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					Corporate Governance Bulletin
BULLETIN OF THE CENTRE FOR CORPORATE GOVERNANCE • Vol. 7 No. 3 July – Sept, 2006

DOES COMMUNICATION ENHANCE CORPORATE GOVERNANCE?

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isten to the radio, tune in to television, read the newspapers or simply engage in conversation with friends or colleagues. You are bound to hear about some corporations over and over again. In addition, such corporations present their financial reports in the press or their CEOs readily avail themselves for media interviews with regard to their company’s performance. People often associate such companies with success and if listed on the stock exchange, their shares are in demand. These are companies who are effectively communicating with their shareholders and other stakeholders, who understand that good communication enables good corporate governance. Such corporations have realised that effective corporate governance programmes must include a broad, proactive communication programme that maximises the effectiveness of traditional forms of communication while taking up progressive practices that include a means for shareholders

to communicate with management and members of the board of directors. Thus, it becomes paramount that communication is an essential element for any corporate governance system to work effectively. For corporations to be successful, the key areas to address in communication include communication between executives and shareholders and open communication between board members, management and employees. To achieve excellence in communicating corporate governance structures and practices, corporations
IN THIS ISSUE
1 4 Does communication enhance corporate governance? Transformational leadership: Creating a vision, converting follower Centre for Corporate Governance holds Stakeholders Workshop Key Activities by the Centre, July to September 2006 Upcoming Training

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must establish, disclose and follow guidelines for communication in each area. In doing this, corporations will go far beyond minimum compliance requirements while cultivating positive communication with one of their most powerful stakeholder – their shareholders. This requires them to create an enabling environment that calls for those in management and the board to be held accountable and transparent for their dealings. Communication in corporate governance is crucial especially since it links key corporate governance elements, such as risk and performance management, disclosure and transparency, board of directors and committee, legal and regulatory, business practices and ethics, thus enabling a corporation to maximise its governance efforts. It is through clear and timely communication that these elements are linked and are effective. Good communication will enable shareholders feel that the company cares for them and is concerned about their needs. With poor communication, there is greater room for poor governance and shareholders feel that their issues are being ignored. Regarding communication with existing and potential investors, customers, and general public, a corporation should act within principles of timeliness,

transparency, clarity and equal treatment. This includes releasing financial statements especially if it is a publicly traded company and reporting on corporate strategy and projected future progress. Good and regular communication will help earn stakeholders’ long term confidence in the company, which should also take into consideration working in compliance with the highest standards of ethical conduct and applicable law and defined principles of proper management. In addition, communication keeps investors informed about the activities and products of the company thus helping them make informed and accurate decisions about their investments. Investors often state that they are prepared to pay a premium for companies that practice good corporate governance and demonstrate a successful approach to risk management. Which better way to create this confidence then through timely and accurate communication of a company’s activities and achievements? A company should provide fair, timely, appropriate disclosure of information about corporate activities, such as management policies, management objectives, and financial position, to all stakeholders, including shareholders and other investors, customers and

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consumers, and local communities. Such information should be distributed regularly through websites, annual reports, emails, and media among others. Effective use of communications is vital for boards to reinforce their credibility and build stronger connections with stakeholders. It helps to ensure that board practices are understood and appreciated. Good corporate governance supports effective decision making. Effective decision making in an efficiently governed organisation is based on a well balanced accountability framework that is founded on clear communication, understanding and

appreciation across the organisation of roles and responsibilities, information management and risk systems, and good performance among others. Organisations with good corporate governance and well established functional communication have the ability to maintain high-quality services and to deliver results. Good corporate governance in organisations, based on communication principles namely, openness, clarity and accountability enhances public trust. Poor governance arrangements and communication processes set the framework within which organisational systems and processes are unable to perceive or anticipate financial and service collapses.

TRANSFORMATIONAL LEADERSHIP: Creating a vision, converting followers

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eadership is a key element in successful ventures. In a competitive enterprise or even the public sector, the leader should be a person with vision, who is able to set strategic goals and objectives and to ensure that impacts are compatible. Leadership requires various skills to make the organisation work as a single entity, with a common purpose.

Leadership in a competitive enterprise therefore requires a person with vision, who is able to set strategic goals and objectives and to ensure that impacts are tangible. Leadership requires a number of bridging skills to make the business work as a single entity, with a common purpose.

