Directors must ensure corporate governance
Corporate governance consultant Patrick Chisanga has said that every director must ensure that they grasp a good understanding of the principle of sound corporate governance on a continuous basis.
He was speaking at an IFC Global Corporate Governance Forum held in the city yesterday.
Directors’ comfort lies in ensuring strict compliance with sound corporate governance principle and practices in organisations, in particular, ensuring that check and balance are in place, he said.
“If directors hold none or very little of the equity shares of the company they work for, what is to stop them from inefficiently concentrating more on achieving short-term profit and hence maximizing their own bonuses not bothering to look for profitable new investment opportunities or for that matter giving themselves high salaries and perks?” he queried.
He added that one power that shareholders possess is the right to remove directors from office.
He said, but shareholders have to take the initiative to do so, and in many companies, they lack energy and the inclination to take such steps for various reasons.
Chisanga also said that ultimately shareholders could vote in favour of a takeover or removal of individual directors or entire board, but this may be undesirable.
“In the context of the agency, accountability means that the agent is answerable under contract to his principal and the agent must account for the resources of his principal and the money he has gained by working on his principal’s behalf.”
“Two problems potentially arise with the issue of accountability. Firstly, how does the principal enforce this accountability? Secondly what if the agent is accountable to parties other than his principal, how does he reconcile his possibly conflicting duties?” he said.
He added that fiduciary duty is imposed on directors because of the trust and confidence in which they stand.