Wednesday
September 15
2010

Oscar Abello

The “Gandhi Approach” to Better Governance

Editor’s note: This post is part of a series focusing on the impact of corruption and poor governance on enterprise and development in the “bottom of the pyramid.” Click here to read other articles in the series, written by NextBillion Staff Writer Rebecca Regan-Sachs.

Sunlight is the best disinfectant, and it also complements the nourishing waters of capital for growing successful businesses. Without both, you can’t expect much to grow; there may be an exception to the rule here or there, but a few tall trees do not make a forest. Good corporate governance comprises the financial transparency, ethical codes of conduct and shared decision-making that represent sunlight to businesses of every size.

At the very heart of corporate governance is the separation between ownership and management roles. Why would a small business owner want such a separation? For the holy grail of growth and scale. Microcredit, formal and informal loans from friends or family can get you only so far; when you start to attract equity investors, who become part-owners, you start lifting micro-enterprises over the hump and into real SME scale.

That said, implementing a corporate governance structure within a small business remains fraught with challenges. In Pakistan, CIPE partnered with the Pakistan Institute of Corporate Governance and the Institute of Chartered Accountants of Pakistan to create The Corporate Governance Guide for Family-Owned Companies. Gathering input from private sector stakeholders through five focus group sessions and two public roundtable discussions, the guide lays out a basic framework for shareholder rights, codes of ethics, financial reporting and shared decision-making.

While none of those practices are fool-proof safeguards against bribery, nepotism, embezzlement and other forms of corruption, the fact that they become subjects for discussion in the context of daily business operations is a huge first step in the right direction. Rather than remaining a black box of unspoken customs, governance (especially the negative impact of weak governace) comes into the sunlight.

Good corporate governance can in turn spread virally. As entrepreneurs and investors experience the business benefits of corporate governance, including improved competitiveness and new sources of capital, they encourage their peers to join them or to seek similar opportunities. And people aren’t purely economic beings; as they come to benefit from better governance in the economic sphere, they also begin to demand these practices from the political sphere.

Public officials, for better or for worse, take few things more seriously than the growing expectations of a thriving business community. In the Philippines, for instance, CIPE partners with the Institute of Corporate Directors to annually rank Filipino companies on corporate governance metrics. Participation rose from 49 listed companies in 2005 to 171 in 2008. These companies reached an average score of 72 percent in 2008, a significant improvement from an average of 53 percent in 2005. And in a country where corruption was once accepted as the norm, recently inaugurated President Benigno Aquino has launched a “Truth Commission” to begin investigating the corruption and fraud under the previous administration. While it remains to be seen whether the commission is actually effective, expectations have changed.

It could be called the “Ghandi” approach to improving governance and fighting corruption: businesses, even and especially the smallest and most numerous businesses, can become the change they wish to see in the world. While improving governance is the obvious antidote to corruption, good governance takes time to develop and perfect. Whether you think of yourself as a social business or a conventional profit-seeking business, you can help spark the governance learning process and lead the way toward an economic “forest” of responsible, scalable and sustainable businesses.

Categories
Entrepreneurship
Tags
Base of the Pyramid, governance, small and medium enterprises, social enterprise