By Antonio Arias
As the former CFO or Audit Committee Chairman of publicly listed companies, I have resigned three times in my career to protect the shareholders’ interest. Most of my professional accountant colleagues laud the decision but others have frowned on my “radical” position. After all, taking that position means cutting my income. At one time, a CEO even tried to lure me with stock options to change my position. In all cases, I have challenged the CEO to resign or I resign. Each one had rather have me leave. Consequently, I have won investors as friends for standing out for them and eventually the guilty CEOs had to resign.
This weekend I read an article by Mr Gwyn Morgan, former chairman of SNC-Lavalin, who has recommended corporate governance changes I have been advocating for quite some time. The business practices of the public corporate world is fraught with conflict it seems the entire system is too blind to accept the realities of commercial greed.
Here are some of Mr Morgan’s recommendation as written in Globe& Mail: What I Learned from SNC Lavalin Woes (Gwyn Morgan)
Information is key
Because directors get most of their information from people within the company, they need to do everything they can to build and diversify their sources. There should be a robust whistle-blower system, independent of management, so employees can pass on information to directors without fear of reprisal.
Financial reporting structures matter
Internal auditors should report directly – and only – to the chair of the audit committee, not to management. The chief financial officer should have a direct reporting relationship to the audit committee chair. Operating division comptrollers should report to the CFO, not to the division leader or the business-unit head.
Focus on leadership
It’s important to have strong financial controls and ethical codes, but they will fail unless all people in leadership roles, from the CEO on down, follow them diligently and consistently.
Culture, culture, culture
It is said that corporate culture is defined by how people act when no one is looking. But it is also defined by how employees react when they see behaviour that is inconsistent with the values of the organization. When their reaction is, “We’re not going to let this happen in our company,” the organization is built upon a solid ethical foundation.
What does this mean for Equity Crowdfunding?
At Healthy Crowdfunder, we will manage our client-investees, by applying strong corporate governance. As co-investors, our interests will be aligned with all shareholders. A strong fraud prevention system relies on strong corporate governance policies and practices, championed by the CEO and independent board of directors.
The SECs of the world should put the onus of protecting investors in the hands of those who have the most to lose – the independent board of directors who hires the CEO and its top executives. The cost of investor protection should be proportionately related to the amount of money at risk. The larger the amount the stricter the controls. Technology is already here to mitigate some of those risks. Let’s use it.