Promoting corporate governance

The senior writer and columnist for Britain’s Financial Times newspaper was giving a talk on the power of journalism in promoting corporate governance to some 60 business journalists from various media publications in Kuala Lumpur.

“People only talk about corporate governance (CG) when there is a scandal. You need to hype CG as a key to success or failure of a company.” he added.

What is corporate governance?

The Financial Times defined it as how a company is managed, in terms of the institutional systems and protocols meant to ensure accountability and sound ethics.

The concept encompasses a variety of issues, including disclosure of information to shareholders and board members, remuneration of senior executives, potential conflicts of interest among managers and directors, supervisory structures, etc.

Now question is, what is a “good” or “bad” governance?

Plender cited the most famous example of bad governance is Enron. About how executives lied about Enron’s financial results for years in order to increase the value of personal stock options.

These actions went undetected by the board, the auditor, ratings agencies, regulators, and the media for many years until the company ultimately collapsed into bankruptcy.

“Look out for related party transactions,” said Plender, as a guide to sniff out a bad corporate governance.

“Opacity, lack of governance and accountability, these areas are where bad corporate governance most likely will breed,” the UK shareholder activist and corporate governance consultant added.

But why is CG so important?

Corporate governance has a huge importance to the national level because it affects how corporate sectors perform.

“It affects cost capital of company within corporate sector. It is also very important for a country in terms of attracting to foreign capital. This is especially so for the emerging market -- which often needs external capital.

"So, good corporate governance is like a magnet,” said Plender who have covered the topic most of his journalism days in The Economist and now Financial Times.

Besides encouraging investments and investor’s confidence, good governance does have a wider impact.

It also boost companies’ competitiveness, better equips companies to survive economic crises, makes corruption less likely and ensures check and balance on big business that will benefit the society.

How do we implement it?

He raised the need for more independent representatives on the board of directors.

However the question now is to how to go about implementing it when most companies especially in Malaysia are controlled by owners.

“Well question when it comes to try to improve the board when there is controlling owner whether there is a lever in order to pressure into having better representative on board.”

“The main lever is capital. If they need capital, outside investors can say to the controlling owner; we want more independent representative in the board. That is the chief and possibly the only way to improve board quality if you have a controlling owner.”

Who will monitor CG?

“Shareholders and community. However, journalists play a role as watchdogs,” he reiterated while adding that business journalists especially have the power to influence public and investors opinion on corporate governance-related matters.

Time to sniff out some CG stories.