The im­por­tance of trans­parency and cor­po­rate gov­er­nance to in­vestor con­fi­dence in Cyprus

Financial Mirror (Cyprus) - - FRONT PAGE -

As Cyprus seeks to re-emerge from the fi­nan­cial and eco­nomic cri­sis cur­rently af­flict­ing the is­land, it is i mpor­tant for Cypriot busi­nesses to take steps in or­der to re­move ob­sta­cles to the re­turn of in­vestor con­fi­dence which will be es­sen­tial to the re­cov­ery of the econ­omy.

Although gov­ern­ment pol­icy and ac­tion, pub­lic sec­tor re­form and the de­vel­op­ment of a leg­isla­tive frame­work which en­cour­ages en­ter­prise and in­vest­ment are all of piv­otal sig­nif­i­cance to eco­nomic re­gen­er­a­tion and suc­cess in any coun­try, there are spe­cific things that busi­nesses them­selves can do in or­der to change the business cli­mate on the is­land for the bet­ter.

There is no doubt that Cyprus’s im­age out­side the is­land has been tar­nished as a re­sult of the fi­nan­cial cri­sis which un­folded at the be­gin­ning of 2013. It is true that it can take years if not decades to build a rep­u­ta­tion but only a few days or even mo­ments to lose it.

Busi­nesses can re­verse the ad­verse ef­fects of the fi­nan­cial cri­sis on the im­age of Cyprus as an in­vest­ment des­ti­na­tion by fo­cus­ing on changes which demon­strate to the out­side world that business trans­parency, good cor­po­rate gov­er­nance and in­de­pen­dent over­sight are at the cen­tre of ev­ery­thing that Cypriot busi­nesses do.

In dis­cus­sions I have had with po­ten­tial in­vestors in relation to Cyprus, the theme that re­turns again and again is a lack of con­fi­dence that Cypriot business peo­ple and company own­ers are as com­mit­ted to th­ese prin­ci­ples as they should be. In fact, in­vestors of­ten point out that the causes of fi­nan­cial fail­ure and eco­nomic malaise can of­ten be at­trib­uted to cor­po­rate gov­er­nance and risk man­age­ment short­com­ings, lack of for­ward strate­gic think­ing, in­ef­fec­tive cor­po­rate checks and bal­ances and the ab­sence of in­de­pen­dent non-ex­ec­u­tive over­sight and chal­lenge at board level in the business and fi­nan­cial worlds.

Many in­vestors I speak to cur­rently tend to iden­tify such weak­nesses with the na­ture of the Cypriot econ­omy. I am con­fi­dent that this per­cep­tion can change but this will not hap­pen un­less and un­til the Cypriot business world makes trans­parency and cor­po­rate gov­er­nance a strate­gic pri­or­ity.

The value of in­de­pen­dent non-ex­ec­u­tive direc­tors (NEDs) on the boards of SMEs, as well as larger com­pa­nies, has in­creas­ingly been recog­nised in all ma­jor economies and a strong non-ex­ec­u­tive board pres­ence is a key char­ac­ter­is­tic of the cor­po­rate regime in all eco­nom­i­cally suc­cess­ful coun­tries.

I stress the in­de­pen­dence of nonex­ec­u­tives be­cause this is prob­a­bly the most es­sen­tial qual­ity un­der­ly­ing the con­tri­bu­tion that a NED can make to any business. The men­tal­ity of­ten ob­served in Cyprus of ap­point­ing one’s mates to per­form this or a sim­i­lar role, some­times with­out any re­gard to the skills or grav­i­tas of the per­son ap­pointed, is coun­ter­pro­duc­tive and cre­ates only an il­lu­sion that trans­parency, in­de­pen­dent judg­ment and cor­po­rate dis­ci­pline char­ac­terise cor­po­rate de­ci­sion­mak­ing.

Truly in­de­pen­dent and com­pe­tent NEDs ide­ally with in­ter­na­tional or cross-bor­der ex­pe­ri­ence and con­nec­tions are likely to be an as­set to any Cypriot business. Not only will such per­sons be able to chal­lenge the norm and act with in­tegrity while serv­ing on the board of a company, they will also be well-placed to per­form a use­ful am­bas­sado­rial role on be­half of the or­gan­i­sa­tion with a range of stake­hold­ers in­clud­ing clients, em­ploy­ees, share­hold­ers, sup­pli­ers, reg­u­la­tors and, of course, po­ten­tial in­vestors and part­ners.

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