Corporate Governance & Managing Reputation Risk

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Corporate Governance & Corporate Governance & Managing Reputation RiskManaging Reputation Risk

Mike OkerekeMike OkerekeChairman, The Management School LondonChairman, The Management School London

President, BEEC International NigeriaPresident, BEEC International NigeriaChairman, Mike Okereke Consulting Ltd.Chairman, Mike Okereke Consulting Ltd.

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THE MANAGEMENT SCHOOL LONDON

B U S IN E S S

ED U C AT IO N

E XA M S C O U N CI L

BEEC INTERNATIONAL

B U S IN E S S

ED U C AT IO N

E XA M S C O U N CI L

BEEC INTERNATIONAL Mike Okereke Consulting Ltd

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Agenda Agenda

What is Corporate Governance?What is Corporate Governance? Corporate Governance Code in NigeriaCorporate Governance Code in Nigeria Global Corporate Governance Code – The Global Corporate Governance Code – The

British Case StudyBritish Case Study What is Good Risk ManagementWhat is Good Risk Management Enterprise – wide riskEnterprise – wide risk Best Practice in Risk ManagementBest Practice in Risk Management Public Relations Implication of Poor Risk Public Relations Implication of Poor Risk

ManagementManagement Conclusion Conclusion

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What is Corporate Governance?What is Corporate Governance?

Corporate Governance is the rigorous Corporate Governance is the rigorous supervision of the management of a supervision of the management of a company or organisation.company or organisation.

Corporate governance ensures that Corporate governance ensures that organisations are run competently, with organisations are run competently, with integrity and with due regard for the integrity and with due regard for the interests of all stakeholders. interests of all stakeholders.

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What is Corporate Governance? What is Corporate Governance? Cont.Cont.

Good governance is a mixture of Good governance is a mixture of

- Regulation- Regulation

- Structure- Structure

- Best Practice- Best Practice

- Board Competency- Board Competency

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Organisational ScrutinyOrganisational Scrutiny Corporate governance has come under Corporate governance has come under

increasingly intense scrutiny.increasingly intense scrutiny.

USAUSA ENRON, the 7ENRON, the 7thth largest American Company in largest American Company in

terms of capitalisation suddenly collapsed.terms of capitalisation suddenly collapsed. Reason – fraud scandal involving one of the Reason – fraud scandal involving one of the

world’s leading auditors.world’s leading auditors. After ENRON came more scandals from After ENRON came more scandals from

USA.USA.

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ITALYITALY

Then came the collapse of PAMALAT in Then came the collapse of PAMALAT in ItalyItaly

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BRITAINBRITAIN

Widely accepted as the leader in corporate Widely accepted as the leader in corporate governance had its share of the problem.governance had its share of the problem.

Some large companies had shareholders Some large companies had shareholders protest on unjustified payouts to directors.protest on unjustified payouts to directors.

A major oil company admitted that it A major oil company admitted that it misled the stock market about its reserves.misled the stock market about its reserves.

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NIGERIANIGERIA

In Nigeria there are some celebrated badIn Nigeria there are some celebrated badgovernance case studies:governance case studies: A major multinational food company A major multinational food company

admitted that it sent a false financial report admitted that it sent a false financial report to the market.to the market.

The Security & Exchange Commission The Security & Exchange Commission found the company guilty of producing found the company guilty of producing misleading financial report. The chairman misleading financial report. The chairman and board were black listed and sacked.and board were black listed and sacked.

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NIGERIA cont.NIGERIA cont.

A major multinational soap company also A major multinational soap company also admitted that it sent a false financial report admitted that it sent a false financial report to the Stock Exchange.to the Stock Exchange.

Central Bank of Nigeria sent five Bank Central Bank of Nigeria sent five Bank Chief Executives & their director packing Chief Executives & their director packing over corporate governance issues.over corporate governance issues.

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Corporate Governance Code in Corporate Governance Code in NigeriaNigeria

The view is held that weak corporate The view is held that weak corporate governance has been responsible for some governance has been responsible for some recent corporate failures in Nigeria.recent corporate failures in Nigeria.

