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Institute of Corporate Governance Institute of Corporate Governance of Ugandaof Uganda

CORPORATE GOVERNACE FOR CORPORATE GOVERNACE FOR PRODUCTIVITY & RESULTSPRODUCTIVITY & RESULTS

PRESENTATION TO AFRICA CHRISTIAN HEALTH PRESENTATION TO AFRICA CHRISTIAN HEALTH ASSOCIATIONS PLATFORM (ACHAP)ASSOCIATIONS PLATFORM (ACHAP)

20 SEPTEMBER 201020 SEPTEMBER 2010

HOTEL TRIANGLE - KAMPALAHOTEL TRIANGLE - KAMPALA

ByBy

Japheth KattoJapheth Katto

Chief Executive OfficerChief Executive Officer

Capital Markets AuthorityCapital Markets Authority

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OVERVIEWOVERVIEW Opening Quotations Definition of Corporate Governance Historical Perspective Role of the Board Role of Company Secretary Board Effectiveness, Productivity and Results Suggested Tools for effective performance Suggested tools for effective conformance How do you measure Board Effectiveness Challenges to Board Effectiveness Relationship with Business Framework Concluding Quote

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Opening QuotationsOpening Quotations

“All of them (the three failed banks) were infected with the One-man Management syndrome of

autocratic corporate governance”

Uganda’s New Vision Newspaper 28 March 2001 quoting from the report (unpublished)

of the Judicial Commission of Enquiry into the closure of Banks

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“The overall financial condition of TransAfrica Bank has been unsatisfactory for a long time and corporate governance has been very poor. Since 1999, the bank has had five managing directors and except for one of them, none of the other four managing directors stayed with the Bank for even six months”

Bank of Uganda Press Release – 2 September 2002

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Opening QuotationsOpening Quotations

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Lehman Brothers - fused role of Chairman and CEO. Lack of Board oversight and supervision.

“…..Gluksman (Board Chairman) had the Board and all his department heads in his back pocket and almost immediately he began to take on more risk.”

A Colossal failure of Common sense ( The Inside Story of the Collapse

of Lehman Brothers)

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Opening QuotationsOpening Quotations

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Corporate Governance Corporate Governance DefinedDefined

“Corporate Governance is the set of processes, customs, policies and systems

by which companies are directed, administered or controlled.”

Sir Adrian Cadbury

Definition 1

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Corporate Governance Corporate Governance DefinedDefined

“The System by which corporations are directed, controlled and held to

account.”

Institute of Corporate Governance of Uganda

Definition 2

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Corporate Governance Corporate Governance DefinedDefined

“Corporate Governance means the process and structure used to direct and manage the business and affairs of a financial institution with the objective of ensuring its safety and soundness and enhancing shareholder value and shall cover the overall environment in which the financial institution operates comprising a system of checks and balances which promotes a healthy balancing of risks and returns.”

 

BOU Corporate Governance Regulations 2005

Definition 3

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“Corporate Governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing accountability with the ultimate objective of realising long term shareholder value, whilst taking into account the interests of other stakeholders.”

Capital Markets Authority Corporate Governance Guidelines

Corporate Governance Corporate Governance DefinedDefined

Definition 4

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Historical PerspectiveHistorical Perspective

Originally the concept of corporate governance focussed on companied listed on stock exchanges.

Enron scandal uplifted the profile of corporate governance.

Currently the concept is applied to all organisations including NGOs.

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Role of the BoardRole of the Board

The Board is the focal point of the Corporate Governance system.

It is ultimately accountable and responsible for the performance and affairs of the organisation.

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Role of the BoardRole of the Board

The corporate governance framework should ensure: The strategic guidance of the organisation

The effective monitoring of Management by the Board

The Board’s accountability to the company and the owners (Governments, shareholders etc.)

OCED Principle VI

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Strategic OversightStrategic Oversight

“Strategy should be regarded as a fundamental Board issue. The whole Board should be involved in strategic development. The executive directors should have in-depth knowledge about the company’s competitive position ,while non-executive directors provide an outside perspective.”

Adrian Cadbury

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Role of the BoardRole of the Board

The Board’s role is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls which enables risk to be assessed and managed

The Board should fulfill certain key functions, including:

Setting performance objectives;

Monitoring and managing potential conflicts of interest of Management, Board members and shareholders.

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Role of the BoardRole of the Board

Aligning key executive and Board remuneration with the longer term interest of the corporation and its owners.

Overseeing the process of disclosure and communications.

Ensuring the integrity of the accounting and financial reporting systems, and compliance with the law and relevant standards.

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Role of the BoardRole of the Board

Instituting Corporate Social Responsibility policies

“Companies should strive to make social responsibility part of the corporate culture from the very beginning. It is more difficult for companies to create a culture of responsibility down the track”.

Alison Dillon, ICSA Uganda

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Role of the BoardRole of the BoardThe Board should apply High Ethical Standards

This is critical for Christian organisations more so if in the health sector.

“Establishing a common operating philosophy of ethics and values in business, across cultures, geographies and the business value –chain is one of the toughest challenges for the Board and top Management .The Board should begin by adopting a set of values to guide the functioning of the corporation and articulating them throughout all levels of the organisation, for example through company wide speeches by the CEO and/or directors and company training programmes. The message should be communicated strongly that decisions should be made in accordance with the value framework and that breaches will be penalised appropriately. Recruitment processes should focus on ensuring that employees embody the values of the company.”

