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CORPORATE CORPORATE GOVERNANCE IN AFRICA: GOVERNANCE IN AFRICA:

A NEW STRATEGYA NEW STRATEGY

Karugor GatamahKarugor GatamahChief Executive OfficerChief Executive Officer

CENTRE FOR CORPORATE GOVERNANCECENTRE FOR CORPORATE GOVERNANCE

Paper presented at the conference titled “Corporate Paper presented at the conference titled “Corporate Citizenship: The Challenge for Africa” held at the Citizenship: The Challenge for Africa” held at the

Nairobi Serena Hotel, Nairobi, Kenya; Nairobi Serena Hotel, Nairobi, Kenya; January 18–22, 2004January 18–22, 2004

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INTRODUCTION INTRODUCTION THE CHALLENGE OF DEVELOPMENT IN AFRICA

The challenge of development the world over is to improve the human condition. As eloquently observed by the Government of Kenya soon after independence:

The ultimate objectives of all societies are remarkably similar and have a universal character. They include political equality; social justice; human dignity; freedom from want, disease and exploitation; equal opportunities and high and growing per capita incomes, equitably distributed . . .

[African Socialism and its Application to Planning in Kenya; Government of Kenya; Sessional Paper no. 10 of 1965]

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This indeed was the dream of all Africans at the dawn of independence.

Today, Africa is synonymous with grinding poverty, hunger, disease, illiteracy and death exacerbated by brutal, ubiquitous conflicts. The HIV-AIDS pandemic is yet another blow to a continent already on its knees.

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This state of affairs has been attributed to a number of factors:

The legacy of colonialism The perception of the Government as the provider

and equalizer Conflict and insecurity Lack of infrastructure as well as the social capacity

for development The HIV-Aids Pandemic Globalisation

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ADDRESSING THE CHALLENGESADDRESSING THE CHALLENGESThe common d has been largely due poor governance at all levels—public, economic and corporate. The most immediate priority for Africa therefore is to develop a system of governance that is suitable to the needs of the continent; that has the support of an informed and populace; that elicits the involvement and participation of all stakeholders and which relies largely on self-regulation but respects, recognizes and allows for the coercive power and authority of government to intervene to protect the public interest, settle conflicting claims and otherwise safeguard the security, liberty and freedom of society.

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Effective governance will create a conducive environment for the sustainable creation and distribution of wealth, enhance genuine and fruitful economic activity, improve living standards, eliminate conflict, facilitate regional integration and enable Africa claim its rightful place in the global economy.

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THE NEW PARTNERSHIP FOR AFRICA’S THE NEW PARTNERSHIP FOR AFRICA’S DEVELOPMENT (NEPAD)—A NEW DEVELOPMENT (NEPAD)—A NEW

STRATEGY FOR AFRICA’S DEVELOPMENTSTRATEGY FOR AFRICA’S DEVELOPMENT

The New Partnership for African Development [NEPAD] is a refreshing new approach to the underdevelopment of Africa:

It is conceived and driven by Africans.

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It goes beyond the political issues and recognizes that wealth creation is the business of the private sector. Sustainable creation and equitable distribution of wealth is only possible in a conducive environment that can only be created through the effective partnerships between the public sector, the private sector and civil society.

The African Peer Review Mechanism, NEPAD has the mechanism through which to monitor and evaluate progress with the stated objectives of NEPAD and, through peer pressure to force remedial action.

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Under NEPAD, the political leadership of Africa has in principle agreed to the following as priority thrusts:

Restoration of peace, security and stability with consolidation of democratic gains and strengthening of democratic structures and institutions;

Establishment and entrenchment of good economic and corporate governance;

Bridging the infrastructure gap and creating social capacity for development;

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Human resource development and capacity building;

Reduction of poverty and income inequalities through accelerated economic growth and sustainable wealth creation;

Reconfiguration of global financial architecture with emphasis on investment promotion and re-definition of relationships with development partners focusing on debt reduction, increased aid and aid reform;

Integration of the continent into the world economy and enhanced market access; and

Preservation and conservation of the environment.

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The leaders through NEPAD have gone further to initiate preparatory actions that would: Facilitate negotiations with the developed

world through a united African front; Highlight critical infrastructure projects; Create and enforce standards of political,

economic and corporate governance; Declare 2002 to 2012 the capacity building

decade for Africa; Rationalize the institutional framework for

economic integration.

