Norm A.’s Post

Assalamualaikum & Good day to all. Let me share how poor Corporate Governance led to the failure of a large organizations. Part 1. Corporate governance failures in large organizations often stem from a combination of factors that weaken internal controls meant to prevent mismanagement, fraud, or excessive risk-taking. Despite having governance structures, failures can occur due to human errors, unethical conduct, or systemic weaknesses. Some common causes include: 1. Lack of Accountability and Oversight In complex organizations, fragmented responsibilities and bureaucracy can dilute accountability. Decision-makers may not be held responsible for poor actions, and boards may lack the independence or oversight needed to restrain management. Example: Enron (2001) – Enron’s collapse is a notorious case of governance failure. Executives concealed massive debt through accounting fraud, and the board failed to properly oversee the company. Weak governance allowed unethical practices to persist. 2. Over-concentration of Power Excessive power concentrated in a single executive or small group can erode governance. If CEOs dominate the board or bypass controls, mismanagement and fraud become more likely. Example: Lehman Brothers (2008) – The company’s downfall was driven by risky financial decisions and a lack of scrutiny. CEO Richard Fuld’s influence went unchecked by the board, contributing to the firm's bankruptcy and the broader financial crisis. 3. Ineffective Risk Management Organizations that lack strong risk management frameworks may take on excessive risk, ignoring early warnings. Often, the board or senior management fails to act on red flags. Example: BP Oil Spill (2010) – The Deep Water Horizon disaster resulted from BP’s failure to prioritize safety. Despite repeated warnings, cost-cutting measures were prioritized over risk management, leading to an environmental catastrophe. 4. Ethical Lapses and Cultural Issues An organization’s culture plays a critical role in governance. If unethical behavior is tolerated, even strong governance frameworks can collapse. A culture that prioritizes profits over ethics or silences dissent increases the risk of failure. Example: Volkswagen Emissions Scandal (2015) – Volkswagen’s deliberate cheating on emissions tests revealed deep flaws in its governance and corporate culture. Performance pressures led to ethical compromises, despite governance mechanisms being in place. Please continue reading Part 2 in the next post. Rossmini 9 pm 28.9.24

An important and comprehensive Resolution Plan document published by Morgan Stanley incorporating the main three pillars of resolution, in addition to the inclusion of the related strategy and overall resolution governance framework. #GRC #Resolution #resilience #operationalresilience #riskmanagement #governance #recoveryplan #businessdisruption #businesscontinuity

The third area of our recently published ESG report is dedicated to Corporate Governance. ComAp follows best practices in Corporate Governance, including the UK Corporate Governance Code. “We have always been inclined towards UK governance standards. They offer a principle-based system rather than a strictly rule-based system, commit to transparency, focus on board independence and accountability and clearly separate roles of Chair and CEO,” explains Libor Mertl, one of the founders of ComAp and a Board Member. ComAp will also implement International Financial Reporting Standards to increase its transparency and is committed to maintaining zero instances of bribery, adhering to anti-trust regulations, and complying with applicable sanction regimes. ComAp has also established a global whistleblowing guideline and internal system, including appointing a dedicated whistleblowing officer to ensure transparency and accountability. Read more about our governance and other topics from our recently published ESG report for 2023: https://lnkd.in/dPZWrwtT

Internal controls help your #highereducation institution run efficiently and safeguard against errors and fraud. Here’s how to establish procedures that address risks in your corporate governance and cash/investment management.

It has been a while since I last shared here—not exactly a hiatus, but a deliberate period of quiet observation, academically and professionally. Since qualifying as a Barrister and Solicitor in Nigeria and embarking on an LLM at the University of Bristol—a truly transformative experience—I have been reflecting on my journey and refining my perspectives on the areas I have fantastically immersed myself in. As this final quarter inches toward its close, I feel compelled to shift gears—to share my insights and engage more deliberately in (more) nuanced conversations. Over the past two years, I have worked across spaces that continue to intrigue me: Corporate M&A, bolt-on acquisitions by private equity, and ESG finance. To kick this off, I recently authored a paper, "Bridging Informational Asymmetry in Corporate M&A: Redefining Enhanced Due Diligence with the Weinstein Clause." This (relatively short) paper examines the (promising) profound influence of the Weinstein Clause on M&A due diligence processes —extending the scope for addressing informational asymmetry to ethical misconducts. By mandating disclosures of prior misconduct by key executives of the Target, the clause can potentially address reputational risks, recalibrates informational asymmetries, and aligns M&A practices with evolving corporate governance norms. My analysis also highlights its limitations, including jurisdictional complexities and over-reliance on seller representations, to make a case for enhanced verification mechanisms to preserve deal value in today’s accountability-driven landscape. I trust it will make an insightful read. The preprint is available on SSRN here: https://lnkd.in/erMnTfEb

