By Gavin Robertson, Principal, Corporate Governance
It is recommended that companies listed on SPX adopt and implement the Reserve Bank of Fiji’s Corporate Governance Code. The Code may also be used by intermediaries and other players in the capital markets and is described as establishing a “benchmark of good corporate governance behaviours”.
Similarly, companies listed on PNGX are required by the Listing Rules to list in their Annual Reports the main corporate governance practices that were in place during the relevant reporting period.
To be effective, statements of corporate governance practices need to be underpinned by a strong and supportive corporate culture that will result in actual implementation and adherence to corporate governance arrangements.
A strong corporate culture, underpinning effective governance practices, is more important than ever in this pandemic and post-pandemic era, not just for listed entities, but for all large entities with operations across the Pacific. Companies and their people, struggling to survive and recover, are at risk of a breakdown in good governance, leading to long term financial and reputational damage.
Further, company culture and governance practices need to be reconsidered in the changed business environment.
Employees are variously dealing with issues such as making budget, assuring supply chains and managing creditors, often under extreme financial pressure. Directors are dealing with more profound issues of solvency and the strategic direction for their companies. In some Pacific nations they have been doing so from home, remote from colleagues and only able to communicate electronically. Even as government measures to contain the virus ease, work practices are not expected to return to the old “normal”, requiring directors and employees to adjust in ways that had not previously been considered.
This situation leaves companies exposed to uncertainty, miscommunication, misunderstandings and even rogue elements.
Companies themselves, in many instances, find that they are more reliant than ever on the goodwill of their suppliers, customers and service providers, with a need to assure them of their own reliability as companies with whom it is safe to continue to do business.
Notwithstanding many other competing issues, it should be a priority for companies to review their corporate culture and governance practices in light of the new situation, to implement changes as necessary and to reinforce behaviours to meet the new era.
It has become clearer that companies in the Pacific operate in a sort of eco-system in which each is reliant on its customers, suppliers, financiers, landlords and advisors, who are in turn reliant on it and, indirectly on each other. There needs to be a high level of mutual trust, fair dealing and understanding within the eco-system for it to function efficiently, for the eco-system to continue to operate and for all parties to survive, recover and thrive.
Trustworthiness and fair dealing are characteristics which companies must cultivate as part of their culture, and which need to be more emphatically recognised in company Values Statements and absorbed into corporate culture. Companies must be seen to have and must actually have the qualities required for others to confidently deal with them.
The governance arrangements need to focus on encouraging employees to recognise and live this important value, as well as the company’s other values. They also need to address new working arrangements. It seems probable that even in the post pandemic environment more employees will be required to engage in more flexible working arrangements, which will involve more remote working than in the past.
For example, delegations of authority, job descriptions and KPIs should be reviewed, along with supervision and monitoring practices to take account of these changes.
Boards will also need to function differently. They will need to be more responsive to potentially rapidly changing circumstances and therefore more flexible as to how and when they meet. The information that goes to the Board should also be reviewed and made relevant to the new era.
For example, risk associated with supply chains and customer credit will need to be more closely monitored. Systems for crisis management should also be reviewed or established if not already in existence.
Finally, the need for, and for that matter the availability of effective internal communication has been brought into sharp relief in the new era. Communicating with and amongst staff by electronic means has become more normal but does need to be developed to a higher level of sophistication to be wholly effective. An Internal Communications Policy should be developed. It would address circumstances giving rise to the need to communicate with staff, to which staff and when and how. The policy would form part of the company’s risk management processes
Implementation and Reinforcement
It is one thing to amend your Values Statement, your delegated authorities, job descriptions and KPIs and to write a new Internal Communications Policy – it is quite another to achieve any meaningful change within the company. This cannot be another box ticking exercise. The pandemic and post-pandemic eras have shown the need for actual change, and actual change there must be if companies are to survive, recover and ultimately thrive.
It is trite to say that any change of this type requires buy-in from the Board of Directors. Some Boards have viewed governance as a distraction from running the business, as something that is imposed on them by SPX or PNGX and by institutional investors. However, given how the economic changes caused by the government response to the pandemic were so rapid, so profound and so alarming, it is reasonable to expect that even the most sceptical of Boards will see the desirability of a strong corporate culture supporting effective governance. The Board, perhaps through the CEO must drive change and oversee the ongoing arrangements.
Education and training will be a key element in changing behaviours and maintaining the system. The internal communications system will also have an important ongoing role, and this should be recognised in the Internal Communications Policy.
Effective maintenance will require regular check-ups, which in turn will require same person or group within or external to the organisation to be responsible for assessing the ongoing effectiveness of the arrangements, reporting to the Board and recommending any remedial action that might be required.
The pandemic has presented companies operating in the Pacific and their Boards with many challenges and with competing priorities to meet these challenges, often from limited resources. Whatever business strategies are adopted to achieve survival and recovery, the company will require a robust culture which ensures that it is seen as a reliable party with which to do business. This culture will need to be fit for purpose in the current era and underpinning meaningful governance practices.
Accordingly, corporate culture and governance should be viewed as a priority by all Boards of companies operating in the Pacific, and the necessary resources allocated to address the issues.