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CORPORATE GOVERNANCE AS A CORPORATE GOVERNANCE AS A LYNCHPIN OF NEPADLYNCHPIN OF NEPAD

Corporate governance succinctly defined as the system by which corporations are directed, controlled and held to account embraces: Issues of public policy, the overriding national

values and ethics and the national priorities and consensus under which the “Licence to Operate” is granted to corporations;

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The system by which the legitimacy, relevance and compliance of the corporation is monitored, supervised and regulated—the national laws and statutes the conventions, standards, practices and procedures that regulatory authorities, the market, trade and business associations, professional bodies and the society promulgate or express to guide the conduct of business;

The self regulatory mechanisms by which the corporation governs and conducts itself to ensure that it remains legitimate, viable and competitive.

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THE KEY OBJECTIVES OF GOOD THE KEY OBJECTIVES OF GOOD CORPORATE GOVERNANCECORPORATE GOVERNANCE

• effectiveness of corporations • transparency, accountability and probity of

corporations • credibility of corporations • Sustainability and enhanced competitiveness of

corporations • Legitimacy, responsibility and responsiveness of

corporations • Ensuring the highest standards of corporate

responsibility, citizenship and business ethics

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Consequently, corporate governance primarily targets the leadership of corporations and seeks to promote:

Leadership for efficiency and effectiveness Leadership for probity Leadership with responsibility Leadership that is transparent and accountable Leadership with focused intelligence

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THE ROLE OF CORPORATE GOVERNANCE IN THE ROLE OF CORPORATE GOVERNANCE IN ENSURING GOOD CORPORATE CITIZENSHIP ENSURING GOOD CORPORATE CITIZENSHIP

AND SOCIAL RESPONSIBILITYAND SOCIAL RESPONSIBILITY• Corporate governance concerns itself with not just the

conformance of corporations to essential standards of fiduciary management but also with competitive performance and their capacity for long term sustainability.

• The corporation operates in society, on the basis of the licence granted to it by society through the process of incorporation, for society. Corporations are expected to add value to the society (perform) and to do so in a responsible manner (conform). This is the basis of corporate citizenship and social responsibility.

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• In Africa, corporate citizenship and social responsibility must be understood against the backdrop of the concept of African mutual social responsibility.

• An extension of the African family spirit to the nation as a whole. It implies a mutual responsibility by society and its members to do their very best for each other with the full knowledge and understanding that society cannot prosper without the full cooperation of all its members.

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• It is important to bear in mind that the real power of a corporation to affect society lies in its primary purpose as the wealth creating and wealth producing organ of society—primarily how it goes about this; the extent to which it achieves this; and the extent to which its practices impact either positively or negatively the society in which it operates. Good corporate citizenship implies meeting, within reason, the expectations of all stakeholders.

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• Corporate social responsibility on the other hand has been defined by the Commonwealth Association for Corporate Governance as the distinctive contribution a company makes to the advancement of society or alleviation of social concerns, usually through some form of investment in partnership with the community which may include government.

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• This is in recognition of the fact that the higher purpose of private enterprise is to build social and economic conditions which shall promote the well being of the community on which the enterprise depends of its survival and that private enterprise is financially and technologically equipped to participate actively in social development in terms of scientific technology and managerial competence and that private enterprise, together with other sectors of society, shares obligations and responsibilities which it must discharge to the community.

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RAISING THE STANDARDS OF RAISING THE STANDARDS OF CORPORATE GOVERNANCE IN AFRICACORPORATE GOVERNANCE IN AFRICA • The systems of corporate governance in Africa

have largely been weak and standards low. In raising these standards to international standards, the peculiarities that characterize Africa must be taken into consideration and approached in such a manner that they are viewed as African standards, developed, formulated and ratified by Africans for the well being of Africa. This indicates the great diversity of enterprises.

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In addition, the following largely country specific circumstances must be borne in mind:

Public Governance The Regulatory and Supervisory Environment Self Regulatory Corporate Governance Society expectations and aspirations

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Africa first and foremost needs to agree the guiding principles which should be in line with the internationally accepted principles and develop the requisite human and institutional capacity to implement good corporate governance at national level as well as the regional capacity to coordinate the national initiatives and share learning.

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THE ROLE OF THE CENTRE FOR THE ROLE OF THE CENTRE FOR CORPORATE GOVERNANCECORPORATE GOVERNANCE

Headquartered in Nairobi, Kenya, The Centre for Corporate Governance (previously the Private Sector Corporate Governance Trust) is an initiative to improve the quality of life of the people of Africa by fostering the adoption and implementation of the highest standards of corporate governance so as to improve the strategic leadership of enterprises to enhance their profitability, effectiveness and competitiveness in the borderless global market while ensuring that they uphold the highest standards of corporate responsibility, citizenship and ethics. This it does through capacity building at both the national and regional level.

