Contemporary issues in corporate governance – Surviving the tide amidst the desire to expand markets – A legal perspective

African economies continue to produce opportunities for growth and success that come with the increased need for governance, oversight and formal corporate compliance. The top five corporate compliance concerns trending today include, Managing a dynamic ever-evolving IT environment, Understanding and managing corporate enterprise risk, reducing the risk of tactical regulatory noncompliance, Understanding and managing corporate compliance in international markets and managing a formal, robust corporate compliance program.

Whereas oversight of compliance is not the board’s responsibility from a day-to-day operational perspective, directors now have a fiduciary responsibility to shareholders and in some cases may be held accountable for corporate misdeeds. The risk of potential personal liability along with the desire to serve the company and its stakeholders are strong motivating factors for executives and directors to execute and continually update robust corporate compliance programs. Boards and designated committees as such need to be engaged in the oversight of activities involving corporate compliance issues.

Whereas today’s technology allows companies to communicate instantly, merge data in moments and transfer volumes of information between multiple devices and platforms as if by sleight of hand. These capabilities have also increased the potential for security and compliance breaches due to fraud or gaps in oversight. Board committees should therefore assess the overall IT environment, its susceptibility to risk and the effectiveness of the corporation’s policies and procedures surrounding information technology. At least, it is desired that companies assess their vulnerabilities to external and internal threats and specifically to data and operations annually.

In managing corporate enterprise risk, boards may find it necessary to create a risk oversight committee for managing corporate risk. This process can be internally driven by a chief risk officer, internal auditor or the Chief Finance officer. An effective risk management process provides for enhanced focus on key risks and, if applicable, can be a foundation for the company’s success. In reducing the risk of tactical regulatory noncompliance, understanding and adhering to industry-specific regulatory environments may require a team of individuals with ever-expanding working knowledge of the law, regulations, and enforcement agencies and, in many cases, the regulators themselves. Most companies do not commit regulatory offenses by design. However, lack of intent or resources is no defense when it comes to legal and regulatory action taken against a company and its directors as a result of compliance breaches. Boards and executives must guard against unintentional noncompliance. The international marketplace presents a world of opportunity for expansion, cost reduction and talent acquisition. With opportunity however comes risk. Companies therefore engaging in business overseas need to be vigilant about contract law involving local country transactions, cultural differences in completing transactions and employment issues, to name a few concerns. Companies must weigh all of the benefits and calculated risks of operating in a foreign location. In addition to establishing the appropriate type of corporate entity from a financial and operational standpoint, it is important that the company conforms to the requirements of specific local authorities and agencies. This can be daunting and requires strong legal advice.

Taxation issues also raise compliance red flags for entities that conduct business outside the national boundaries. The number, variety and fluidity of tax laws, treaties and regulations leave companies vulnerable to foreign noncompliance related to tax that can be costly and time consuming.  In conclusion managing a formal, robust corporate compliance program is inevitable if a company is to survive the tide amidst the desire to expand beyond borders.

Daniel Lubogo

Managing Partner

AB & David Uganda