How to overcome challenges in corporate governance

Corporate governance is an important element in not only every institution but also the economy at large.

However, globally, there are increased cases of questionable ethical conducts and weak internal controls which have eroded organisations’ reputation, risk management, challenges in accounting and reporting.

Many countries including Kenya have succumbed to these questionable corporate governance policies and unethical practices.

Governance Institutes in their quest to promote good governance have developed codes and standards on the discipline.

These codes have formed a fundamental objective of enhancing shareholder value and protecting the organisations’ interest through corporate performance and accountability.

Board of directors plays a vital role in corporate governance.

In constituting a board, various parameters are taken into consideration.

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They include; board composition, the board size, leadership structure, board activity, board diversity and accounting measures of performance.

Based on the governance failures, it is imperative for the board to undertake an oversight role through monitoring, evaluation learning and reporting.

Further, the directors are expected to be more accountable and explore the performance implications of compliance with governance norms.

Research has demonstrated that boards of US-listed companies are relatively larger with a majority of independent directors on board.

Their prominence of combined board leadership structure and relatively more gender diverse as compared to Kenyan boards. Good corporate governance is a critical ingredient that supports an organisation to maintain its edge and sustainability in a dynamic business environment.

It generates external trust from investors, creditors, public and stakeholders who are considered as the social capital and strategic asset for organisations.

To foster good corporate governance, organisations should ensure that continuous assessment is done.

The role played by chief executive officers raise many unanswered governance questions regarding the roles and responsibilities of executives and board members.

This has come under scrutiny due to the perceived loss of checks and balances and resultant abuse of power.

Corporate fraud

Corporate frauds have also become a global phenomenon with the advancement of commerce and technology.

The motivation factor for increased cases of corporate frauds is to make money and become rich.

The thirst for money is unquenchable and one is left asking how much does one requires to amass in order to attain the level of self-satisfaction.

This has consequently led to corruption scandals that end up thwarting efforts towards attaining economic growth and development.

Prevention of graft is critical and strict adherence to high ethical standards is necessary to achieve desired development objectives and enhance the functioning of the new social, political and economic processes.

A careful study of a number of large corporations and business houses attribute their slow growth to criminality perpetuated either by traders, businessmen, and even industrialists.

While this may be true, the main objective of businessmen is to make a profit, and engaging in fraudulent activities with the aim of making money will spirally bring down some of these organisations.

In conclusion, it is worth noting that a number of scholars have traced warning signs of corporate governance collapse, from Adam Smith 1776 to Tricker 2009 and all are in agreement that good corporate governance is conceived to prevent fraudulent practices.

If this must be achieved, then deliberate efforts must be put in place to restore order in all sectors by ensuring that good governance is promoted not only by those who occupy decision making positions but with the support of all stakeholders.

-The writer is a member of the Institute of Certified Secretaries (PhD, Strategy and Performance Management), Msc HRD, MBA, BBM Accounting).

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