An area that has acquired significant importance over the past few years has been corporate governance. Legislation has been put in place that seeks to prevent money laundering. Companies and firms offering services in certain areas are expected to go through a due diligence exercise when onboarding clients. Listed companies are required to report on a yearly basis on their corporate governance.
Licensed companies are required to undertake regular risk assessments on a range of areas. Boards of directors are expected to appoint board committees to look closely at specific areas.
Companies have to be more transparent in the disclosures they make in their financial statements. Financial reporting standards are becoming more demanding.
The list is endless, and I am sure I have left out a number of matters in describing the way corporate governance is implemented. In the meantime, new legislation is being drafted and brought into force.
All this legislation came into force in several countries to avoid the mistakes and abuses of the past. Regulators are also in place to ensure that this legislation is adhered to. Malta has been spared to a very great extent of the corporate abuses that other countries have experienced.
On the other hand, in Malta, one aspect of governance that appears to be gaining importance is governance in public sector entities. It needs to be made clear that I am not referring to the Public Service, but to organisations (corporations, authorities, companies, agencies, councils, foundations, and other forms that have been resorted to over the years) that together form the public sector because they are under the control of government.
The reason why such entities have been set up was to make them independent of the Public Service because of the activities they were expected to be involved in. Such reasons are understandable as it has allowed the Public Service to adopt more of a regulatory and policymaking role than being bogged down in operational issues.
Some of these entities need to follow quite a strict regime of governance because it is stipulated in their constitution document that set them up or because ministerial or central government policy so decreed. Others are not tied to such a requirement and a great deal depends on the people appointed to run them – the board and senior management.
I remember one minister exclaiming after his appointment that he discovered that a chairperson of a public entity very often has more decision-making powers than he does. And he was right. Having filled such a role for a number of years, one does realise the decision-making powers that a chairperson of a public entity has and how essential it is that one leads such an entity with integrity, respecting fully the principles of good governance.
It is up to the board of directors of these latter entities to ensure that good governance principles are implemented in the organisations they have been entrusted with.
The solution should be very straightforward. All entities that are under government control need to follow the same legislation that is applied to licensed and listed companies. The nature of the disclosures they need to have in their financial statements should be the same as those that are found in the financial statements of licensed and listed companies.
It cannot be that a private company must make certain disclosures and implement certain governance principles and procedures because they are listed on the stock exchange or because they are licensed, while organisations that are managing public funds and have been entrusted with the implementation of certain public policies do not have such a requirement.
There also needs to be great clarity as to what constitutes ethical and unethical behaviour in such government-controlled organisations and what constitutes conflict of interest. It is sad to note that, in many circles, issues of conflict of interest are still not understood, even among people who mean well.
I believe that the mood in the country requires the issue of governance in government-controlled organisations to be effectively addressed. It is easy to point fingers at each other but this really gets us nowhere.
If we really believe in the common good, the good of Malta and its people, then governance needs to be somewhere towards the top of the list of priorities for public sector organisations, just like the operations or financial strategy or the business strategy.