CAIRO: Want to make your enterprise healthier and more sustainable? Two words: corporate governance.
A firm’s corporate governance affects its economic performance and its ability to access long-term, low-cost investment capital. Enterprises with stronger corporate governance strategies have higher firm value, higher profits, and higher sales growth and are able to create a warmer climate for confidence as well as spur investment.
“Corporate governance leads to a better understanding, more efficiency and cooperation among all [stakeholders]. Implement corporate governance, and investors will be happy with your management, have more trust in your company, and will invest in it rather than go to your competitors, said Martin Steindl, corporate governance project officer at the International Finance Corporation (IFC).
Corporate governance refers to policies affecting the way a business firm is directed and controlled. Principal players are shareholders, managers and the board of directors, who all spell out rules and procedures for making decisions on corporate affairs, set the firm’s objectives and monitor its performance. Corporate governance strategies also aim to optimize economic results, with a strong emphasis on shareholders’ welfare.
To successfully execute corporate governance, explained Steindl, firms have to appoint an independent board of directors separate from the existing managers to provide an impartial view on types of practices that should govern the firm as well as promote corporate accountability, fairness and transparency.
“Couple that with shareholders’ practices and their rights to vote on certain issues.. These three bodies – shareholders, mangers, and board of directors – should meet regularly to ensure better financial performance of the firm.
Even if corporate governance entails an extra cost for managers, in the form of annual salaries to corporate governance coordinators and independent board members, its implementation bears fruit and managers will reap its benefits in the end.
“Corporate governance is not a system you implement within a year or so and then stop. It’s an ongoing process, Steindl added.
Indeed, experts argue that over the last few years, companies that abide by corporate governance practices outperform their competitors.
“To give you an example, an Egyptian company invested six percent of its profits in corporate governance and decided to improve its practices. The result was that after one year, its share price increased by 29 percent, stated Steindl. “That is because investors liked the company more and wanted to invest in it. That is one benefit that goes directly to the company.
The IFC’s corporate governance methodology assists companies in improving their governance practices and employs assessment tools tailored to the different governance priorities of publicly listed companies, founder and family-owned firms, banking and financial institutions, as well as privatized and state-owned enterprises.
The IFC, private sector arm of the World Bank Group, has been working at many levels to improve corporate governance practices in Egypt. It has partnered with the Egyptian Institute of Directors (EID) to train board directors and senior managers on best corporate governance practices.
“The program has so far lasted for a year and half and is now in its final year, Steindl pointed out. “We basically help participants develop corporate governance practices and take them through each aspect of these. And we hope that the EID will continue the work once we are gone.
Accredited by the US Institutional Shareholder Services, the training program targets companies at the senior management level. “The tone is set at the top because if these senior managers don’t bring corporate governance practices into the company, then people under them don’t have a chance.
Among these participant corporations are the Commercial International Bank, EgyTrans, Sekem, and Credit-Agricole Bank. “We also invited a couple of people from the Capital Market Authority to have an [insight] on what we are doing.
Recently, a lot of attention has been paid to corporate governance practices, particularly since the high-profile collapses of giant firms such as Enron Corporation and WorldCom.
“There’s never a guarantee that corporate governance directly prevents the collapse of firms. But it reduces risk of that [scenario]. And that is why banks should also be interested in corporate governance, Steindl clarified. “Corporate governance reduces risk portfolio.and allows banks to identify companies which implement it and, in turn, are more comfortable dealing with them.
Steindl hopes to see a brighter future for corporate governance practices in Egypt. “Several companies in Egypt take corporate governance very seriously. The top 40-50 listed companies know about it and actually implement it. However, for other companies, the issue is still not as strong.
“After this year and a half, I feel that I only talked to 10 percent of companies that operate in Egypt. I still feel that the bulk of companies haven’t been reached, yet. Corporate governance should be part of a manager’s daily [routine]. Managers need to know how to govern and lead their company. They need to improve things today in order to have a better company in the future.
