Corporate Governance (CG), the new buzzword in business, refers to the set of rules that define relationships between shareholders, managers, creditors, the government and other stakeholders. It covers the following principles: the rights of shareholders and their protection; the equitable treatment of all categories of shareholders; the role of employees and other stakeholders; timely disclosure and transparency of corporate structures and operations; and, the responsibilities of the board towards the company and shareholders. CG defines the company’s approach to identifying and managing risks inherent in the business. It puts in place an effective system of checks and balances, and provides access to management information particularly in the area of finance. It is also about the company’s involvement and commitment to the effects of corporate practices rather than simply a focus on the process of compliance to existing laws and prescriptive rules.
Bish Mukherjee, regional director, Asia Pacific, International Association of Business Communicators, reports that all over the region, corporate governance or business ethics is taking the high ground. Australia, for example, has made considerable progress in the way it responds to corporate failures. There are almost 200 cases that have issues of failed governance, and a range of administrative, civil, and criminal actions have been combined to bring accounting to offenders.
In Japan, the problem is two-fold. Corporate misbehavior, from dodgy accounting to food fraud is hurting not just shareholders but customers too. Sales at a popular international doughnut chain, run by a cleaning company, fell by 15 percent when it emerged in May this year that the doughnut chain has sold more than 13 million meat dumplings, some knowingly, that contained a banned additive. A big trading house was also caught passing off 700 tons of Brazilian chicken as higher-priced domestic poultry, and an additives maker had been found out to be shipping for the last 30 years banned flavorings to unsuspecting food-based companies. We have also read about a well-known trading firm recently accused of rigging bids for a public works project on a Russian island, with the help of the foreign ministry, leading to arrests at both company and ministry levels.
South Korea’s antitrust authorities have launched a series of investigations into insider trading against six leading business conglomerates including very well entrenched names. There are many other Asia-Pacific cases that can be cited, and these only stress the need for a strong commitment from the corporate community to the fundamental principles of corporate governance.
So what did we find out? Knowledge on CG is prevalent and is generally attributed to Fairness, Accountability, Transparency (F.A.T.), and corporate social responsibility. A deeper understanding of it, however, is needed. Newspapers are the primary sources of information on CG, and knowledge on it is mostly transmitted through sources external to the company. Any communication plan on CG though, must be cognizant of the fact that while print can be utilized as a medium, our business journalist friends also need a deeper understanding of it. The in-depth interviews further reveal that in order to practice good CG, companies must develop participatory decision-making processes; people-oriented organizational setups; teamwork and good working relationship among its employees; and a clear delineation of roles.
The attitude towards the practice of corporate governance is open and highly receptive. This current level of knowledge about CG though qualifies this attitude. Despite the high level of awareness and openness in practicing corporate governance, its practice has not been at par. Respondents believe that CG results to better company management, improved corporate reputation, and more positive contribution to the country’s economic development.
The major hindrance in institutionalizing CG is the company’s fear that its privacy will be lost. This is the case even when most respondents have correctly identified transparency as a key principle of corporate governance. To the respondents, the understanding of transparency remains ambiguous. Again this reinforces the need for a more substantive promotion of CG. Another important consideration in instituting CG is the additional expense related to its practice. While most respondents argued that corporate governance must be mandatory. The extent of government intervention is still unclear and would have to be evaluated. Self-regulation is still an attractive option for most firms. There is a current directive from the Securities and Exchange Commission (SEC) for companies to define their own code of corporate governance, but, the actual rules and mechanisms are really defined by the companies’ themselves.
The state of the CG practice in the Philippines is poor to average, and it needs improvement. This is true especially for family-run corporations. In such cases major stockholders are from one family, and they often dictate the direction of the company without consideration to minority shareholders. The factors that have contributed to the poor practice include the political interests that dictate the corporate decisions, the links of the board of directors with majority stockholders, and the lack of truly independent auditing systems.
Where do we go from here? An intensive and substantive information and education campaign on CG is necessary to secure implementation of corporate governance in the country. The need is evident. The opportunities are available. The required resources are at hand. An effective campaign should not be geared mainly as an instrument for information dissemination but also as an instrument for education and agitation. More importantly, sustained campaigns and advocacies should aim to promote "norming" that would encourage corporations and shareholder interests to adopt behaviors and standards that conform to good practices; and to develop the general public’s active stake claiming in corporate governance that can create the necessary public pressure for its practice and institutionalization.
If all of us will just decide every day to be Fair, Accountable, and Transparent in all of our business deals, the transformation we are all yearning for will soon come.
Other important messages that may be incorporated in a CG communication plan are: Elucidation of notions and concepts and clarifying the distinction between corporate responsibility and corporate governance; all corporate stakeholders stand to benefit from corporate governance good CG raises investor confidence; good CG prevents corporate disasters; and, the benefits of good corporate governance are concrete and direct.
Let us all be F.A.T. The solution to corporate corruption is in our hands.