FAIRNESS IN CORPORATE GOVERNANCE
Earlier, we established that, a corporate governance system has the main aim of entrenching the principles of fairness, transparency, objectivity, decency, responsibility, accountability, status, judgment and integrity among those charged with the governance of companies. Today we will begin looking at the first of these principles- fairness.
WHAT IS FAIRNESS?
To begin with, one may ask, what is fairness? Fairness means treating people with equality. It entails avoiding of bias towards one or more entities as compared to the other(s).
HOW UNFAIR CAN FAIRNESS GET: IMPORTANCE OF FAIRNESS
In economic development terminology, we usually meet the word fair several times. For instance there are phrases such as the fair distribution of the national wealth, fair value, fair play and so on. Fairness has in the recent past been a controversial issue in corporate governance. For instance, a lot has been said so far with respect to fairness and the governance of Ghana Airways. Although not publicly debated or talked about often, fairness in corporate governance is a matter of national interest for many other state owned companies such as ZESCO, ZSIC and ZNBC among others in Zambia and Africa. As a result of most strategic positions being filled by political appointments, the managers of these firms are split between impressing the people responsible for the appointment and achieving corporate goals and other stakeholder’s interests. Indeed, fairness is an important principle all over Africa and the world.
If you know the contentions that a bad decision as a result of bias in any of the above named companies can bring, then you already know just how critical it is that fairness is practiced in the way companies are directed and controlled.
Fairness is usually considered with various stakeholders of a company in mind. The choice as to what is fair and will most likely be made by taking into account the stakeholder’s position on the power-interest matrix. Some of the stakeholders of a company include; shareholders (including institutional investors), suppliers (creditors), employees, customers and the community at large.
WHAT DO FIRMS DO TO ENHANCE FAIRNESS IN CORPORATE GOVERNANCE
For many company boards, being fair is a very difficult thing. There are big decisions to be made on which a normal person or group with some interest (financial or otherwise) cannot just be fair. In transactions such as mergers or acquisitions for instance, it is very hard to be as fair as possible if you are on the board. For this reason, many companies are turning to what is known as fairness opinions. This involves calling in an independent knowledgeable entity to assess a particular transaction and give their opinion on it’s fairness.
Another way that is being used as a tool to increase fairness is known as corporate governance rating. Here, various companies are assessed on aspects of their corporate governance and the results are published in order to help the firm(s) improve performance on fairness. This is however not a widespread practice and is most likely un-heard of in many developing countries.
CONCLUSION
Various solutions to the problem of unfairness are being developed. This is as a result of the realisation by many firms that fairness is important in the way the companies are directed and controlled. Simple misconceptions on how fair a transaction is can raise serious public debate as in the case of the sale of Zamtel Libya’s Lap green. The fairer the entity appears to stakeholders, the more likely it is that it can survive the pressure of these interested parties.
economy building 