OPINION
BY
Corporate Governance - The only known antidote to corruption
Barry McCall
Corporate Governance The only known antidote
to corruption
Barry McCall finds that the clear benefits of good corporate governance
are well worth embracing.
Olympic ticketing scandals, the Console
suicide charity collapse, irregularities at
third world charity Goal, irregular top-up
payments to senior executives of statefunded bodies, investigations into the sale
of state owned assets – these are just a
few of the more recent scandals which have
come to light in Irish life.
We don’t have to look back very far
to the banking collapse and the risky
behaviour which led up to it and before
that the planning and corrupt payments
to politicians and tribunals to find further
examples of corrupt behaviour at the top
levels of Irish society.
But we are by no means alone in this.
Our nearest neighbour is not immune from
high level corruption. One businessman
is being threatened with the loss of
his knighthood if he doesn’t right the
wrongs which occurred under his watch
in one of Britain’s biggest retailers while a
parliamentary committee has uncovered
routine and endemic breaches of health
and safety and employment regulations at
another major retailer.
Barry McCall is the author
of CPA Ireland’s report
“Reaping the Rewards –
How Ireland can benefit
from a culture of good
corporate governance”.
fContinued on Page 4
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3
OPINION
Corporate Governance - The only known
antidote to corruption
BY
Barry McCall
fContinued from Page 3
In the US corporate stars like Denis
Kozlowzki of Tyco spent time in jail for
their crimes and misdemeanours while
“master of the universe” Bernie Madoff
is still serving time for his misdeeds. And
that’s not to mention criminal behaviour
behind the Enron collapse or that country’s
own banking crisis which brought the entire
world to the brink of catastrophe.
And just in case you might think these
cases are confined to the Anglo-Saxon or
Common Law world the president of Bayern
Munich football club is currently in jail for
tax evasion, former mayor of Marbella, Jesus
Gil, was incarcerated for misappropriation
of funds and other crimes, former Italian
premier Silvio Berlusconi has spent the past
decade trying to stay one step ahead of the
prosecutors, while former French politician
and industry magnate Bernard Tapie was
not so adept at evading the law and found
himself at the wrong end of a two-year
sentence in 1995. The list goes on and on
as does the range of crimes which is almost
equally lengthy.
In this light it should not come as a surprise
that an estimated €2.4 trillion or 5% of
global GDP is lost to fraud and corruption
every year.
A commonality between them all is that
the victims are not confined to the workers,
shareholders, donors, or service-users of
the organisations involved – the whole of
society pays the price both financially and in
terms of a corrosive loss of trust in political
and other institutions.
CPA Ireland report
Another commonality is that they could
have been prevented had good standards
of corporate governance prevailed in the
organisations concerned. This was the
key finding of the recently published CPA
Ireland report “Reaping the Rewards – How
Ireland can benefit from a culture of Good
Corporate Governance.”
The report explored the nature of corporate
governance, impact on various aspects of
organisational performance, the benefits of
good corporate governance to organisations
in all sectors, and its role in preventing
corruption. It also examined ways in which
organisations can improve their corporate
governance so that failures can be avoided
in the future.
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90 YEARS OF CPA
Corporate governance experts and business
leaders from Ireland and around the world
contributed to the report and their insights
showed that the issue was by no means
confined to Ireland. While there was some
divergence in opinion in relation to finer
details there was a shared understanding
of the essential meaning of corporate
governance, its value and its importance to
business and society.
Defining corporate governance
Corporate governance is generally defined
as the system of rules, practices and
processes by which an organisation is
directed and controlled. This involves
balancing the interests of stakeholders
including shareholders, management,
employees, customers, suppliers, funders,
and society. The OECD defines its purpose
as to help build the environment “necessary
for fostering long-term investment,
financial stability and business integrity,
thereby supporting stronger growth and
more inclusive societies”.
Former CPA Ireland president Gail McEvoy
put it quite succinctly when she summed
corporate governance up in three words –
accountability, fairness and transparency.
“You have to look after all stakeholders;
staff, the community, customers,
shareholders, pensioners, everyone”,
she said. “It can be different for micro
enterprises and PLCs but the core principles
are the same. It should be in the culture of
the organisation. There is a lot of talk about
it now because of what has gone on in the
recent past but if we had a culture where
that behaviour wasn’t tolerated the bad
stuff wouldn’t have happened in first place.”
The benefits of good governance
While almost all contributors agreed
that good corporate governance practice
should lead to better organisational
performance there was no such consensus
on how this could be measured. One
definitive benchmark appears to be that
better governed organisations are more
sustainable and possess the ability to
withstand crises better than those with
lower standards.
Former International Federation of
Accountants (IFAC) board member Alan
Johnson believes that even the very best
standards of corporate governance will not
offer a guarantee of superior performance
but will certainly offer a better chance of
it. “You can have perfect governance but
still make lousy choices and bankrupt a
company”, he commented. “Well governed
companies don’t necessarily outperform
others. But good governance can help avoid
the risk of underperformance. It improves
the chances of making good decisions.”
