Wise companies do not wait for disaster to strike before ensuring that they are well protected against the possibility of failures. They examine all aspects of the ways in which their companies function, in every department, to determine whether they are operating effectively and efficiently, according to clear procedures and with appropriate checks and balances, writes Mark Fisher.
Corporate governance has played a starring role in international news stories in recent weeks. Serious questions about the way companies are run lie at the core of scandals involving British companies: Tesco (the supermarket chain) and GlaxoSmithKline-the pharmaceuticals giant. In another case, a record 30 million dollar pay-out to a corporate whistleblower by the SEC, the US securities regulator, also puts the spotlight on corporate governance.
Though these affairs are a long way from the UAE and concern large companies, rather than SMEs, they offer valuable lessons to anyone running a business, large or small, anywhere in the world.
The details of these particular cases, and what if any wrongdoing may have occurred, are unclear and are anyway beside the point. It is the bigger picture that is interesting. Tesco has suspended four senior executives amid allegations that they overstated profit guidance to the tune of 250 million pounds; a huge sum even for a major company. On hearing such allegations, any corporate governance expert would immediately prescribe a thorough examination of the processes that enabled such a catastrophic outcome to occur. Did the company have clear procedures in place for preparing such a forecast? Were the procedures adequate and were they followed? Were the people involved sufficiently qualified, in terms of personal calibre and experience as well as technical expertise, and were there enough of them, to keep an eye on what everyone else was doing?
These considerations are among the elementary building blocks of good corporate governance. But it appears that many major companies, despite having all the necessary resources at their disposal, are unable to create the right structures. It can be even more difficult for SMEs to do so, with less money and capacity. The consequences can be devastating. In Tesco’s case, the company’s shares quickly fell more than 10%. Corporate reputations in such cases can take quite a while to recover.
GlaxoSmithKline was fined $490 million by a court in China after its subsidiary there was found guilty of bribery. Several of the company’s managers, including its former top China executive, were convicted of bribery-related charges and received suspended prison sentences. As with the Tesco affair, a corporate governance audit of what went wrong would examine procedures, processes and the human resources angle, including who was doing which job and whether the right candidates had been selected for them.
Wise companies do not wait for disaster to strike before ensuring that they are well protected against the possibility of such failures. They examine all aspects of the ways in which their companies function, in every department, to determine whether they are operating effectively and efficiently, according to clear procedures and with appropriate checks and balances.
If they achieve this, they will avoid the fate of the unnamed company involved in the whistleblowing case, in which the SEC rewarded the informant for tipping it off about fraud. It may be a good idea for business owners to apply a whistleblowing test to their own company, along the lines of asking themselves if anything might be going on inside it which they would not like the authorities to know about. If that thought produces an uneasy feeling, it is time to take action.
In the UAE, awareness is growing of just how important good corporate governance is. This positive trend will no doubt protect many companies from unwelcome phone calls from the authorities and the media.