Ignore Corporate Governance at your companies peril
After assessing 5 of the most admired companies on the Lusaka Stock Exchange (LSE), I believe it is prudent to provide a few enlightening comments regarding Corporate Governance. Firm value is of utmost importance when investors are looking at placing a bet on a company. However, one of the issues that is seldom considered is the importance of the governing fundamentals that ensure that value generation is protected. Stewardship and the character of a company do matter when it comes to decisions of investment. Furthermore, for companies that are small and medium size, embracing and understanding the importance of corporate governance can make the difference between a company that lasts for a long time or one that goes bust after its first successful cycle of value creation.
Why Stewardship Matters
Stewardship theory is an organization centered perspective of how managers of a company focus their energies on serving the firm by forfeiting their own agency based desires of self-interest. With that in mind, combined with stakeholder management, the two offer a potent combination in achieving a good corporation. However, the tenure of most boards can impeded by the desires of growth and high returns in the short term therefore impacting negatively on stakeholders who influence opinion about the firm.
Internal and External Characteristics of a Good Corporation
The endogenous characteristics of a good corporation steam from the stakeholder groups that include employees, managers and shareholders. This group, according to Kay (2015) of the Financial Times, view a good corporation as one that pays workers a living wage and develops their skills and capabilities. In addition, its managers spend more time supervising officers and attending to the factory or shop floor rather than being in meeting rooms of fund and investment banks (Kay, 2015). Conversely, the firm is expected to pay a dividend to its investors and reinvest some of its profits in the company’s growth.
The exogenous characteristics on the other hand according to Kay (2015) and Clarke (1998) relate to how it manages its relationships with the customers, suppliers, general public, bankers, environment and regulators. The expectations of these relationships is that they are not exploitative in terms of how the firm structures its pricing of goods and services. Suppliers to the firm have expectations of a stable and enduring relationship. Its bankers would expect the company to remain solvent and liquid in order for it to honor its obligations. The firm is expected to contribute to the formation progressive policies without engaging in corruptive lobbying practices. The general public expect its operations to not endanger or harm the community in any way. In addition, it is also expected to pay its fair share of taxes to the government in the geography of its operations. Failure to honor these obligations would sentence the firm to a label of a bad corporation.
After assessing 5 of the most admired companies on the Lusaka Stock Exchange (LSE), I believe it is prudent to provide a few enlightening comments regarding Corporate Governance. Firm value is of utmost importance when investors are looking at placing a bet on a company. However, one of the issues that is seldom considered is the importance of the governing fundamentals that ensure that value generation is protected. Stewardship and the character of a company do matter when it comes to decisions of investment. Furthermore, for companies that are small and medium size, embracing and understanding the importance of corporate governance can make the difference between a company that lasts for a long time or one that goes bust after its first successful cycle of value creation.
Why Stewardship Matters
Stewardship theory is an organization centered perspective of how managers of a company focus their energies on serving the firm by forfeiting their own agency based desires of self-interest. With that in mind, combined with stakeholder management, the two offer a potent combination in achieving a good corporation. However, the tenure of most boards can impeded by the desires of growth and high returns in the short term therefore impacting negatively on stakeholders who influence opinion about the firm.
Internal and External Characteristics of a Good Corporation
The endogenous characteristics of a good corporation steam from the stakeholder groups that include employees, managers and shareholders. This group, according to Kay (2015) of the Financial Times, view a good corporation as one that pays workers a living wage and develops their skills and capabilities. In addition, its managers spend more time supervising officers and attending to the factory or shop floor rather than being in meeting rooms of fund and investment banks (Kay, 2015). Conversely, the firm is expected to pay a dividend to its investors and reinvest some of its profits in the company’s growth.
The exogenous characteristics on the other hand according to Kay (2015) and Clarke (1998) relate to how it manages its relationships with the customers, suppliers, general public, bankers, environment and regulators. The expectations of these relationships is that they are not exploitative in terms of how the firm structures its pricing of goods and services. Suppliers to the firm have expectations of a stable and enduring relationship. Its bankers would expect the company to remain solvent and liquid in order for it to honor its obligations. The firm is expected to contribute to the formation progressive policies without engaging in corruptive lobbying practices. The general public expect its operations to not endanger or harm the community in any way. In addition, it is also expected to pay its fair share of taxes to the government in the geography of its operations. Failure to honor these obligations would sentence the firm to a label of a bad corporation.
Does the Lusaka exchange have some real good stories on companies in the line for some good paying of dividend going forward and adding good value on stock. If yes, would you recommend any to a amateur trader eying that exchange?
ReplyDeleteThe Lusaka stock exchange tries to be as current as they can in terms of information regarding announcements to shareholders and potential investors. However, to date there is no "good story" feature in their service offering. This is left to the brokers who if my guess is right, will sell you this information.
ReplyDeleteFHZPC blog attempts to breakthrough all that red tape and provide you just enough information about the listed company in order to assist in your judgement about a particular stock.