Corporate awareness can take care of risks, faulty governance

LAHORE: Global economic opportunities could still be exploited by Pakistan’s private sector, if its entrepreneurs develop special skills, flexibility and acumen in order to gather terrific advantages that would buffer them from the current confusion and the impact of risks.

The governance flaws that exist at the government level are present in almost all emerging economies of the region to a varying degree. The transparency score of India is six percent better than Pakistan and that of China four percent better than India, but all are rated among the corrupt countries of the world. 

Private sector in all these economies has factored in those flaws in their business models. However, success is higher among the private sector entrepreneurs that apply governance checks in their firms. They go for best practices that also align physical, mental, and strategic checks.

These measures reduce the chances of errors as margins in a globally competitive economy are sharp and any slippage may result in below par performance or even out right failures of the enterprises.

Risks to an enterprise are interconnected, which include supply of capital, disruption of markets, and volatility of values. Addressing the credit market and operations of banks are posing problems for most of the manufacturers. This means companies have to go back to the drawing board to identify, assess, manage, and structure risks.

It is important that organisations should now be cognizant of where it hurts. Ideally, they should also be aware of their major clients and suppliers and also the operations of banks all at the same time. Threats and opportunities come from many different sides. Assessing risks is crucial to have a better understanding of them.

The role of the assessment is to grow awareness. The best risks to manage are those that create more downside than upside. Finally, the structuring of risks consists of finding in the network of relationships of the business (investors, clients, suppliers, etc) the different risk exposures, and agreeing in risk sharing towards the least sensitive in order to create value for all.

Right attitude of the senior management in a volatile economic climate is absolutely essential. Instead of a blame game for failures, an honest reality check on competence should be undertaken by the senior management to find if the changes required were made in time. This implies careful assessment of the situation.

The senior management may have to take some painful decisions of liquidating high valued stocks of recent past at the current lower values to keep the wheels running instead of waiting for the values to increase and risk the closure of the manufacturing facility.

As major shifts happen both locally and globally, strategies need to be revisited. While strategic thinking is complex, and the building of strategies requires much work, there are ways to test the pertinence of overall strategic choices. Smart moves will lever the company’s distinctiveness, objectives, values, culture, capabilities in terms of skills and resources and resources in terms of assets, clients, and partners. These moves do not allow the company to fall into psychological traps related to over-confidence; and address significant market opportunities.

Quality leadership assures that all measures are consistently aligned towards the new goals fixed by them to drive towards success. Even the most capable leadership could err in decision, however if the risk control measures are in place the damage control would be easier.

Market disruptions by upstarts sometimes are so strong that even a capable leader may take a wrong decision. The problem multiplies if the failing leader lasts too long. In order to control that risk, governance rules need to apply, not to constrain but simply to make sure that if leadership failure occurs, it does not become too costly to the organisation.

Classical factors of governance failures are a domineering CEO, an inefficient board, conflicts of interest at board or senior management levels, compensation schemes that have strong side effects, and a board not well-aligned to its mission.

Once good governance is ensured, the structures are in place for continued corporate awareness. Once all governance checks are in place, the possibility of success of a company is enhanced even in tough times.