The Importance of Corporate Governance in Family-Owned Companies

Launching CIPE's Corporate Governance Guide for Family-owned Companies in Pakistan.

The adoption of good governance practices is beneficial to listed companies, unlisted companies, and family-owned enterprises.

Good governance practices strengthen companies by building relationships among investors, boards of directors, managers, and employees. Implementing corporate governance guidelines allows businesses to obtain capital at lower cost, enhances business strategy, and attracts the best human capital.

Corporate governances also promotes competitiveness in the marketplace and is an antidote to corruption. Effective corporate governance also helps ensures the integrity of business operations and strengthens the rule of law and democratic governance by promoting values of accountability and transparency.

In the last decade, Pakistan has experienced a sizeable increase in the number of unlisted companies, particularly family-owned organizations. These enterprises form the backbone of Pakistan’s economy and growth; the need for corporate governance guidelines for these particular types of companies has never been greater. Instituting good governance practices is particularly effective in overcoming the challenges many family-owned enterprises face.

CIPE partnered with the Pakistan Institute of Corporate Governance (PICG) and the Institute of Chartered Accountants of Pakistan to assess sectoral needs and develop the Corporate Governance Guide for Family-Owned Enterprises, the first guide of its type in Asia.

To learn more about the benefits of instituting good governance practices for family-owned enterprises and how one Pakistani company improved its governance and its performance, read the latest case study from the forthcoming collection of Strategies for Policy Reform.

Teodora Mihaylova is Research Coordinator at CIPE.

Warsaw Dialogue for Democracy Highlights Closing Space for Civil Society

warsaw-dialogue

Pro-democracy reformers and activists are among the most driven and courageous people in the world. Speaking out against abuses committed by authoritarian governments often brings the risk of punishment, and meaningfully engaging on policy issues even with democratic governments takes dedication, mobilization, and discipline.

Civil society is a key conduit between citizens and their governments through which such engagement should happen. Yet, in a troubling global trend, we are witnessing the shrinking of civic space, with a number of countries from Ethiopia to Russia having passed restrictive anti-NGO legislation.

Especially in such difficult environments, human rights defenders and democracy advocates more than anything need to know that they are not alone, that the ideals they fight for are universal, and that they are a part of an international community. That is exactly what the Warsaw Dialogue for Democracy helps to accomplish.

Now in its third edition, the Dialogue, which took place October 23-25 at the Natolin Campus of the College of Europe in Warsaw, is an international gathering devoted to democracy and civil society, bringing together representatives of civil society, human rights defenders and activists from Africa and the Middle East, Asia, the Americas and Eastern Europe. The Dialogue is a forum for the exchange of good practices and expertise in the evolution of democratic systems as well as a place to share success stories and challenges of democratic transitions.

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Teach a (Wo)man How to Fish: The Changing World of International Development

Coalition members meet with political parties. (Photo: @sentellbarnes, IRI)

Members of CIPE-supported business coalitions in Nigeria meet with political parties. (Photo: @sentellbarnes, IRI)

By Laura Boyette and Teodora Mihaylova

It is only natural that the world of international development would itself develop and change over the years to adapt to the changing landscape of needs and local capacity.

At a panel discussion at Georgetown University entitled “The Changing World of International Development,” three development practitioners from leading organizations provided some insight into how their work has changed over the years. The speakers emphasized how local ownership has become central to the planning and implementation of their projects.

Traditionally, the development field was focused on delivery of goods and services, especially in regions suffering humanitarian crises due to natural disasters or conflict. Over the years as the importance of local ownership of development projects became evident, the development landscape shifted to focus more on the provision of supplies and money to local actors to deploy as they saw fit. Both approaches have limitations: a mismatch between resources available and local needs, limited local capacity, delays that significantly diminish chances of success, and often corrupt actors at various points of delivery.

These days, international development actors are focusing more on building local capacity and less on the delivery of goods and services. Building local capacity in service delivery, project management, governance, advocacy, and democratic institutions does not just meet the immediate needs of the community. It also increases the sustainability of development interventions beyond the life of a particular project. Increasing local capacity both ensures the success of the project and creates a multiplier effect as local organizations take over responsibility.

