1. What is Corporate Governance?
Alison Dillon Kibirige

2. Corporate Governance
Contemporary corporate governance started in 1992 with the Cadbury report in the UK
Cadbury was the result of several high profile company collapses
is concerned primarily with protecting weak and widely dispersed shareholders against self-interested Directors and managers

3. Corporate Governance Parties
Shareholders – those that own the company
Directors – Guardians of the Company’s assets for the Shareholders
Managers who use the Company’s assets

4. Corporate Governance
Primarily concerned with public listed companies i.e. those listed on a Stock Exchange
Focused on preventing corporate collapses such as Enron, Polly Peck and the Maxwell companies

5. Corporate Governance
What relevance does it have to Africa where there are few public listed companies
Most companies are non-listed, private family owned businesses where the shareholders and the managers are often the same people

6. Four Pillars of Corporate Governance
Accountability
Fairness
Transparency
Independence

7. Accountability Ensure that management is accountable to the Board
Ensure that the Board is accountable to shareholders

8. Fairness Protect Shareholders rights
Treat all shareholders including minorities, equitably
Provide effective redress for violations

9. Transparency
Ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership and corporate governance

10. Independence
Procedures and structures are in place so as to minimise, or avoid completely conflicts of interest
Independent Directors and Advisers i.e. free from the influence of others

11. Corporate Governance in Africa
In 1994, The King Report in South Africa also included within its Code of Corporate Governance requirements on sustainability and ethical standards
This was due to the context of a developing country and business ethics in Africa

12. Sustainability No generally accepted definition
Most commonly used is from the Brundtland Report for the World Commission on Environment and Development 1987 which defines it as:

13. Sustainability ‘development that meets the needs
of the present without compromising
the ability of future generations
to meet their own needs’

14. Stakeholders
Sustainability recognizes stakeholder rights i.e. the rights of interested parties e.g. employees, the community, suppliers, customers etc.
Encourage co-operation between the company and its stakeholders in creating wealth, jobs and economic stability

15. Business Ethics
Established values and principles a company uses to inform and conduct its activities
Should permeate a company’s culture and drive its strategy, business goals, policies and activities
Usually found in a code of ethics

16. Elements of Corporate Governance
Good Board practices
Control Environment
Transparent disclosure
Well-defined shareholder rights
Board commitment

17. Good Board Practices Clearly defined roles and authorities
Duties and responsibilities of Directors understood
Board is well structured
Appropriate composition and mix of skills

18. Good Board procedures Appropriate Board procedures
Director Remuneration in line with best practice
Board self-evaluation and training conducted

19. Control Environment Internal control procedures
Risk management framework present
Disaster recovery systems in place
Media management techniques in use

20. Control Environment Business continuity procedures in place
Independent external auditor conducts audits
Independent audit committee established

21. Control Environment Internal Audit Function
Management Information systems established
Compliance Function established

22. Transparent Disclosure
Financial Information disclosed
Non-Financial Information disclosed
Financials prepared according to International Financial Reporting Standards (IFRS)

23. Transparent Disclosure
Companies Registry filings up to date
High-Quality annual report published
Web-based disclosure

24. Well-Defined Shareholder Rights
Minority shareholder rights formalised
Well-organised shareholder meetings conducted
Policy on related party transactions

25. Well-Defined Shareholder Rights
Policy on extraordinary transactions
Clearly defined and explicit dividend policy

26. Board Commitment
The Board discusses corporate governance issues and has created a corporate governance committee
The company has a corporate governance champion
A corporate governance improvement plan has been created
Appropriate resources are committed to corporate governance initiatives

27. Board Commitment
Policies and procedures have been formalised and distributed to relevant staff
A corporate governance code has been developed
A code of ethics has been developed
The company is recognised as a corporate governance leader

28. Other Entities
Corporate Governance applies to all types of organisations not just companies in the private sector but also in the not for profit and public sectors
Examples are NGOs, schools, hospitals, pension funds, state-owned enterprises

29. Country Perspective
Corporate Governance is by way of legislation or best practice Code
US adopted legislation in Sarbanes Oxley Act
Most other developed and emerging market countries have adopted best practice Codes e.g. Combined Code in the UK, Cromme Code in Germany and the King II Code in South Africa

30. Country perspective - Codes
These Codes are voluntary and are enforced by shareholders
Most of them operate on a ‘comply or explain’ approach
The Media also play a part in highlighting good or bad practices

31. Country Perspective
Countries in Africa have tended to adopt a hybrid approach whereby they have followed the ‘comply and explain’ approach but have enshrined some of the principles in law to assist in enforceability
The reason is the weakness of the shareholder base and of the media

32. Why Corporate Governance?
Better access to external finance
Lower costs of capital – interest rates on loans
Improved company performance – sustainability
Higher firm valuation and share performance
Reduced risk of corporate crisis and scandals

33. Why Corporate Governance?
In 2002, L Klapper and I Love from the World Bank found evidence that improving a company’s corporate governance has proportionately greater impact in countries with weak legal environments.
They have suggested that companies can partially compensate for ineffective laws and enforcement by establishing good corporate governance at the company level and providing credible investor protection

34. Convince your Editor