Dr. N. Balasubramanian - (Professor and Chairman IMB Centre for Corporate Governance and Citizenship – India) 17

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Role of Company Role of Company Secretary Secretary The Company secretary has a role of

developing and implementing processes to promote and sustain good corporate governance.

Company Secretary keeps abreast with legal, regulatory and governance developments and advises the Board appropriately.

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Twin Board Roles for Twin Board Roles for Effectiveness, Productivity Effectiveness, Productivity

and Resultsand Results Performance Adding value 60%,

– Increased productivity, profitability, shareholder value, more stakeholders, improved image

Conformance compliance 20%, management /monitoring 20%.

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Suggested Tools for Suggested Tools for Effective PerformanceEffective Performance

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Strategic Guidance

Involve key stakeholders to achieve consensus, (e.g. new products, branches)

Mission to drive Vision, (Not static) Test Strategic plan for effectiveness

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Effective Policy Formulation:

Board Composition:

Inclusiveness to capture varying opinions:

Independent directors for objectivity and/or bridging skill gaps.

Gender for mobilization within gender groups

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Suggested Tools for Suggested Tools for Effective PerformanceEffective Performance

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Formal Delegation of powers

Chief Executive and Management Board Committees with clear T.O.Rs,

Powers for interim execution pending Board endorsement;

Powers for final execution; or mere Powers limited to recommending to Board only.

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Suggested Tools for Suggested Tools for Effective PerformanceEffective Performance

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Leadership and Guidance:

Realistic succession policy and plan for Board members, executives and Senior Management;

Enlightened Human Resource policy.

Competitive remuneration, Enlightened leadership,

The 4 Es of Leadership: Envisioning, energizing, empowering, encouraging

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Suggested Tools for Suggested Tools for Effective PerformanceEffective Performance

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Board Development

Gap identification & up-skilling:

Board EvaluationWhat do you do with non-performing Board members?

The private sector is a large and dominant sector in many economies. It is called the engine for growth of the economy.

Suggested Tools for Suggested Tools for Effective PerformanceEffective Performance

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Adequate Oversight

Internal Audit

External Audit

External expert reviews

Management of Conflicts of Interests

Code of Ethics Monitoring adherence to code

Adopt and monitor “Best Practice” in production, marketing, accounting and corporate governance.

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Suggested Tools for Suggested Tools for Effective ConformanceEffective Conformance

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Challenges to Board Challenges to Board EffectivenessEffectiveness

Distinguishing and observing distinctive functions of the Board and Management.

Rotation of Board members to bring in new ideas, contacts and drive; (Founder syndrome)

Preparation of suitable Strategic and Business Plans and monitoring implementation.

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Accepting and implementing Board assessment and director evaluation

Ability to provide adequate time to a multiplicity of Boards. (CMA Corporate Governance Guidelines limit number of directorships on listed companies)

Implementing programme for training and developing skills of the directors.

Measuring Board effectiveness.

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Challenges to Board Challenges to Board EffectivenessEffectiveness

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Challenges to Board Challenges to Board EffectivenessEffectiveness

Finding “Fit and Proper” directors committed to the Vision and Mission of the company.

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“The first step in ‘getting on a Board’ is to ask why you want to be on a Board. If the answer is for self-aggrandisement or prestige, the reputational risks today far outweigh any such benefits. Similarly, if it is for financial reward, there are easier less risky ways to make money. If it is because you have a ‘cause’ to promote you are clearly not a good Board candidate because your role as a director will not be to represent a single interest but to represent the interest of shareholders as a whole.”

Norm Augustine – quoted in Directors & Boards (November 2009)

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Having in place suitable strategic and business plans and monitoring implementation

Accepting and implementing effective Board performance assessment and directors evaluation.

Measuring Board effectiveness.

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Challenges to Board Challenges to Board EffectivenessEffectiveness

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How do you Measure Board How do you Measure Board Effectiveness?Effectiveness?

Financial Performance

Turnover, profitability, return on assets, return on capital, equity to assets.

Share price (if listed) Products and how they affect the public

(e.g. Life saving) Profile Corporate Social Responsibility

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Compliance Culture

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How to you Measure Board How to you Measure Board EffectivenessEffectiveness

“One of the greatest risks a company can face is its own success. When a company is successful and the CEO is successful, the Board and Management often have stars in their eyes and tend to look the other way. No one wants to be the pessimist ,but the Board should ensure that it is not blindsided by success by instilling a culture of asking questions and of allowing discussion around the table.”

Ira M. Millstein

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VISION

MISSION

STRATEGY

GOVERNANCE

Operations

Performance

Competitiveness

Relationship with Relationship with BBusiness usiness FFrameworkramework

Business Environment

Controls

Resources

Information

Business Performan

ce

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Concluding QuoteConcluding Quote

“Just like the brain is the nerve centre to the organic body, so is the corporate Board to a company, it senses the environment, it interprets the signals and triggers appropriate action and above all plans while organizing the entire organization’s growth mechanism. However, Management is like the heart pumping the life reviving elements into the company non-stop for 365 days year in, year out, the minute it ceases functioning the company falls into limbo”

Article by Leo Kibirango - CMA Journal July/September 2004

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THANK THANK YOU!YOU!