To improve corporate governance and To improve corporate governance and ensure highest standard of transparency and ensure highest standard of transparency and accountability. The Security & Exchange in accountability. The Security & Exchange in September 2008 inaugurated a National September 2008 inaugurated a National Committee for the Review of the 2003 code Committee for the Review of the 2003 code of corporate governance for the public of corporate governance for the public companies in Nigeriacompanies in Nigeria

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Highlight of the CodeHighlight of the Code

Duties of the BoardDuties of the Board The board is accountable and responsible The board is accountable and responsible

for the performance and affairs of the for the performance and affairs of the company.company.

The board should define the company’s The board should define the company’s strategic direction & goal, ensure that strategic direction & goal, ensure that human & financial resources are effectively human & financial resources are effectively deployed towards attaining those goals.deployed towards attaining those goals.

The principal objective of the board is to The principal objective of the board is to ensure that company is properly managed.ensure that company is properly managed.

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Duties of the BoardDuties of the Board The board has the responsibility to oversee The board has the responsibility to oversee

the effective performance of the management the effective performance of the management in order to protect and enhance shareholder in order to protect and enhance shareholder value and to meet the company’s obligation value and to meet the company’s obligation to its employees and other stakeholders.to its employees and other stakeholders.

The board should ensure that the company The board should ensure that the company carries on its business in accordance with its carries on its business in accordance with its articles & memorandum of association and in articles & memorandum of association and in conformity with the law of the country.conformity with the law of the country.

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Duties of the BoardDuties of the Board The board must observe the highest The board must observe the highest

ethical standard.ethical standard. The board shall define the framework for The board shall define the framework for

delegation of authority.delegation of authority. The board shall identify risk and monitor The board shall identify risk and monitor

risks in the management systems.risks in the management systems.

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Duties of the BoardDuties of the Board The board shall be responsible for The board shall be responsible for

succession planning, the appointment, succession planning, the appointment, training & remuneration and replacement training & remuneration and replacement of board members.of board members.

Overseeing the effectiveness and Overseeing the effectiveness and adequacy of internal control.adequacy of internal control.

Overseeing communication policy.Overseeing communication policy.

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Duties of the BoardDuties of the Board Ensuring the integrity of financial reports.Ensuring the integrity of financial reports. Ensuring that ethical standard are Ensuring that ethical standard are

maintained.maintained. Ensuring compliance with the law of Ensuring compliance with the law of

NigeriaNigeria

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Structure of the BoardStructure of the Board The board should reflect the size of The board should reflect the size of

business.business. Membership of the board should not be Membership of the board should not be

less than five (5) and should not exceed 15.less than five (5) and should not exceed 15. The board should have a mix of executive The board should have a mix of executive

and non executive directors.and non executive directors. The board should be independent of The board should be independent of

management to enable it carry out its management to enable it carry out its oversight functions in an objective and oversight functions in an objective and effective manner.effective manner.

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Structure of the BoardStructure of the Board

For all public companies with listed For all public companies with listed securities, the position of the chairman securities, the position of the chairman and chief executive officer shall be and chief executive officer shall be separated and held by different separated and held by different individuals. The aim is to avoid the individuals. The aim is to avoid the concentration of powers in one individual.concentration of powers in one individual.

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BRITAINBRITAINThe combined codeThe combined code

Board Responsibility for Business SuccessBoard Responsibility for Business Success1.1. Every company should be headed by an Every company should be headed by an

effective board which is collectively effective board which is collectively responsible for the success of the company.responsible for the success of the company.

2.2. Chairman & Chief ExecutiveChairman & Chief Executive: There should : There should be a clear division of responsibilities at the be a clear division of responsibilities at the head of the company between the running of head of the company between the running of the board and the executive responsibility of the board and the executive responsibility of running the company’s business.running the company’s business.

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3. 3. Board Balance and Independence- Board Balance and Independence- The board should The board should include a balance of executive directors and independent include a balance of executive directors and independent non executive such that no individual or small group of non executive such that no individual or small group of individuals can dominate the boards decision making.individuals can dominate the boards decision making.

