This is an extract of my article from the Business Assessment Magazine 2011 of IBBM Enterprise Centre, Papua New Guinea. The article that is titled 'The Significance of Effective Corporate Governance for Businesses in Papua New Guinea'. The Assessment Magazine 2011 consists of the profiles of PNG companies assessed in 2011 along with some articles.

1. TYPE OF BUSINESS
Article
The Significance of Effective Corporate
Governance for Businesses in PNG
STANLEY V. THOMAS
BUSINESS ASSESSOR, ENTERPRISE CENTRE
“If a country does not have a reputation for strong corporate governance practices, capital
will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow
elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere.
All enterprises in that country suffer the consequences.”
- Arthur Levitt, former chairman of the US Securities & Exchange Commission
A
ccording to Organisation for Economic
Co-operation and Development (OECD)
‘Corporate governance is the system
by which business organisations are
directed and controlled. The corporate governance
structure specifies the distribution of rights and
responsibilities among different participants in
the organisation, such as the board, managers,
shareholders and other stakeholders, and spells out
the rules and procedures for making decisions on
corporate affairs. By doing this, it also provides the
structure through which the company objectives are
set, and the means of attaining those objectives and
monitoring performance.’
The three basic principles of effective corporate
governance are:
1. Transparency
Corporate Governance principles can benefit the
owners and managers of companies and increase
transparency and disclosure by:
1. Improving access to capital
2. Help to survive in an increasingly competitive
environment through mergers, acquisitions,
partnerships, and risk reduction through asset
diversification.
3. Provide an exit policy and ensure a smooth
inter-generational transfer of wealth and
divestment of family assets, as well as reducing
the chance for conflicts of interest to arise.
4. Adopting good corporate governance
practices leads to a better system of internal
control, thus leading to greater accountability
and better profit margins
2. Accountability
3. Corporate Control
Corporate governance plays a vital role in
increasing the corporate value of companies in Papua
New Guinea. Many businesses seeking new funds
often find themselves obliged to undertake serious
corporate governance reforms at a high cost and
upon the demand of outsiders, often in a time of crisis.
When the foundations are already in place, investors
and potential partners will have more confidence in
investing in or expanding the company’s operations.
“Corporate
Governance
principles can benefit the
owners and managers...”
30
Benefits of Good Corporate
Governance for PNG Businesses
5. Good corporate governance can provide
proper incentives for the board and
management to pursue objectives that are in
the interest of the company and shareholders,
as well as facilitate effective monitoring
6. Better corporate governance can also provide
shareholders with greater security on their
investment
7. Better corporate governance also ensures
that shareholders are sufficiently informed
on decisions concerning fundamental issues
like amendments of statutes or articles of
incorporation, sale of assets, etc
2011 Enterprise Centre Assessment Magazine

2. Framework for Ensuring
Effective Corporate Governance
by PNG Businesses
Key elements relating to effective corporate
governance has been covered in the framework
below:
Board Structure, Composition &
Membership
Board Charter
Board Experience of Directors
Directors Training
Membership of PNG Institute of Directors (PNGID)
Board balance (having independent directors)
Board Committees
Robust Risk Management and Compliance
Processes
Risk Management Policy
External Auditor
Internal Audit
IPA Compliance
Company Registration
Constitution
Notice regarding directors shareholders
Register of shares/ shareholders
Annual Return
IRC Compliance
Tax Return
GST Return
Group Tax
Withholding Tax
Boardroom Conduct, Relationship and
Performance
Board agenda, reporting, papers and minutes
Frequency, conduct, management and outcomes of
meetings
Board Performance Appraisal
Certificate of Compliance
Insurance
Public Liability
Workers Compensation
Property
Organisational Policies and Procedures
Job Descriptions Organisational Chart
Organisational Documents
Finance Manual, Operations Manual, Procurement Manual, HR
Loss of Business
Directors Officers
Vehicles
Superannuation
Manual, Safety, Health Environment (SHE) Manual
Strategy, Planning and Monitoring
Vision and Mission statement
Corporate/Business Plan
Goals/KPIs
Budgets and cash flow plan
Monitoring and evaluation
Corporate Social Responsibilities
Code of Conduct/ Code of Ethics:
Commitment to shareholders
Ethical standards
Expectation of employees
Privacy
Compliance
Employee Relations
Health Safety
Social and environmental obligation
Regulatory Disclosures and
Shareholder Communications
Annual Report
Annual General Meeting (AGM)
Continuous disclosure obligations and company
announcements
Dividends Policy
It is important to realise that good corporate
governance is based on principles underpinned by
consensus and continuous notions of good practice.
Good corporate governance practices creates an
environment to take risk, clarifies the role of the board
and the management and also helps in meeting
the information needs of investment communities.
Corporate governance assists organisations to
achieve their strategic objectives thereby increase the
corporate value of companies in Papua New Guinea.
2011 Enterprise Centre Assessment Magazine
31