There is considerable resistance to implementing corporate governance and corporate social responsibility, even within businesses that should know better. The mere mention of these words is often met with awkward shuffles in boardrooms. Mike Byrne talks to Maali Qasem, founder of Schema, about this thorny subject and whether or not real progress is being made to integrate these into the business community.
Schema is an advisory practice established in 2007 which provides frameworks and infrastructures to aid businesses with incorporating best practices in Corporate Governance (CG) and Corporate Social Responsibility (CSR).
Although these practices have been ingrained into Western businesses for over a generation, the importation of such standards into this region has long proven easier said than done. Maali Qasem admits that, while on the surface integration is being embraced, a closer examination shows that resistance is on-going.
"Some of the reasons include lack of awareness of what corporate governance entails, the value that corporate governance can bring to the business and the leadership to bring about successful integration. Even after overcoming such obstacles, which is slowly occurring in the region, to feel the impact of the changes will take time," she says.
She points out that, too often, there is a simple reason offered up as to why the region is dragging its heels on the issue. The simple importation of western practices to this region, where the political, economic and social landscape is very different has shown itself to be, in many instances, ineffective- carbon copied foreign standards often need to be tailored to accommodate such differences.
"To be honest I think the key factors first and foremost are resistance to change and limited realisation of the added benefits that corporate governance and responsibility bring with them. This region has many businesses which have been, and continue to be, family owned and family run. This poses a problem in itself with embracing an effective governance culture," says Maali.
"Considering our regional landscape, history and economic status, most family businesses are now at the stage of dealing with the third generation of family business owners, which is a key threshold. Most family businesses globally do not successfully hand over to the third generation - only about 33% succeed at this. With that in mind, family businesses are now actively seeking the structure that corporate governance brings with it along with the value of succession planning and the importance of creating a family constitution to ensure the growth."
But she admits that there will always continue to be resistance unique to family businesses, based on the emotional attachment to the business, although this is gradually being overcome by the added value that corporate governance brings.
Stumbling blocks
With the aftertaste of the worst financial crisis in over 70 years still looming, who can blame regional enterprises for wanting to stick to what they know? Small and medium businesses in the region have performed above expectations - adaptability, versatility and the ability to make quick decisions without the boundaries of corporate responsibilities has led to huge growth. But it has often been suggested that what businesses in the region gain with short-term versatile strategies, they lose with lacklustre long-term policies. This includes their approach to corporate governance as well as corporate social responsibility.
"Unfortunately, corporate responsibility is still perceived as a philanthropic practice that is handled on the side of the business," she admits. "As such, it is still lagging behind in terms of foresight, long-term strategy, and equally as important, integration into the business. In other words, genuine long-term commitment is either from within, based on a belief system that the business owners have, or driven externally from the need to do business globally or with global partners."
"It goes to show that during the recent financial crises, businesses that had invested in the strategic notion of corporate responsibility survived with flying colours and continued their corporate responsibility investments, whilst businesses that used corporate responsibility as a PR tool or a side component, were affected in the crises and substantially reduced their investments," she adds.
Multiple benefits
At the centre of most arguments for implementation of corporate governance and corporate social responsibility is the added value element. "Corporate governance and responsibility makes business sense. It is no longer simply a 'good thing to do' or a practice that is intended to make the business or business owners 'feel good'. It is a strategic business exercise that should be undertaken to ensure the sustainability of the business. It is worth noting that businesses that have invested in these to improve performance, lower costs, minimise risks and accordingly all that pours into the financial benefit of businesses," notes Maali.
She emphasises that with increased corporate responsibility in the workplace, it has been proven that employees are more satisfied and therefore perform better. "With increased corporate responsibility aligned with environmental practices, it has been shown that operational costs can be reduced and with more strategic corporate responsibility and engagement with the community, risks can be minimised and in some cases lower the risk threshold of businesses."
The road ahead
So where to go from here? How can businesses align their commercial objectives with corporate governance and corporate social responsibility measures, especially when we consider that the region is not out of the economic dip just yet?
"Although cost is often a concern, I have seen companies implement corporate governance and responsibility at very low budgets and in theory they don't need to be costly. For SMEs on the other hand, I would say that an influencing factor is also the lack of availability of resources to implement," adds Maali.
She continues: "There are common measures and best practices that we have seen successfully align corporate governance and responsibility (CGR) with commercial objectives. Rather than viewing the implementation of such standards as burdensome, CG should be used as a tool to achieve commercial strategic goals and objectives, in fact CG can be successfully used to understand and address current commercial risks," she says.
What Maali explains with clarity is that in order for it to be effective and to be more manageable, CG principles need to start from the top and be allowed to filter down through the business; by not limiting it to the boardroom or certain departments CG can become part of the culture, as opposed to an exercise invested in from time to time.
"In order for CG to grow and bear fruit strong leadership in demonstrating the affects of CG to the employees must happen. Allowing them to play an active role gives it all a more realistic and practical value," she says.
The demographic structure of the region would suggest that the increased interest in entrepreneurship and the rate at which new start-ups are emerging onto the market, there is certainly a role that private equity, venture funds and angel investors are playing to ensure the integration of CG practices such as risk management and whistle blowing principles. Therefore one should ask: is it the emerging businesses that need persuading of corporate governance or is it a case of winning over the well established and long-serving business minds in the region?
To keep yourself updated with the latest business news like Al Bawaba Business Facebook page and follow Al Bawaba Business Twitter feeds.
