GROWTH FOR BUSINESS
Good Corporate Governance Is Everyone’s Business
VASSILIS VIZAS, TAX PARTNER, PwC GREECE
“Good corporate governance is about ‘intellectual honesty’ and not just sticking to rules and regulations.” —Mervin King, ex-Governor of the Bank of England
A legislative initiative in itself is not enough
Corporate governance is currently a trendy subject. Stakeholders such as company shareholders, employees, supervisory authorities, governments, and society in general increasingly focus on matters such as transparency in management and the quality of financial reporting, executive remuneration, the way in which businesses address environmental and sustainable development matters, and corporate social responsibility.
The recent introduction of a new legislative framework for sociétés anonymes (SAs) emphasizing on corporate governance matters comes therefore at a good time. The new regulations put the spotlight on issues such as:
- The new obligation to define a clear and transparent remuneration policy. Executive compensation is not as lively a discussion in Greece as in other countries, given the usually dominant presence of the main shareholder; however, since remuneration level and policy are closely linked to the need for continuous workforce upgrading, this obligation may be something more than a simple procedural compliance requirement and could be combined with a pursuit to attract and retain highly qualified executive talent in boards and management.
- The more effective operation of the various board committees as well as the structure and function of the board itself. The shift of important responsibilities to the board for matters such as related party transactions, the strict framework of responsibilities in taxation and insurance issues, the identification of board member responsibilities, and the emphasis of the new company law on preventing conflicts of interest will likely transform the practice of perceiving board positions as simply a formality that needs to be filled-in.
- Recourse to independent third parties who will issue opinions on whether the contract terms between a listed company and related parties are fair and reasonable.
Company law is not the only thing that has changed. The Greek crisis has raised the stakes in the area of corporate governance; the most obvious example is the transformation in the systemic banks’ management. Unfortunately, the crisis is also responsible for the shrinking of the Greek capital markets, a development that prima facie does not contribute to an environment where corporate governance is a priority. There is, however, a flipside: Such shrinking may lead to increased competition to attract international (debt or equity) investors, thus putting emphasis on the pursuit of excellence in corporate governance.
Suffice to say that a legislative initiative in itself is not enough. The behavior of management in situations of crisis or conflict of interest is critical in driving a true shift in culture.
In overview, good corporate governance is the willingness of a company to ask and respond to tough questions. Examples include an auditor challenging abnormal profitability of a remote subsidiary; an independent board member who raises issues of future strategy with the CEO; or the younger generation asking the patriarch of a family company about succession.
Equally critical is the role of the market and the supervisory authorities and how actively they ask difficult questions in order to distinguish between good and bad cases. Recent experience points a large share of responsibility on the market itself for not scrutinizing cases that, in retrospect, appear to be obvious instances of poor corporate governance.
The ball is in all stakeholders’ court to truly shift culture towards a genuinely good corporate governance model.