Alweendo urges better corporate governance

A NUMBER of causes have been behind the collapse of several local and international companies and there is need for good and effective corporate governance and understanding of responsibilities to curb financial scandals.

Speaking at his annual address, Bank of Namibia Governor Tom Alweendo gave an insight into the collapse of companies, while tackling the topic, ‘The Role of Financial Regulatory Bodies in Investment Management’, at a gathering in Windhoek on Friday. Besides focusing on Avid and the ODC scandal, the Governor also highlighted similar international cases, which included Enron of the US and Parmalat of Italy.Alweendo said the main causes of these scandals and improper handling of investments were threefold, namely misunderstanding of the market and its risks,lack of investment management know-how and outright fraud.”In the case of Namibia, there also appears to be indifference to internal controls, a possible erosion of ethics, inability of internal systems to catch up with new ways of committing offences and lack of due diligence from investors as well as poor understanding of investment mandate,” said Alweendo.Locally the courts and Police are having to deal with ‘investments gone wrong’ involving millions of dollars in the cases of Avid, the Offshore Development Company (ODC) and of late the Government Institutions Pensions Fund (GIPF).He said as regulators, BoN and the Namibia Financial Institutions Supervisory Authority (Namfisa) could not be expected to assume investment decisions, nor could they dictate which companies or financial instruments investors should use.This duty, he added, was best left to the asset managers, trustees of funds and the investors.Alweendo also said the primary responsibilities in ensuring the soundness of institutions lay with the board of directors and senior management.He said it was the duty of regulators to ensure that company directors and senior management had sufficient experience, integrity and relevant skills and are able to exercise independent judgment about the affairs of their institutions.”Internal controls cannot be overemphasised as a core component of corporate governance.In this regard, institutions are expected to have strong, effective and adequate internal controls designed to detect and mitigate risks.”He said competent staff and management supported by a robust system of risk management processes and controls made up the initial defence structure against financial instability or fraud within any company.Investors were urged to guard against putting their money in companies or instruments they knew little about.”This therefore calls for investors themselves to be cautious and exercise a high degree of prudence when investing their money.Investors need to satisfy themselves that they are investing their money in reputable institutions and not in the so called ‘fly-by-night’ entities,” said Alweendo.He said corporate financial mismanagement was on the increase, adding that the solution lay in encouraging investors’ vigilance, building investment skills and enforcing good and effective corporate governance within local institutions.Besides focusing on Avid and the ODC scandal, the Governor also highlighted similar international cases, which included Enron of the US and Parmalat of Italy.Alweendo said the main causes of these scandals and improper handling of investments were threefold, namely misunderstanding of the market and its risks,lack of investment management know-how and outright fraud.”In the case of Namibia, there also appears to be indifference to internal controls, a possible erosion of ethics, inability of internal systems to catch up with new ways of committing offences and lack of due diligence from investors as well as poor understanding of investment mandate,” said Alweendo.Locally the courts and Police are having to deal with ‘investments gone wrong’ involving millions of dollars in the cases of Avid, the Offshore Development Company (ODC) and of late the Government Institutions Pensions Fund (GIPF).He said as regulators, BoN and the Namibia Financial Institutions Supervisory Authority (Namfisa) could not be expected to assume investment decisions, nor could they dictate which companies or financial instruments investors should use.This duty, he added, was best left to the asset managers, trustees of funds and the investors.Alweendo also said the primary responsibilities in ensuring the soundness of institutions lay with the board of directors and senior management.He said it was the duty of regulators to ensure that company directors and senior management had sufficient experience, integrity and relevant skills and are able to exercise independent judgment about the affairs of their institutions.”Internal controls cannot be overemphasised as a core component of corporate governance.In this regard, institutions are expected to have strong, effective and adequate internal controls designed to detect and mitigate risks.”He said competent staff and management supported by a robust system of risk management processes and controls made up the initial defence structure against financial instability or fraud within any company.Investors were urged to guard against putting their money in companies or instruments they knew little about.”This therefore calls for investors themselves to be cautious and exercise a high degree of prudence when investing their money.Investors need to satisfy themselves that they are investing their money in reputable institutions and not in the so called ‘fly-by-night’ entities,” said Alweendo.He said corporate financial mismanagement was on the increase, adding that the solution lay in encouraging investors’ vigilance, building investment skills and enforcing good and effective corporate governance within local institutions.