Botswana needs to strengthen corporate governance - BCPI
In Botswana, we establish boards of directors that do not play their roles efficiently enough to ensure competency, effectiveness and efficiency in the running of corporations. This happens a lot in societies where political patronage is the norm. Boards of Directors and executive management need to cultivate a culture of integrity and accountability in executing their mandates, says the Executive Director of Botswana Centre for Public Integrity (BCPI) Pusetso Morapedi. She speaks with Staff Writer KEABETSWE NEWEL
Q: What is corporate governance and what role does it play in ensuring that corporates are run efficiently, for and by both the boards of directors and executive management?
A: I like the definition of corporate governance offered by Cadbury and adopted by the World Bank. It suggests an ethical alignment of individuals, corporations and the economic system:
Corporate governance is concerned with “holding the balance between economic and social goals and between individual and communal goals”. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.
In the business context, corporate governance refers to the systems of rules, practices and processes by which companies are governed. This also applies to civil society and government, how organisations distribute rights and responsibilities by all participants. The distribution of roles, the separation of powers and controls are done to ensure the striking of a balanced economy, trade for profit and achievement of individual, communal and social goals. It ensures that managers of people’s money are watched over and use it with some anxious vigilance with which one would frequently watch one’s own.
Done well, one could only expect common goals to be achieved, as well as profits and dividends. Corporate governance, done well, deals with greed, speculation, deceit and potential for manufactured bankruptcies. It would avert the economy and trade from descending into unproductive extortion that serves only a few in society, destroying the economic growth. Understanding this makes corporate governance the only option to contend with, especially in the process of building a nation and its institutional pillars.
Q: In cases where corporate governance principles are flouted (for both board and management), how does that affect the running of independent corporates?
A: These are usually flouted when the board itself was never in it for the good of the corporation. Corporate governance principles are usually spelled out for the board and management. The question is how corporations ensure that the integrity of their institutions is safeguarded by adhering to the principles laid down. What happens when there are deviations by the board and management? What are the sanctions? Boards and management get paid because they are seen as a good for the corporations.
Therefore, when they do not do what is necessary to follow the systems, rules and processes established, the entire structure is bound to fall apart. The company might inevitably close down. “The economic power in the hands of the few persons who control a giant corporation is a tremendous force which can harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another (Berle and Means 1933, 46).”
Usually, the ruins impact the majority of the poor in society. When the corporates close down, people lose jobs and the economy is affected by the instability in loss of purchasing power.
Q: How does proper corporate governance in a company benefit the shareholder?
A: Corporations are for-profit enterprises designed to provide sustainable long-term value to all shareholders. Proper corporate governance is designed to enhance the profit making agenda of the shareholders. Having an executive management that is overseen by the board elected by the shareholders should accord some reassurance that the corporation will be run well, as it is well governed by a competent Board of Directors. Shareholders expect corporate boards and managers to act as long-term stewards of their investment in the corporations.
Q: Can the flouting of corporate governance principles, by either board or the exco, lead to corruption or other malpractices that can compromise shareholder value?
A: Definitely. First of all, flouting of any principle means the ‘adulterer’ is not at one with the vision of the corporation, and their fidelity and loyalty lie elsewhere. It brings into question their integrity as an individual, which can then bring into question the integrity of the corporation when it fails to adhere to its principles and ensure that shareholders reap from their investments. When the board and the managers flout principles, the question is for whose interest are they doing it? Corporations are not designed to be platforms for the advancement of personal agendas or for the promotion of general political agendas.
Corruption is the abuse of entrusted power for private gain. When they contravene set principles, one can argue that it is for personal gain or for a select few. This is bound to benefit a few and conflicts usually arise in these situations, causing instability and suspensions of listed companies, as we are seeing with BBSL.
Q: What is your take on the state of corporate governance in Botswana?
A: It is not yet a culture that we embrace. We do not understand, from an ideological and theoretical point, why corporate governance is essential to the development and growth of corporations or organisations. We establish boards that do not play their roles efficiently enough to ensure competency, effectiveness and efficiency in the running of corporations. This happens a lot in societies where political patronage is the norm. It happens in states where democratisation has not solidified, as people still negotiate shared ethical norms and values.
I would argue that Botswana behaves like corporate governance principles are yet to be taught and then put into practice. They do not come naturally. If they did, we would have well-run corporations along the frameworks within which the board and management address their key responsibilities. Why they are not fully used in certain instances speaks to the culture of the people, their corporate value system, and how important or not accountability is.
Q: What lessons can you give to boards of directors and exco members in Botswana regarding how to efficiently run companies in compliance with corporate governance principles?
A: The frameworks for an effective system of corporate governance within which the board and management address their key responsibilities exist. Boards of Directors and executive management need to cultivate a culture of integrity and accountability in executing their mandates. Shareholders need to play a better role in ensuring that a proper oversight role is played by the board they elect. This board then has the crucial task of selecting the CEO who ought to consistently adhere to set ethical norms, values and principles. When boards trump set principles and standards, it says a lot about the corporate culture in a society. Our corporations have the frameworks; they just need to be used by people with integrity.
Q: Anything else that you would like to add, Sir?
A: Are corporations for a select few to enjoy monetary benefits and influential positions or are they part of a bigger nation building agenda? Corporations should not be used by various actors for their own agendas. Doing so kills companies and embeds corruption.
To shareholders: “Being managers of other people’s money than their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partner frequently watch over their own,”(Smith 1976, 264–265). Therefore, corporate governance works when all parties come to play their oversight roles cultivated by a culture of integrity, accountability and transparency.