CHAPTER 1 What's good governance, and why should journalists care?

“Poor corporate governance has ruined companies, resulted in directors being sent to jail, destroyed a global accounting firm and threatened companies and governments.”

— The Economist (Essentials for Board Directors)

Good journalists can sniff a good story even in the most innocuous press release. But the phrase “corporate governance” doesn’t set off any alarm bells. However, these words will: _fraud, theft, waste, incompetence, doubledealing, nepotism, abuse of power, embezzlement, conflict of interest, favoritism, corruption. These terms light a fire under journalists, because they may lead to exclusive, groundbreaking stories that are the essence of good journalism.

Not all corporate governance stories are about scandals, however. They can be about heroes and visionaries, about brilliant ideas and charismatic leaders, about men and women who build great fortunes by giving the world new products and services that improve lives.

Governance, at its heart, provides the direction for a company or state-owned enterprise (SOE). Guidelines, standards and best practices established worldwide define what constitutes good governance, and a savvy business journalist quickly learns the difference between good governance and bad. Both can lead to great stories.

In this Guide, you will learn what constitutes good and bad governance; how to spot red flags; and where to find information about what company leaders are doing. You will find stories written by international reporters and tips and techniques for making stories clearer and more compelling for the audience.

Corporate governance describes the structures and procedures to direct and control companies, and the processes used by the board of directors to monitor and supervise management in discharging the board’s accountability to shareholders for the running of the company and the performance of its operations.

Corporate governance stories essentially are about people: shareholders who want to change company policies; struggles between directors — who are charged with setting the company’s strategy and policy — and managers, who might have different ideas. Transparency and accountability play a large role in such stories, along with actions by regulators, stock exchanges, shareholders and stakeholders. Journalists have a role in transparency by highlighting significant noncompliance. Without transparency, the system cannot work well.

“Corporate governance is about shining a light through the whole organization,” says Roshaneh Zafar, managing director/CEO of Kashf Microfinance Bank Ltd. in Pakistan.

Many journalists are already reporting on corporate governance without realizing it. Stories about excessive compensation or separation packages for CEOs are, in fact, about corporate governance, even if the words are never mentioned.

For a short description of corporate governance, see “Improving Business Behavior: Why We Need Corporate Governance,” from the Organization for Economic Cooperation and Development (OECD): http://bit.ly/J11k9R

Many journalists already report on corporate governance without realizing it. Stories about changes in leadership or new acquisitions are about corporate governance — even if the words are never mentioned.

Journalists’ primary interest is in the stories they can unearth by digging into a company’s strategy, oversight and transparency. But good governance does have a wider impact, documented by research, because it:

  • Encourages investment

  • Enhances investor confidence/interest, which lowers a company’s cost of borrowing money or raising capital

  • Boosts companies’ competitiveness

  • Better equips companies to survive economic crises

  • Makes corruption less likely

  • Ensures fairness to shareholders

  • Forms part of the overall checks and balances on big business that ultimately benefit society

Research shows that growth is particularly strong for those industries most dependent on external finance. The quality of corporate governance can also affect firms’ behavior in times of economic shocks. Well-governed companies have less volatile share prices in times of crisis.

The company might ultimately fail, leading to job losses and negative effects on the region where it operates. In some extreme cases such as government bailouts, taxpayers can be left holding the bag. A senior Italian minister estimated that that Parmalat’s bankruptcy cost the country’s economy about €11 billion.

For an overview on the influence of good governance, see “Focus 10: Corporate Governance and Development”: http://bit.ly/M2shli

Good corporate governance can help family-owned or -controlled companies survive succession battles that doom most such companies, says Joseph Fan, a finance professor and co-director of the Institute of Economics and Finance at the Chinese University of Hong Kong (http://bit.ly/M2txF7).