4.4. AppointmentAppointment to the Board- There should be formal to the Board- There should be formal rigorous and transparent procedure for appointment of rigorous and transparent procedure for appointment of new directors to the board.new directors to the board.

5.5. Directors Performance Evaluation- Directors Performance Evaluation- A board should A board should undertake a formal rigorous annual evaluation of its own undertake a formal rigorous annual evaluation of its own performance and that of its committees and individual performance and that of its committees and individual director.director.

6.6. Re-Election of Directors- Re-Election of Directors- All directors should be All directors should be submitted for re-election at regular intervals.submitted for re-election at regular intervals.

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7. 7. RemunerationRemuneration The level & make up of remuneration should be The level & make up of remuneration should be

sufficient to attract, retain & motivate directors of sufficient to attract, retain & motivate directors of quality.quality.

There should be a formal & transparent procedure for There should be a formal & transparent procedure for developing policy on executive remuneration and for developing policy on executive remuneration and for fixing the remuneration package of directors.fixing the remuneration package of directors.

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8.8. Accountability and AuditAccountability and Audit Financial Reporting:Financial Reporting: The board must present a balanced The board must present a balanced

andand understandable assessment of the company’s position & understandable assessment of the company’s position &

prospects.prospects. Internal Control:Internal Control: The board should maintain a good system The board should maintain a good system

of internal control to safeguard shareholders’ investment of internal control to safeguard shareholders’ investment and the company’s assets.and the company’s assets.

Audit Committee:Audit Committee: The board should established formal and The board should established formal and transparent arrangement for answering how they should transparent arrangement for answering how they should apply the financial reporting principles and for maintaining apply the financial reporting principles and for maintaining an appropriate relationship with the company’s auditors.an appropriate relationship with the company’s auditors.

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9. 9. Relationship with ShareholdersRelationship with Shareholders Dialogue with Institutional Shareholders:Dialogue with Institutional Shareholders: There There

should be a dialogue with shareholders based on should be a dialogue with shareholders based on the mutual understanding of objectives. The board the mutual understanding of objectives. The board as a whole has a responsibility of ensuring that a as a whole has a responsibility of ensuring that a satisfactory dialogue with shareholders take place.satisfactory dialogue with shareholders take place.

Constructive use of AGM: Constructive use of AGM: The board should use The board should use the AGM to communicate with investors and to the AGM to communicate with investors and to encourage their participation.encourage their participation.

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What is good Risk Management ?What is good Risk Management ?

Effective risk management is about Effective risk management is about taking risk responsibly.taking risk responsibly.

It is an excellent strategy for It is an excellent strategy for mitigating or preventing a possible mitigating or preventing a possible crisiscrisis

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Enterprise-wide RisksEnterprise-wide Risks

Enterprise wide risks can be group underEnterprise wide risks can be group under

(a)(a)Internal RisksInternal Risks People RiskPeople Risk Process RiskProcess Risk System Risk System Risk

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Enterprise-wide Risks contd.Enterprise-wide Risks contd.

People RiskPeople Risk Process RiskProcess Risk System RiskSystem Risk

FraudFraud Financial process & Financial process & ControlControl

Data SecurityData Security

Human ErrorHuman Error Customer Relationship Customer Relationship ManagementManagement

Data IntegrityData Integrity

Health & Health & SafetySafety

Project ManagementProject Management System System PerformancePerformance

ReputationReputation Supply Chain Supply Chain ManagementManagement

Capacity Capacity PlanningPlanning

LegalLegal Change Change ManagementManagement

Socio CulturalSocio Cultural

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External RisksExternal RisksExternal Risks can be group into two External Risks can be group into two

namely:namely:

1.1.Financial RiskFinancial Risk

2.2.Non Financial RiskNon Financial Risk

FINANCIAL RISK NON FINANCIAL RISK

Credit Risk Political Risk

Market Risk Competitors Risk

Liquidity Risk Socio Economic Risk

External Fraud

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Best Practice in Risk ManagementBest Practice in Risk Management

A well management company should A well management company should have a risk management policy and have a risk management policy and procedure.procedure.

It is the responsibility of the Board of It is the responsibility of the Board of Directors to set up the policy.Directors to set up the policy.