There is a correlation between poor
governance and corporate failure, however.
“One of the clear common denominators
in the post-mortem of corporate failures
during the recession was the failure
to implement adequate governance
standards”, said Grant Thornton partner
Jason Crawford. “It became widely accepted
amongst commentators and regulators
that these failures could perhaps have been
avoided if governance had been stronger.”
Westpac Chief Financial Officer Technology Rachel Grimes believes the
transparency associated with good
corporate governance is very valuable.
“Good corporate governance introduces a
framework of internal controls that fosters
accountability, transparency, responsibility
and disclosure”, she says. “Therefore in
practice, the processes, approvals and
controls on day to day transactions or
activities would make offers or receipts
of corruption and bribery difficult – even
more difficult to conceal from interested
parties. At the decision making level,
corporate governance injects transparency
and accountability, so that it is clear to all
stakeholders how decisions are made, and
most importantly, why decisions are made.”
It has also become a sine qua non or “ticket
to the game” when it comes to raising
finance. This comes down to the need
for trust and confidence. As corporate
governance expert and EPIC Ireland Director
Fiona Ross pointed out when advancing
finance to a company “you need to be able
to trust the data you are being given. All
you have to go on is the publicly available
statements and annual reports issued
by the company. That’s about the only
information an investor will have and it’s no
good if it is fraudulent. The only way you can
be fairly sure it is not fraudulent is by having
confidence that that company is well run to
good standards of corporate governance.”
ACCOUNTANCY PLUS. ISSUE 04. DECEMBER 2016
OPINION
BY
Corporate Governance - The only known antidote to corruption
Barry McCall
Delivering the benefits
How corporate governance delivers these
benefits is largely through the ethical
framework involved. “Corporate governance
is an antidote to corruption”, Moore Stephens
Managing Director Patrick Rozario claimed.
The strong, effective boards found in well
governed organisations also prevent overlydominant executives from taking excessive
risk as Mike Hathorn, Chief Operating
Officer for Moore Stephens International
explained. “An effective board should bring
constructive but firm challenges to all
matters, but particularly matters which
might bring increased risk to the business.
An effective board must take responsibility
for determining the nature and extent of
the key risks it is willing to take in achieving
the strategic objectives. The board should
maintain sound risk management and
internal control systems. To do this, the
non-executive board members themselves
must maintain an independent mind-set
at all times and must not allow themselves
to be bullied or overly influenced by ‘strong’
executive individuals.”
Knowing whether an organisation is well
governed and has such an effective board is a
different matter of course. Some sort of due
diligence is required according to Academic
Director of the UCD Centre for Corporate
Governance Professor Niamh Brennan.
“Ask to see the financial statements
and do a search of the newspapers”, she
advised. “I wouldn’t be totally reliant on
financial statements. They do contain useful
information if you go through them line by
line but look at what other people are saying
about the organisation.”
The identity of the board members is also
important to Crawford. “Good governance
is prevalent in organisations that have a
clear set of rules, along with an appropriate
composition of board members, such that
the board’s objectives are aligned with
those of the shareholders.”
According to Chief Executive of CPA
Australia Alex Malley there are a number of
indicators of good governance other than
profit figures or policies and rules. These
include organisational culture, transparency,
employee and customer satisfaction and
wellbeing, investor confidence, ethical
leadership, organisational commitment and
innovation. He believes these indicate a
certain kind of entity.
ACCOUNTANCY PLUS. ISSUE 04. DECEMBER 2016
“The surest sign of good governance is the
alignment between rhetoric and reality”,
Malley said. In other words, if what the
organisation says is matched by what
it does you can be fairly sure that it is
governed reasonably well.
Raising the standard
Contributors to the report identified three
essential ingredients for high standards
of corporate governance – people, training
and culture. This means having the right
people around the boardroom table, training
board members and senior executives in
the principles of corporate governance, and
developing a culture of transparency and
accountability in the organisation.
Organisations, both large and small,
should face little difficulty in putting these
ingredients in place if they are determined
to do so. Larger organisations need to have
the right people on their boards to ensure
that the rules are followed and culture
is maintained at all levels while smaller
entities need to develop an ethical code and
culture and apply them to all aspects of
their activities.
And those that require help in doing so
should look no further than a CPA for
advice. CPA members operate in over 43
countries worldwide and have extensive
experience of how high standards of
corporate governance can be introduced to
and embedded in organisations.
Courage is another essential ingredient. The
courage to stand up against a dominant CEO
or to speak out against groupthink. Even
more so, the courage to establish a culture
which encourages, applauds and rewards
whistle-blowers instead of punishing them.
Indeed, according to the Association of
Certified Fraud Examiners’ (ACFE) whistleblowing is the single most effective means
of fraud detection in organisations across
the world. Any organisation which claims
to be well governed must have an effective
whistle-blowing policy.
90 YEARS OF CPA
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