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It is upon a leader to describe how different players will work together, clearly define their responsibilities and encourage their progress. The leader’s job is to chart direction, communicate it to all involved and ensure progress is being made as planned. Without these elements, there is no team and no success. With changing times and needs, the concept of transformational leadership is gaining recognition in various spheres. Transformational leadership has been described as a form of leadership that takes place when leaders “broaden and elevate the interests of their employees, when they generate awareness and acceptance of the purposes and the mission of the group and when they stir their employees to look beyond their own self-interest for the good of the group” (Bernard Bass, 1990). Bass conceptualization of transformational leadership includes charisma or idealized influence (followers trust in and emotionally identify with the leader), intellectual stimulation (followers are encouraged to question their own ways of doing things) and individualized consideration (assignments are delegated to followers providing them with learning opportunities).

Thus for Bass, these four interrelated components1, as outlined below, are essential for leaders to move followers into the transformational style: • idealized influence. “If the leadership is truly transformational, its charisma or idealized influence is characterized by high moral and ethical standards.” Here, the leader must be of high moral standing and must create trust between himself and stakeholders. • inspirational motivation. “Its [transformational leadership’s] inspirational motivation provides followers with challenges and meaning for engaging in shared goals and undertakings.” • intellectual stimulation, “. . . intellectual stimulation helps followers to question assumptions and to generate more creative solutions to problems.” In this component, the leader provides the vision for followers to see how they connect to the leader, the organisation, each other, and the overall goal. • individual consideration, “ . . . individual consideration treats each follower as an individual and provides coaching, mentoring and growth opportunities.” Here, people are addressed at the individual level and are encouraged to seek selffulfilment.

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Transformative leadership includes assisting people’s path to self-realisation and actualisation, and results in the empowerment of the individual and organisation. Transformational leaders engage in a process, which includes a sequence of phases: recognizing the need for change, creating a new vision, and then institutionalizing the change. Corporate governance calls for leadership that is focused, responsible, effective and accountable, a leadership that envisions, empowers, enables and energizes others in order to obtain extraordinary results from ordinary people. Good corporate governance promotes leadership for efficiency and effectiveness, leadership for probity, leadership with responsibility, leadership that is transparent and accountable and leadership with focused intelligence. Essentially, it observes that ‘every institution should be headed by an effective governance organ that exercises leadership, enterprise, integrity and informed and objective judgment in directing the institution’. Exercising leadership means getting the people from where they are to where they want to go and have never beenshowing the way, that is, inducing people to have the same aim as the leadership. Leaders thus envision, empower, enable and energize others

in order to obtain extra ordinary results from ordinary people. Exercising informed and independent judgment means having the ability to acquire and apply knowledge and know how and to exercise ones mind to make objective, fair and transparent decisions without fear or favour. Exercising integrity means leading by example and walking the talk. Exercising enterprise means seeing what others cannot see in opportunities open to the institution and hence continuously creating what isn’t. A transformational leader puts in place an attractive vision that takes into account the needs and values of key stakeholders. The leader then puts in place the change once he has developed the vision after which he must implement the change. The leader appeals to the follower’s need for development and achievement that persuades the follower to find the change attractive. Transformational leaders aim at transforming the organisation and people to greater heights. Throughout the transformation process, the leader should set high performance expectations and reward behaviours that are directed toward fulfilment of the vision.

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CENTRE FOR CORPORATE GOVERNANCE HOLDS STAKEHOLDERS WORKSHOP

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ublic procurement in Kenya faces the challenge of unscrupulous suppliers who collude with public officials to defraud the public through non-delivery of goods/services or overpricing. Various procurement scandals reveal the participation of supplier companies with shadowy details such as physical address, identity of directors and principal officers, primary operations, and status of compliance to tax obligations. It is towards addressing the issue of good governance in the public procurement process that the Centre for Corporate Governance (CCG) is designing certification guidelines through which suppliers can be gauged as to their compliance to corporate governance principles, reporting and disclosure standards and business laws. The guidelines are to further help ascertain that before any supplier is invited to bid for public contracts, they are certified and satisfy key governance standards and disclosure requirements such as disclosure of their directors and officers and where relevant, agents and associates in the country. The

