Definition of Governance
This is the manner in which power is exercised in the management of economic and social resources for sustainable human development.
It refers to the manner in which the power of a corporation (separate entity from its owners) is exercised in the stewardship of the corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfaction of other stakeholders in the context of its corporate mission.
It means the establishment of an appropriate legal, economic and institutional environment that allows companies to thrive as institutions for advancing long-term shareholders’ value and maximum human-centered development while remaining conscious of their other responsibilities to stakeholders, the environment and the society in general.
Five pillars of Good Governance
There must be an effective body responsible for governance that is separate and independent of management to promote these five basic tenets of Corporate Governance. These are namely:
- Accountability – leadership that must be ready to account,
- Efficiency and effectiveness – hence leadership for results and not poked down in process,
- Probity and integrity or Integrity and Fairness – hence leadership that is honest, faithful and diligent; obedient to the cannons of Natural Law of Justice and Rule of Law,
- Responsibility – hence leadership that is capable, representative and conscious of its obligations,
- Transparent and open leadership – Leaders should accurately and timely disclosure of information relating to all economic and other activities of the corporation; be true stewards!
Duties of the Board members and Senior Officers
Without being specific, these duties can be broadly grouped into two categories, namely:
- The duty of care, skill and diligence,
- The duties of fiduciary.
The Cardinal rule is that Board Members and Senior officers’ have a duty to act in the best interests of the Corporate strictly.
Perspectives of Governance Practices
There are three main perspectives: King III, WOCCU, and Kenyan model.
a). King III Perspective
The governance of corporations can be on:
- a statutory basis or,
- a voluntary basis or,
- a combination of the both the statutory and voluntary.
Corporate Governance has its roots in the Europe and North America. However, after the sagas of Enron, Word.Com. the honor has returned to “cradle” of mankind Africa, specifically South Africa; courtesy of the work done by the Institute of Directors in Southern Africa (IODSA). IODSA advocates the combination of voluntary and the statutory and voluntary bases in their publication titled the “King”.
The Statutory basis is also known as ‘comply or else’. There are legal sanctions for non-compliance. For example United States of America has chosen this by enacting Sarbanes-Oxley Act (SOX).
The combination of statutory and voluntary basis is also known as ‘comply or explain’. There is a code of principles and practices and in addition to certain governance issues that have been legislated. For example the 56 countries in the Commonwealth, including South Africa and the 27 states in the EU including the United Kingdom have adopted this basis.
Since “King” became the benchmark in Corporate Governance. Wars of semantics have been fought. For example the United Nations’ code is ‘adopt or explain’, the Netherland’s Code is ‘apply or explain’. The King Committee that drafted King III chaired by Mervyn E King, SC on 1 September 2009 has adopted the code from the ‘comply or explain’ to the ‘apply or explain’.
Because the issue that are is that ‘comply or explain’ regime denoted mindless response to the earlier versions of King Code and its recommendations whereas the ‘apply or explain’ regime shows an appreciation for the fact that it is often not a case of whether to comply or not, but rather to consider how the principles and recommendations can be applied.
b). World Council for Credit Unions (WOCCU) Perspective
The WOCCU has 3 approaches namely: External, Internal and Individual Governance.
All financial institutions, regardless of type, are expected to comply with these basic standards of transparency, auditing and financial reporting. Credit unions should comply with the International Credit Union Safety and Soundness Principles and their national legal and regulatory frameworks.
Unlike for-profit entities, credit unions exist to serve their members. Thus, credit unions must address this additional layer of governance related to their democratic, member-driven nature. This includes a commitment to “one member, one vote,” as well as adherence to the International Credit Union Operating Principles and the role of the general assembly as the highest governing body. The supremacy of the General Meeting!
In order to perform their collective duties, the individual board members and managers have an obligation to maintain ethical conduct and professionalism and to speak with a single voice once board decisions have been made. Board members are also expected to possess the skills and technical capacity necessary to fulfill their duties.
c). Kenyan perspective
Power Sharing in the SACCO. The centers of Power in a SACCO are: General Meeting (GM) (Annual or Special), Board members, Staff Members, Commissioner of Co-operative Development and Officials of SASRA.
To solve this challenge of too many centers of power the SACCO should adopt the internationally acclaimed best practice of “ King III”, be global villager using the perspectives of WOCCU and “home-made” using the KUSCO perspectives and comply with REGULATIONS of 2010 SACCO and Societies Regulatory Authority of Kenya (SASRA).
Word of Wisdom
“Know the letters and listen to silent voice of the spirit of our Laws and Codes”