immune to failure. Good corporate governance is not only about the exercise of power by the board but it is to enable accountability and transparency in the conduct of its affairs. It is often argued that the size of the board and caliber of members including the number of times they hold meetings in any organization matter.When boards do not hold meetings in a year, it reflects corporate irresponsibility, while frequent board meetings may be misconstrued.  In Nigeria, the Securities and Exchange Commission (SEC) Code of 2011 permits board meetings only four times in a year. It is however, good for board members to possess the knowledge, skill and experience to govern their organizations.Most importantly,they need to be of impeccable character and possess positive attitude. Also, leadership and culture of the organization play significant roles in corporate governance. According to Mark Goyder, “governance and leadership are the yin and yang of successful organizations. If you have leadership without governance you risk tyranny, fraud and personal fiefdoms. If you have governance without leadership you risk atrophy, bureaucracy, and indifference”.

Good corporate governance is all about ensuring that interests of all stakeholders are taken into consideration in a balanced and transparent manner. Having the right policies and procedures in place may not likely reflect good corporate governance. Good governance has to be embedded in the culture of the organization. It is theorized that “systems and structures can provide an environment that is conducive to good corporate governance practices, but ultimately it is acts or omissions of those charged with responsibilities that will determine whether governance objectives are achieved”. Since no one is infallible, good corporate governance is not a guarantee of success. It is just a necessary but insufficient foundation for success as strategic factors play a more important role in determining the subsequent success or failure of the organization. Some business moguls believe that most corporate failures are due to the application of inappropriate business strategy.

Risks exists to a reasonable degree in any business, when it is taken in search of rewards. At all times, firms must determine the level of risks they can accommodate bearing in mind weaknesses and opportunities within their operating environment. Otherwise, corporate failure is bound to occur. It is to be noted that regulators, investors and the society frequently extols the virtues of good governance in organizations without defining the phrase “good corporate governance”. In most cases, an organization is said to have “good corporate governance” based on some assumptions whose validity have not been tested. What would be considered “good corporate governance” differs from one organization to the other. Good corporate governance is not only about compliance with regulations. Although compliance with statutory regulations will keep your organization out of trouble and significantly influence investors’ confidence but it will not make it successful. Anyway, success in any endeavor is not final, it is the courage to continue that is of importance when failure is about to occur or ultimately occurs.

M.A. Johnson