AtAkira Consult Limited we are heading out for a short break for the festive season. We hope it has been a rewarding year for you. As we take stock of the year that was, we have been looking for a comprehensive round up of the governance trends that made up 2023 and it seems like we may need to take more time in compiling that.
In the meantime, and as part of our efforts to keep updated on the latest global governance trends, we have been digesting the OECD – OCDE 2023 factbook. Why this one? Because it is sometimes relied upon as a balanced researched approach to raising the international standard for Governance. Granted Africa is marginally represented (only member being South Africa) though some of its data in the past has included Kenya. In any case, #bestpractice can be localised to suit national, legal and regulatory needs in order to support market confidence and bring about economic stability.
The 2023 factbook was the culmination of two years of research, adopted mid this year and endorsed by the #g20 leaders in September 2023. Their intent was to provide guidelines in corporate governance policy that facilitated access to finance from capital markets and as well encourage sustainable and resilient business- all this as the forerunner to the #cop28 summit.
The Factbook is divided into 6 chapters which we shall summarise below:
1. The basis for a corporate governance framework- for there to be a good framework, it must be backed by a sound legal and regulatory framework that market participants and citizens can rely on when entering into private contracts without limiting access to finance, innovation and #entrepreneurship . The laws could be supported by #corporategovernance codes with a comply or explain application to support individual corporate needs whilst encouraging compliance. It is also a good framework if enforcement paths and authorities are clear in order to maintain market confidence. Finally compliance should be made easy- digital is preferred and as well in order to support cross border access.
2. Rights and equitable treatment of shareholders- This chapter suggest equal or proportional rights for all shareholders whether minority, majority, foreign, institutional and corporate shareholders. Dependent on the jurisdiction, regulation that encourages the practices of equity and redress of shareholder concerns is important. The system should also prevent protracted litigation/activism by shareholders in order to support free enterprise. Some of the rights include to: a)secure methods of ownership registration; b) convey or transfer shares; c) obtain relevant and material information on the corporation on a timely and regular basis; d) participate and vote in general shareholder meetings; e) elect and remove members of the board; f) share in the profits of the corporation; and g) elect, appoint or approve the external auditor.
As well shareholder rights should include the right to approve or participate in decisions concerning fundamental corporate changes such as: i) amendments to the statutes, articles of incorporation or similar governing documents of the company; ii) the authorisation of additional shares; and iii) extraordinary transactions, including the transfer of corporate assets that in effect result in the sale of the company.
3. Institutional Investors, Stock Markets and other intermediaries- The framework should recognise that there are other influences to a corporate apart from single shareholders and these players and their ecosystem should be catered for. This may largely be codified outside the regulatory system and use the stakeholder management practices through stewardship codes to balance their influence and interests against ordinary shareholders and management. Disclosure on specific interests and intentions with corporate investments needs to be known in advance, in order for the right practices to provide equity are applied. The influence of intermediaries who include professional advisors should also be monitored as the impact of their advice and reports would affect the company.
4. Disclosure and Transparency- The framework should provide for accurate, timely and adequate disclosure of information needed for sound financial decisions. Such matters include defining what information is material enough (that which would reasonably influence an investors decision), frequency of disclosure and method of disclosure. Some disclosure items that would require disclosure include: financial results, sustainability efforts, capital structures & arrangements, beneficial and major shareholders, board composition and diversity, management team composition and remuneration policies, related party policies and disclosures, Risk factors and mitigations, Debt, Compliance to laws, accounting policies, external audit opinions and relationships with auditors. All these disclosures should be facilitated with ease.
5. Board Responsibilities. The frameworks should define what the role of the Board is, their relationship with management and accountability to the company and its shareholders. Board members chief responsibility is through independent judgement, offer strategic guidance, monitor risk factors, ensure compliance and generally act in the best interests of the company, while balancing all stakeholder interests. The board has a duty of care which it balances with a duty of loyalty. In all these acts performed by the Board, they should be defended appropriately from litigation. The Board should especially be aware of new areas of governance such as sustainability, effects of geo-politics, data management, ethics, diversity, tax risks and so on. Size of Boards and the workings of the Board through specific committees is also seen as good governance practice.
6. Sustainability and Resilience- Frameworks should encourage the firm to employ practices to ensure that the firm shall be present in the future to come. Many companies have signed up to the UN global compact, making them champions to its 10 principles. As well, #esgcompliancehas been on various companies strategic focus, and this is in line with the chosen transition paths by their respective nations. This is not only self motivated, but is also in line with where the world is moving, with responsible investing being a key part. Some countries have legislated over sustainability practices, especially in reporting. While the process may be at different stages for different countries, the point is to get started on the sustainability journey, which includes honest disclosure which is connected to a company’s vision, easily accessible and verified information, possible external assurance on sustainability efforts, risks in transition to sustainability, efforts in resilience of capital structures for the long term, recognition of stakeholder rights in the process and facilitation of these rights.
While the above just contains a summary, we encourage reading the entire text (https://rb.gy/6irsme) so as to confirm that your governance framework is on track with these principles. Certainly a good read and gives insight on what to improve come 2024. As always, we are happy to do the heavy lifting for you!