CIPE’s model is locally oriented and and locally driven. Building local capacity has been central to the CIPE strategy for 30 years. Whether it’s through our national business agenda process or through legislative outreach programs that help educate local members of parliament or assembly on the economic and democratic policies and their potential impact, CIPE’s international work focuses on empowering local partners to become agents of change in their communities.

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To Benefit from Energy Resources, Lebanon Needs Better Institutions, Not Just Greater Transparency

A map showing the offshore areas being opened to oil and gas exploration. The auctions have been repeatedly delayed.

A map showing the offshore areas being opened to oil and gas exploration. The auctions have been repeatedly delayed. (Photo: Deloitte)

By Sami Atallah

A paradox confronts countries endowed with oil and gas resources. Despite their riches, these countries tend to grow slower in the long term, have higher income inequality, be more corrupt and even become authoritarian. This, of course is not the fate of all such countries — many have managed to turn the oil curse into a blessing. Those that did had two things going for them: a high level of human capital and good institutions that upheld checks and balances on power.

Although Lebanon is well endowed with human capital, its institutions are generally weak. The Taef agreement redistributed power more equally across the three key institutions — the presidency, the parliament and the prime ministership — that are associated with the three dominant sects, and in many ways, undermined the political system.

For one, the executive authority became diffused to an extent that it is no longer obvious who is in charge. The members of the parliament seem less interested in legislating and holding executive authority accountable and more interested in providing services to constituents. The political parties have mastered the game of electoral survival by crafting election laws through redistricting and vote counting in ways that get them reelected with little to show for. They have resorted to clientelistic strategies of buying votes and providing services in return for political loyalty. Furthermore, the judiciary and the oversight agencies whose job it is to hold the government accountable were at best sidelined but most often intentionally weakened through political interventions or bureaucratic understaffing.

In sum, the political elite govern the country largely by the logic of dividing the spoils among themselves through illegal subcontracting of projects, violating tendering requirements, as well as contracting companies despite conflicts of interest. This has resulted in high levels of corruption, embezzlement, mismanagement and waste benefiting the political elite at the expense of the rest of the population.

It is against this backdrop that the Lebanese Petroleum Administration (LPA), the body entrusted to govern the oil sector, came into being. Between November 2012 and August 2013, the LPA proceeded rather efficiently and with more transparency than most Lebanese institutions in approaching the sector. It held consultative meetings and workshops, and managed to lay the groundwork for the launch of the offshore licensing round. Now it is waiting on the government to pass the last decrees for the process to continue, and has found itself caught up in the Lebanese political mill with no clear way out of the deadlock.

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Case Study: Public-Private Dialogue in Senegal

A public-private dialogue session with Senegalese President Macky Sall.

A public-private dialogue session with Senegalese President Macky Sall.

The private sector is a key actor in efforts to promote economic growth, reform the business climate, and strengthen democratic policymaking worldwide. Businesses possess the know-how to analyze economic conditions and identify obstacles and opportunities for growth, while governments have the means to pass business-friendly legislation.

From a democratic point of view, a vibrant private sector contribution to dialogue expands participation in policymaking and civic engagement in governance, improves the quality of business representation, and supplements the performance of democratic institutions.

The latest case study from the forthcoming publication Strategies for Policy Reform discusses CIPE’s experience assisting the advancement of policy dialogue in Senegal that supports market-oriented reforms and private sector development.

As Senegal’s largest, most representative and well-organized business association, l’Union Nationale des Commerçants et Industriels du Senegal (UNACOIS) has played a key role in the country’s policymaking process by engaging the government in public private dialogue. At regional and cross-regional dialogue sessions jointly organized by UNACOIS and CIPE, UNACOIS members identified the nation’s complex tax code and high tax rates for SME operators as a major cause of informality in the SME sector. With CIPE support, UNACOIS developed an evidence-based policy paper on tax reform, held public-private dialogue meetings with relevant stakeholders, and presented these recommendations to government officials.

