Cronyism and corruption
Some ongoing corporate governance concerns
It has been a while since I contributed to OUP’s corporate governance blog, which I share with Professor Chris Mallin. So I thought that, rather than focusing on a single theme, I would comment on issues that are currently concerning directors and their professional advisers around the world.
In particular I will address shareholder communication, shareholder engagement, executive compensation, cyber security, and the challenges of cronyism and corruption.
Cronyism and corruption
Most major companies operate through subsidiary and associate companies, with supply chains, business operations, and marketing systems around the world. For the board of the holding company in, say, New York or London that can present a significant challenge.
Of course, boards expect those around the world who report to them to stay within the laws and regulations of their respective countries. But cultures and business traditions differ. The way business is done and the expectations of key players may be significantly different from Western norms. Government contracts may traditionally be awarded only after the decision makers are rewarded. Cronies may get preferential treatment. Buyers or sellers may expect bribes or look for reciprocal rewards.
Corruption remains a basis of business in some places, as can be seen in recent corruption scandals in Brazil and Malaysia. China, India, and Nigeria also suffer from endemic bribery and corruption, although their respective leaders are making significant efforts to root it out. A recent study by UK law firm Eversheds (Times, 9 May 2016) found that almost two thirds of UK directors believed that their anti-corruption policies did not work, and recognized that this was an important issue for their company.
The moral compass of companies is set at the top. Establishing and maintaining the corporate culture is an essential part of the governance of every corporation. That means more than just publishing codes of business ethics and corporate procedures. It is reflected in the decisions the main board itself makes. For example, what is the board’s attitude towards aggressive tax avoidance and the movement of group funds through tax havens?
An important corporate governance duty of every director is to ensure that the company sets appropriate standards of business behaviour and confirms that they are followed everywhere that the company does business. The chairman of the board has a vital leadership role.
Bob Tricker, May 2016
(for more on Professor Tricker’s publications and videoed lectures see www.BobTricker.com)