A well managed company acknowledges A well managed company acknowledges that risk are a fact of any enterprise life.that risk are a fact of any enterprise life.

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Best Practice in Risk Best Practice in Risk Management contd.Management contd.

The company is expected to be The company is expected to be entrepreneurial by taking risk but entrepreneurial by taking risk but must think through what could go must think through what could go wrong before taking the risk.wrong before taking the risk.

It then develops strategies to cope It then develops strategies to cope and contingency plans. Prioritizing its and contingency plans. Prioritizing its effort in favour of those events that effort in favour of those events that are likely to cause most damage or are likely to cause most damage or lead to greater losses.lead to greater losses.

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The process is complex and for good The process is complex and for good result, it must be comprehensive result, it must be comprehensive focusing not just on financial risk but focusing not just on financial risk but those that related to:those that related to:

The marketThe market CreditCredit LiquidityLiquidity TechnologyTechnology Legal Legal

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Health & SafetyHealth & Safety ReputationReputation EnvironmentEnvironment Business probity issuesBusiness probity issues

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Organizational Risk ManagementOrganizational Risk ManagementRisk Management is about:Risk Management is about: Effective use of resource through Effective use of resource through

improved process efficiencyimproved process efficiency The establishment of a sound system The establishment of a sound system

of internal controlof internal control The sharing of knowledge and good The sharing of knowledge and good

practicepractice The leveraging of technology to collect The leveraging of technology to collect

and analyze internal & external data.and analyze internal & external data.

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Organizational Risk Organizational Risk ManagementManagement

Audit & Review

Setting Policy & Procedure

Risk Assessment

Risk Treatment

Risk Treatment Evaluation

Source: IOD Corporate Governance

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Public Relations Implication Public Relations Implication for Poor Risk Managementfor Poor Risk Management

Poor management of risk can have Poor management of risk can have negative impact on the achievement negative impact on the achievement of business objective and shareholder of business objective and shareholder value.value.

DIRECT LOSSES – it could generateDIRECT LOSSES – it could generate Business crisisBusiness crisis Business closureBusiness closure Project failuresProject failures Litigation costLitigation cost

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Irrecoverable assets or fundIrrecoverable assets or fund Unexpected staff costUnexpected staff cost Regulatory damagesRegulatory damages Loss of marketLoss of market Physical damagePhysical damage TheftTheft Interruption in supply chainInterruption in supply chain Break in business continuityBreak in business continuity

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INDIRECT LOSSESINDIRECT LOSSES Brand value erosionBrand value erosion Reputation damageReputation damage Loss of market shareLoss of market share Loss of key staffLoss of key staff Loss of key customerLoss of key customer Increase insurance costIncrease insurance cost

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Crisis ManagementCrisis Management

Poor Risk Management generate Poor Risk Management generate crisiscrisis

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Corporate Governance & Corporate Corporate Governance & Corporate ReputationReputation

1.1. Corporate governance has come under Corporate governance has come under increasingly intense scrutiny.increasingly intense scrutiny.

2.2. Corporate governance and wrong doing Corporate governance and wrong doing impacts on the organization’s reputation.impacts on the organization’s reputation.

3.3. When companies fail, it has several When companies fail, it has several public relations implications such as:public relations implications such as:

Business closure.Business closure. Company failure.Company failure.

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Corporate Governance & Corporate Corporate Governance & Corporate ReputationReputation

Business crisisBusiness crisis Project failureProject failure Litigation costLitigation cost Break in business continuityBreak in business continuity Loss of market shareLoss of market share Brand value erosionBrand value erosion Reputation damageReputation damage Loss of key staffLoss of key staff Loss of customersLoss of customers Increased insurance costIncreased insurance cost Creditors lose their moneyCreditors lose their money Individual lose their savingIndividual lose their saving People lose their pensionPeople lose their pension

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Conclusion Conclusion

Good corporate governance ensures that Good corporate governance ensures that companies are run completely and companies are run completely and honestly and with due regard for the honestly and with due regard for the interest of the stakeholders.interest of the stakeholders.

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Corporate Governance & Managing Reputation Risk

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