Read about UNACOIS’s successes in reforming the Senegalese Tax Code, establishing a mechanism for regular, ongoing public-private dialogue, and reducing informality here.

Teodora Mihaylova is Research Coordinator at CIPE.

Does Democracy Still Matter?

Once among the poorest countries in the world, South Korea has grown into one of the richest since transitioning to democracy in the late 1980s.

Once among the poorest countries in the world, South Korea has grown into one of the richest since transitioning to democracy in the late 1980s after a series of popular uprisings.

In his June 1982 Westminster Address , which laid the groundwork for the creation of CIPE and the National Endowment for Democracy (NED), President Ronald Reagan established an emerging role for the U.S. as a leader in supporting democracy around the world:

 “It is time that we committed ourselves as a nation- in both the public and private sectors- to assisting democratic development…The objective I propose is quite simple to state: to foster the infrastructure of democracy-the system of a free press, unions, political parties, universities- which allows a people to choose their own way, to develop their own culture, to reconcile their own differences through peaceful means.”

Today that role is being questioned. At an October 20, 2014 conference hosted by the Kennan and Foreign Policy Research Institutes, academics and policymakers from around the world convened to dissect the question “Does Democracy Matter?”

Panelists and participants acknowledged a notable – and unprecedented – cynicism about democracy support: its track record, current viability, and future prospects. Worse yet, this cynicism among scholars, politicians, and practitioners in the U.S. and Europe is coupled with disillusion in nascent or would-be democracies from Central Europe to the Middle East to Latin America. Keynote speaker Larry Diamond reminded the audience that, in direct contrast to the 1990s, the last ten years have seen more countries increasing in authoritarianism than countries making democratic gains.

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Getting Creative about Saying “No!” to Corruption in Lebanon

Graffiti art produced at LTA-LABN’s public rally held in the Beirut Souks, September 12, 2014.

Graffiti art produced at LTA-LABN’s public rally held in the Beirut Souks, September 12, 2014.

CIPE partner the Lebanese Transparency Association (LTA) recently wrapped up a banner month in its fight against corruption in Lebanon. CIPE’s partnership with LTA dates back over ten years, and since 2012 CIPE has been supporting LTA through a grant from the U.S. Department of State’s Middle East Partnership Initiative (MEPI) to strengthen the rule of law in Lebanon. Our approach has been not only to raise public awareness, but also to empower citizens to exercise their rights. This effort has been consolidated primarily through the Lebanese Advocacy and Legal Advice Center (LALAC) and the Lebanese Anti-Bribery Network (LABN), both of which are housed and managed by LTA.

LALAC operates centers in Beirut, Bekaa, and Nabatieh, which are staffed by attorneys and legal assistants who field complaints of corruption from citizens across Lebanon. Through LALAC, citizens can report corruption by calling the LALAC hotline, writing a letter or e-mail, or visiting one of three centers in person.

LALAC Legal Advisor Carol Sabty, LTA Grassroots Manager Said Issa, and the author (center) discuss LALAC’s capabilities in the fight against corruption during an outreach session with citizens in Kfardebian, Lebanon.

LALAC Legal Advisor Carol Sabty, LTA Grassroots Manager Said Issa, and the author (center) discuss LALAC’s capabilities in the fight against corruption during an outreach session with citizens in Kfardebian, Lebanon.

Since CIPE’s direct support for LALAC began approximately one year ago, LALAC has achieved an unprecedented level of activity. A total of 453 complaints have been made during that time, 277 of which directly relate to corruption. In 224 cases, LALAC has provided citizens (“clients”) with legal advice on the process of vindicating their rights (short of providing representation in court) and sought resolution with cognizant public institutions.

If LALAC were a law firm, it would be doing a brisk business. But LALAC doesn’t bill its clients. It exists to empower the victims of corruption as champions for reform and to hold public officials accountable. LALAC has already worked directly with more than 15 public institutions to achieve resolution of individual cases and achieved some notable successes. Moreover, LALAC is negotiating memorandums of understanding (MOUs) with numerous public sector entities to cooperate in resolving complaints of corruption – remarkable progress in a country where openly talking about corruption was taboo not long ago.

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