Riskability Governance Watch
Corporate governance issues have recently become a highly
discussed and controversial management component, both at the directors
and managerial level. In order for an individual company to develop its
own customized framework and roadmap, each business unit must understand
the political, structural and historical development in the organization.
As part of our Riskability assessment
tools, we have now developed an IT tool we call the Riskability Governance
Watch
The need for Framework
The company's corporate governance behavior during a recent crisis, can
guide the directors and mangers of companies to conduct ethical and clear
business corporate governance behavior in normal times.
However, the governance components and structures have changed since Sir
Adrian Cadbury in the 1990s introduced the roots of the various components
that make up the structure of good corporate governance today.
Since then there has been a continuous series of global Corporate Governance
reforms. To avoid a similar crisis, companies are impaired with a mighty
push of compliance and company laws and EU directives to ensure that the
companies have the right checks and balances in every department.
However we feel that without a customized framework the efforts to meet
the reform challenge is futile.
Companies had since also developed adequate communications platform and
given the rights and power to stakeholders and shareholders to keep keeping
a watchful eye on the board and CEO.
Therefore, we recommend the Riskablity Governance Watch as an annual
survey to ensure that all of the components of significant Corporate Governance
reinforcements in the organization still meet the principles and its objectives
since implementation.
Examination of the tenets of good corporate governance
Contrary to popular belief, directors who were fit and well informed on
accounting and finance performed no better than those who were on the
board of directors due to their marketing or HR capabilities.
A two tier management system that have separate roles for the CEO and
Chairman often do not perform better than the changing one tier system
where the responsibilities of Chairman and CEO is in one person. Powerful
institutional shareholders and independent directors also did not deliver
shareholder value, during the crisis.
The demand for a majority of independent directors often is inversely
related to the stock returns. Surprisingly the combination in businesses
with more independent boards and higher institutional ownership, performed
badly during the crisis. Some of the reasons could be:
- Businesses with higher institutional ownership were taking higher
risks prior to the crisis, probably due to the overheated economy.
The results were larger shareholder losses during the crisis.
- Businesses with more independent and transparent boards often raise
more equity capital during a crisis. Can lead to wealth transfer from
existing shareholders to debt holders.
The overall findings cast doubt on whether regulatory changes that increase
shareholder activism and monitoring by outside directors will be effective
in reducing the consequences of future economic crises.