guidelines will form a system by which public suppliers can be confirmed to comply with business laws, corporate governance principles, and reporting and disclosure standards. They are expected to boost the ongoing public and private sectors’ reforms towards curbing corruption, strengthening good public and corporate governance, and improving the quality of life for Kenyan citizens. The study and development of the guidelines is financed by the Australian Agency for International Development (AUSAID). To ensure ownership and strengthen the guidelines, CCG organised a stakeholders workshop that brought together diverse stakeholders to discuss corporate governance guidelines for the certification of public suppliers in Kenya. The workshop, held on August 24, and in which the acting Australian High Commissioner made the keynote address, included stakeholders from the public and private sector among them the Kenya Institute for Supplies Management and the Directorate of Public Procurement.
Continued on page 8

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KEY ACTIVTIES – JULY TO SEPTEMBER 2006
September 24-29: A 5-day corporate governance training course for directors held at the Mombasa Serena Beach Hotel, Mombasa, with 53 participants. September 14: A 1-day corporate governance training course for directors and senior management of Kenya Industrial Research and Development Institute (KIRDI) held at the KIRDI headquarters, Nairobi, with 30 participants. September 6-8: A 3-day corporate governance training for directors and senior management of Stateowned Enterprises (SOEs) held at the Utalii Hotel, Nairobi, with 22 participants. August 24: A 1-day corporate governance training course for directors of Tea Board of Kenya at the Utalii Hotel, Nairobi, with 12 participants. August 24: Centre for Corporate Governance stakeholders workshop to discuss corporate governance guidelines for the certification of public suppliers in Kenya. August 11: A presentation at the Kenya Civil Aviation Authority (KCAA) Board orientation seminar at the Kenya Revenue Authority (KRA) Training Centre, Mombasa, Kenya. August 3-4: A 2-day workshop to review the constitution, national constitutions and national codes of conduct of the Federation of East African Freight Forwarders Association (FEAFFA) at the Safari Park Hotel, Nairobi. July 31-August 2: A 3-day corporate governance training course for committee members and senior management of FEAFFA at the Safari Park Hotel, Nairobi, with 37 participants. July 21-22: A 2-day corporate governance course for directors and senior management of Southern Credit Banking Corporation Ltd. held at the Karen Country Club, Nairobi, with 13 participants. July 16-21: A 5-day training held in Lake Naivasha Simba Lodge, Naivasha, with 47 participants.

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CENTRE FOR CORPORATE GOVERNANCE HOLDS STAKEHOLDERS WORKSHOP
Continued from page 6

The stakeholders observed that certification was necessary as it would, among others, curb corruption, and ensure credibility, transparency and accountability in the procurement process. It would also ensure that goods procured were of high standard and were not overpriced. Stakeholders were able to deliberate on the guidelines

and make their suggestions which will help towards refining the guidelines. The stakeholders complimented the development of the guidelines and welcomed them as a means to streamline the procurement process. Stakeholders expressed their interest to work with CCG in pushing forward the guidelines. CCG is responsible for producing the guidelines but the implementation process will be conducted by the relevant agencies.

CENTRE FOR CORPORATE GOVERNANCE UPCOMING TRAINING COURSES
DATE October 16-18, 2006 October 29November 3, 2006 November 19-25, 2006 COURSE 3-day corporate governance training for directors and senior management of the State-owned Enterprises (SOEs) 5-day corporate governance training course for the Forum of Agricultural Research in Africa (FARA) in Accra, Ghana. 5-day residential training course for directors VENUE Utalii Hotel, Nairobi, Kenya Accra, Ghana

Lake Naivasha Simba Lodge, Naivasha, Kenya

The Corporate Governance Bulletin is a quarterly bulletin produced by the Centre for Corporate Governance. The editor welcomes contributions, suggestions and feedback from readers. The Centre for Corporate Governance Brookside Grove, Westlands • PO Box 13936-00800, Westlands, Nairobi, Kenya Tel: (+254-20) 4440003, 4443230, 4456014, Mobile: (+254) 722-700180/733-573276 Fax: (+254-20) 4440427 • Email: info@ccg.or.ke; training@ccg.or.ke Website: www.ccg.or.ke; www.corporategovernanceafrica.org

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