Do you exercise?


Launching CIPE's Corporate Governance Guide for Family-owned Companies in Pakistan.Like all that exercise you planned to do but failed to implement, neglecting corporate governance will come back to haunt you. Poor corporate governance can take down a firm, and poor corporate governance practices can take down an entire economy.

Corporate governance is also like exercise in that it’s not something you should stop worrying about once your economy is in shape. Effective corporate governance is based on external and internal relationships that change over time. If corporate governance practices don’t change with them, they can no longer enforce the principles they’re meant to enforce.

In the early 1950s, individual investors held 92 percent of all U.S. stocks; while today individuals hold 25 percent and institutional investors (such as mutual funds or pension funds) hold 75 percent. That change is merely one example of how the relationships between investors and company managers has altered over time. Change isn’t necessarily a bad thing but failure to account for it is, and the consequences can be hard to swallow. Perhaps next time, public and private sector leaders won’t need a global financial crisis and recession to force such a re-examination.

Corporate governance is like exercise in yet another way. As public and private sector leaders are more vigilant about maintaining good corporate governance practices, economies improve their future prospects for growth and resiliency in the face of uncertainty. In terms of physical health, regular exercise helps the body prevent and recover from injury and sickness. Just as the highest caliber athletes can get sick or injured, no matter how well an economy performs it remains subject to a degree of uncertainty. Instead of healthier bodies, good corporate governance practices build resilient economic institutions to better cope with unforeseen problems causing slowdowns or recessions.

In the end, corporate governance as a topic for discussion has about as much appeal as discussing the benefits of medicine ball exercises for kids; but just the same, constant vigilance brings constant reward.