Effective corporate governance a must

Bangladeshi companies needs to adopt good corporate governance practices and standards as the country fixes its eyes on becoming a recognised emerging market, said a top expert.



Philip Armstrong,
Senior IFC official talks about what Bangladeshi companies should do to reach the goal of becoming an emerging market



"In Bangladesh, there is a certain level of corporate governance, but the question is, to what extent is it applied? The country has the same challenges that many emerging markets have," said Philip Armstrong, head of Global Corporate Governance Forum of the International Finance Corporation (IFC).

The forum is a multi-donor trust fund facility located within IFC. It is the leading knowledge and capacity building platform dedicated to corporate governance reform in emerging markets and developing countries.

Armstrong said corporate governance is a mechanism through which boards and directors are able to direct, monitor and supervise the conduct and operations of the company and its management in a manner that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

“Corporate governance ensures the company's growth and stability, balancing economic and social goals by aligning the interests of all stakeholders: employees, customers, suppliers, and communities.”

He said shareholders get higher return on their investment; companies enjoy more robust growth, better access to capital, resilience to crisis and higher market capitalisation.

He said corporate governance is not so much about the regulations or duties and responsibilities of the directors and sponsors. It is more about articulating what are recognised good practices, whether good practices run the board room and good practices in terms of the structure of the board and sub-committees, he added.

He said corporate governance defines what one would expect of a good role of a director, how they conduct in the board and whether they understand their role in the board.

The 57-year-old said in both the developed and developing world, the corporate governance issue is still challenging.

"Historically the OECD (Organisation for Economic Cooperation and Development) principles set the international framework for good corporate governance practices and standards and it has grown in advanced markets. "In developing markets, corporate governance is a challenging issue, given that many of the markets are in various stages of development."

Armstrong, who was born and raised in Zimbabwe, said corporate governance is not an issue that is unfamiliar to the developing market; the question is how to adopt and, more importantly, adapt international standards to local practices and customs.

"One of the things we promote is to ensure that the standards and rules of corporate governance are consistent with the stages of economic development of the country in question."

"It is generally for financiers in a well-run company. The board of directors can rely on the information received from managers in a well-governed company."

He said family-run businesses should not be worried about ceding control over the companies if corporate governance is established within a company.

"The most important part is how you use governance when you make decisions in the company, whether they are family-owned businesses, state-owned companies or private sector listed companies."

"In my opinion, the real focus should be on how corporate governance practices enhance the quality of decision-making and therefore, the benefits and results that derive from the well-informed board in terms of a well-structured decision process."

"Think about corporate governance as important for your business process. Do not see corporate governance as a compliance issue, but something that adds value to your business."

He said there are a lot of corporate governance standards. Bangladeshi companies should look at those standards and practices that really add value to a business. Armstrong said good governance results in not just good returns, but there is market recognition for it, as the market distinguishes the well-governed companies from the poorly governed companies, and makes appropriate choices in that regard.

"For companies with good governance and efficiency to manage its own integrity, ethical and business values, define its long-term sustainability."

He said establishing corporate governance involves both the public and private sector. "I do not think it is the government's responsibility alone or the private sector's responsibility alone. "The government must demonstrate that it follows good governance practices in its procurement practices and when contracts and tenders are ordered."

"The US has some of the world's most rigorous rules on corporate governance. And we still see problems in corporate governance in the country."

"My personal view on corporate governance is much more about behaviour than about rules. The father of three advised Bangladeshi companies to look for the conventional standards on corporate governance and look at the stage of development of the company and what the long-term interests and goals are.

"Corporate governance is a process."

"A company has many stakeholders and a well-governed board understands the market, competitors and customers and its duties and responsibilities very well."

Source – http://www.thedailystar.net/