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WITHIN THE BROAD FRAMEWORK OF WITHIN THE BROAD FRAMEWORK OF NEPAD, THE CENTRE SEES ITS ROLE AS TO:NEPAD, THE CENTRE SEES ITS ROLE AS TO:

• Coordinate corporate governance initiatives in Africa and facilitate agreement on minimum principles of best practice that are compatible with international standards.

• Support the establishment of national initiatives on corporate governance where they do not exist and help build capacity to implement good corporate governance practices.

• Facilitate the exchange of information and experiences and promote joint programmes and research as would lead to optimal use of limited resources.

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• Support the African Peer Review Panel develop credible instruments for the corporate governance review and assist in implementing and facilitating the in-country reviews.

• Under the auspices of the Pan African Consultative Forum on Corporate Governance (PACFCG) of which the Centre is the Secretariat, the groundbreaking work is already underway.

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• PACFCG is a biennial event that attracts participation from across all parts of Africa and from all sectors—the private sector, government, academia and civil society—and enjoys the support of multilateral and bilateral development partners and major international institutional investors. It brings together parties interested in the promotion and implementation of corporate governance in Africa to forge consensus on concepts, standards and methods of corporate governance and to formulate action plans for the continent.

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The inaugural meeting held in Johannesburg South Africa in July, 2001 recognised the criticality of corporate governance in Africa’s development. It defined role of the PACFCG as being to:

raise awareness of the significance of corporate governance to the sustainable development of Africa;

forge consensus on concepts and methods of corporate governance that can usefully be deployed on the continent;

develop action plans for the implementation of good corporate governance standards and practices across all sectors of enterprise in Africa; and

contribute to, and learn from, the global policy dialogue on corporate governance and its role in the international financial architecture.

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The second forum held in Nairobi, Kenya in July, 2003 further agreed that: Africa needs to promote corporate governance

through the banking system, development finance institutions, cooperatives, micro-finance institutions and in small and medium enterprises , in addition to efforts now being made to promote good corporate governance through capital and other the equity markets; the central banks and state owned enterprises;

Those countries which have not yet set up national task forces should be encouraged, facilitated and or assisted to do so as soon as feasible.

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• Since some countries had already commenced training courses for directors generally and of State Owned Enterprises in particular [ after recognizing their socio- economic significance and the need for specialised induction for their directors] it would be mutually beneficial if those countries agreed, were encouraged and enabled to share their experience with others that are willing to commence similar programmes.

• A vital role can be played by investor associations, and all countries with stock exchanges should be encouraged to form such associations to create awareness of the rights of stakeholders.

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• African countries must do much more to mobilise and attract domestic savings for investment in their respective corporate sectors so give greater confidence to international investment funds seeking opportunities in African markets.

• There is a critical need to forge trust among all the key players in the economic system based on ethical business conduct, and a code of ethics for all who deal with the enterprise, with particular emphasis directors, executives, employees, suppliers and any others who play in the efficient conduct of enterprises.

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• There is need to ensure that the views of Africa are expressed in the global policy dialogue and especially at the OECD fora.

• PACFCG should work in close collaboration with NEPAD and the African Union to promote good corporate governance in parallel with reforms for improved democratic & political and economic governance agreed upon by the Summit of the African Heads of State and Government and deemed to be preconditions to reverse the abject poverty, backwardness and marginalisation of the continent.

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Since its establishment, the Centre has: Developed generic principles of corporate

governance and sample code of best practice. Developed guidelines for state owned corporations

and shareholders. Facilitated the set up of the Kenya Shareholders

Association Facilitated the set up of the Institute of Directors of

Kenya. Trained over 1,500 directors in all the regions of the

continent, Developed post graduate programmes in corporate

governance which are ongoing.

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• As the secretariat of the Pan African Consultative Forum on Corporate Governance, the Centre has worked closely with donors and development partners to organize the two major fora to deliberate issues of corporate governance in Africa and to set up an interactive website www.corporategovernanceafrica.org, a valuable resource for information on corporate governance initiatives and activities in Africa. It also continues to participate actively in various international fora to provide the African perspective in the global debate on corporate governance.

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CONCLUSIONCONCLUSION

Good corporate governance will ensure that corporate entities provide not just economic value but also social value. That they truly become the engines of economic and social transformation. The Centre is committed and looks forward to working closely with NEPAD to raise the standards of corporate governance in Africa for the economic and social transformation of the continent.