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From failures comes growth

WITH the hype surrounding the collapses of listed companies such as Enron, HIH and Worldcom, a new business type is starting to emerge – corporate governance consulting.

The Federal Government gave two potential answers to the corporate governance-driven investor confidence crisis last month – its ninth Corporate Law Economic Reform Program instalment and the Charles Report from a joint parliamentary committee.

It has also funded the National Finance Industry Training Advisory Body to research the full spectrum of personal competency standards for company directors.

NFITAB national project manager Deen Sanders said it was expected the research would answer a number of crucial questions.

“For instance, what is corporate governance and what are the behaviours of corporate governance expected of a director?” he said.

“This project is not designed to identify another layer of regulation or complexity, but instead to provide a synthesis of the current political, professional and corporate perspective on corporate governance and how it might be captured in personal competencies for directors.”

Accounting firms such as PricewaterhouseCoopers and BDO are already offering corporate governance services. Indeed, they have been doing so for several years.

PricewaterhouseCoopers managing partner Andrew Edwards said corporate governance had become top of mind for most company directors and those who advised them.

He said his firm had been offering various corporate governance services for years.

“It’s a hard question as to where the [corporate governance] debate will sensibly end up,” Mr Edwards said. “There are two sides to corporate governance – one is to design the procedures and protocols. The second involves the corporate culture.”

He said CLERP9 offered a good corporate governance framework.

“However, it’s all about having the right attitude. It comes down to boards acting out CLERP9 both to the spirit and the letter of the law,” Mr Edwards said.

BDO managing partner Geoff Brayshaw said corporate governance was big business.

“Some aspects of corporate governance involve some training. We can do some work in properly structuring audit committees and can drill down into how the internal audit committees fit into that,” he said.

“We can also advise on structuring the board and the remuneration committee.”

Mr Brayshaw said companies could have both codes of conduct and ethics statements.

“Codes of conduct spell out the company’s legal responsibilities,” he said.

“Ethics statements take you beyond the letter of the law. It’s about where we want to position the company.

“In my view, in terms of listed companies, there will be a premium for reputation. However, to catch onto it you need to be transparent about it. The best decontaminant is sunshine. This means you have to disclose all of the things you are doing.”

Consultants such as former Perth City Council CEO Garry Hunt have started businesses offering services in this area.

Mr Hunt said there was a greater demand for corporate governance – both in the corporate and government spheres.

“One of the reasons I went into this is because, in my view, in the hurly burly of business the governance side of operations often gets overlooked,” he said.

“It’s a huge market that’s been largely untapped.

“Governance is about the decision-making processes and adhering to the law and good business practices.

“In small businesses the problems come when it grows. As the business grows the managers often don’t grow the business systems with it.

“The trouble is corporate governance is not sexy. People don’t want to have to spend money on record keeping and accounting systems.

“However, the small business mortality rate is largely due to the lack of such systems.”

Mr Hunt’s company, Governance Systems Management, has a multi-million dollar three-year contract with Brisbane City Enterprises to provide corporate governance services to South African local governments.

“They have brilliant systems there. What they lack is the people with the skills to work within them,” Mr Hunt said.

Academic institutions are also starting to put greater emphasis on corporate governance.

University of WA Graduate School of Management senior lecturer Tim Mazzarol said the GSM touched on corporate governance in several of its units.

“It tends to fall in the legal standards area but I think corporate governance is more than that. It should be a big part of business ethics,” he said.

“I think there ought to be a lot of demand for teachings in this area.

“My interest in this area is in smaller companies that are growing. They need to set up a corporate structure that protects their interests and their shareholders’ interests.

“Unfortunately a lot of these companies have corporate structures forced on them by venture capitalists.

“The venture capitalists need to protect their investment.”

Dr Mazzarol said the focus on corporate governance only came about because of the spectacular collapses of large public companies.

“We should have learnt our lessons in the 1980s,” he said.

“My students are currently studying News Corporation and have come across huge examples of corporate governance standards being breached.

“[News Corporation chairman] Rupert Murdoch has frequently gone and seized opportunities to undertake acquisitions without gaining board approval. Because he’s successful, nobody really minds.

“But when you see Enron and HIH go horribly wrong you get some concerns.”

Industry bodies such as the Australian Institute of Company Directors have been swamped with demand for corporate governance courses.

In the past financial year the AICD has experienced a 27 per cent increase in enrolments and has been forced to put on additional courses.

However, with the hype surrounding corporate governance there is a fear that companies could become too focused on the issue.

PricewaterhouseCoopers risk management partner Simon Ford said he believed the corporate governance mania was something that corporate Australia needed.

“In Australia we may think the hype is a bit much because we haven’t really had the same issues as the US,” he said.

“However, until people know what the full corporate governance framework will be, it will be hard to tell. The Australian Stock Exchange has been asked to put together best practice corporate governance standards for listed companies.

“However, we don’t want companies getting involved in too much bureaucracy either. That’s why we see risk management as so important.”

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