Governance is critical for in-house lawyers in ESG. It involves compliance, ethics, and risk management. Learn how to integrate governance principles into your strategy with Practical Law: https://ow.ly/ftrB50TS115

Governance starts from the top - at the board level - in setting the culture of the company. But execution throughout the organisation is key. Board governance and operational governance are intertwined and important. Yet operational governance is often overlooked. Back in my investment banking days I remember receiving a call from a client, that I had serviced for years and had a great relationship with, asking me to stop calling him. For a split second I thought "sh*t! what did I do?" but then my client proceeded to tell me, with a slight jokey lilt in his voice, that I and my analyst colleagues combined were providing 25% of ALL of my bank's resources into the client as a whole. This was based on a call his Chief Investment Officer had received from our then head of sales. Long story short, the issue was that two of our analysts had been selecting the 'bespoke email' option on the time management system for generalised emails they were sending to all of their clients. Worth the equivalent of a 30 minute call, the data was actually suggesting that these analysts were engaging with clients 48 hours per day. The underlying problem was the assumption that the data from the system was a fair reflection of what was happening in reality and management were relying on that to make decisions. (You'll be pleased to know that I continued to call my client and add value to their investment process!)  One of the most significant governance failures in recent memory occured with the postal service in the UK, The Post Office which exemplifies that sometimes even when a system is followed and followed to the letter, the wrong outcomes still happen. The issue? The system and oversight of that system. The Post Office scandal involved faulty software, provided by Fujitsu and known as Horizon, creating false shortfalls in the accounts of thousands of sub-postmasters. It has been described it as one of the most widespread miscarriages of justice in British history. Between 1999 and 2015, over 900 sub-postmasters were convicted of theft, fraud and false accounting based on faulty Horizon data, with about 700 of these prosecutions carried out by the Post Office. Nearly all of today's Sunday Brunch for The Sustainable Investor comes from Mimi Ajibadé PhD FCG, a sustainability/ESG and corporate governance expert with over 20 years’ experience and founder of COGENT GOVERNANCE. Mimi brings a unique perspective in understanding the interlinkages between leadership and operations; between board governance and operational governance. She dives into The Post Office scandal telling a tale of two operational governance failures, limitations of board governance and lessons learned and recommendations. Link in comments 👇

My views on the Top 5 critical factors contributing to failures in Corporate Governance: 1. Knowledge Asymmetry: Lack of Transparency and accountability is the # 1 factor, where the Board (mainly) is not properly informed about the company's operations, its cash flows and financial situation. Boards must focus on ensuring that the MIS generated is complete and all relevant stakeholders are on the same page. Board Agenda papers have a critical role to play in this regard. 2. Ineffective Board Governance: Independence of board members is a common factor. Independence comes into play when Members do not possess the requisite skills and experience to provide proper oversight. In the current context, not possessing expert knowledge of GAAP, poor knowledge of the Regulatory environment, Risk Environment, Information Technology, will almost certainly contribute to a weak Board. Independence is not merely about getting too close with the Promoters/Management. 3. Conflicts of Interest and Ethical Lapses: Related Party transactions are not merely about 'arms length' or disclosures; a significant number and amount of such transactions invariably raise doubts about value systems, nepotism. A case in point is a much publicized case of dispute between two promoters of an airlines company that eventually impacted reputation and financial health. 4. Managing Governance across Conglomerates: Some of the recent scandals to hit our world has been the failure of Holding company Boards to manage governance, risk and controls across its subsidiaries and associates. The complexities associated with establishing effective culture of governance and value systems across entities within a Group have not been understood and dealt with effectively by Regulators in drafting Governance Frameworks and Codes. 5. Ineffective Whistle blower policies: The Regulations do not provide for strong deterrents to those pursuing whistleblowers; as a result, most people consider risk of getting 'pursued and caught out' as very high. As a result, most cases of management frauds go unpunished. Governance Regulations and Frameworks as they exist today are archaic and mostly ineffective dealing with these complexities; all this will require a paradigm shift in addressing governance failures.

The Role of DAOs in Reshaping Corporate Governance

As we explore the transformation within the financial industry’s culture post-crisis, we also provide steps for leaders to take to establish and sustain a strong culture and ethical conduct within their institutions. Read more from Protiviti's Compliance Insights newsletter. https://ow.ly/3MLt50SmtEO #Protiviti #Compliance #FinancialServices #Culture