Responsible Business Guide: A Toolkit for Winning Companies

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RBG Responsible Business Guide: A Toolkit for Winning Companies Accountability and Transparency In Pakistan, the Securities and Exchange Commission’s Code of Corporate Governance regulates the conduct of listed companies under the Companies Law. Likewise, the Pakistan Institute of Corporate Governance has published, with support from CIPE, a corporate governance guide for family-owned businesses. Both these documents establish credible roles for directors within the parameters set by law and expectations associated with corporate leaders. Corporate governance practices are converging globally. Governance codes are being revised to improve levels of transparency and independence. The proportion of independent directors is on the rise, as are disclosure of director remuneration and the proportion of women on the board. Corporate Governance for Family Owned Business – PICG / CIPE Key to this governance role is the principle of accountability, which means accepting responsibility for decisions and policies affecting business and being answerable for the consequences of these actions. This is particularly important in the case of familyled businesses, where owners do not feel obliged to explain actions, particularly to staff. Business leaders or managers engaged in guiding and decision-making assume responsibility for their actions. This accountability is proportional to their level in an organization. Hence, the owner or CEO has the highest level of responsibility to ensure that the business is profitable, as well as guaranteeing that it is able to fulfill its obligations as expected by law, the market, or society, and that the company remains answerable to each. Accountability is most commonly manifested in a company’s annual financial statement, often as a pre-requisite for legal permission to operate. When signed by the CEO, a financial statement implies personal responsibility from company decision-makers and their readiness to face the consequences of their business decisions. In the MCI-WorldCom example above, owner Bernie Ebbers was sentenced to 25 years in prison, and his senior managers sentenced to five years each. As part of their corporate accountability mechanisms, a number of countries require companies to declare the financial benefits given to board members and senior management. The British parliament is debating whether companies should name their 20 highest paid executives. A number of voluntary codes also encourage executive benefits to be part of corporate disclosure. The Norwegian government makes the financial status of all eligible taxpayers in the country available to the public. 24 Responsible Business Initiative
RBG Responsible Business Guide: A Toolkit for Winning Companies Apart from regulations, companies themselves exercise internal controls against mismanagement, typically in the form of rules and regulations, standard operating procedures, and limits to authority manuals. Company hierarchies are another accountability mechanism. Externally, there are more and more independent watchdog bodies, including government agencies like the Competition Commission of Pakistan, trade unions, and non-governmental organizations like Transparency International or Consumer International, often with national affiliates, keeping track of company decisions and their impacts. In today’s consumer-driven environment, the market itself is assuming the role of a corporate accountability mechanism. Aware consumers are making buying decisions as large, wellconnected groups. For example, the threat of a boycott of Danish goods in Muslim countries caused immediate diplomatic action by the Danish government to mitigate the threat. Fifteen years ago, the threat of a ban on Pakistani footballs in a World Cup year brought the global football industry to rally behind local producers, helping them tackle issues surrounding child labor. Equally as important as accountability is transparency, which implies that a company’s owners or managers will not only assume responsibility for their decisions but will communicate their reasons openly within and outside the company to stakeholders. For companies, transparency implies direct, open communication between company decisionmakers and key stakeholders such as employees, shareholders, and consumers. The annual general meeting of shareholders is a regulatory instrument to implement transparency and accountability. Other common ways are through websites, company newsletters and media messages, and increasingly advertising. Taken together, these two concepts manifest the measure of a company’s governance. Responsible Business Initiative 25
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