I Competent

Category: Business

  • Types of Securities that can be issued by a Startup

    In the startup context, the term “security” typically refers to a financial instrument or investment vehicle that represents an ownership stake, financial interest, or right to a claim within the startup company.

    Various types of securities can be issued by a company to raise capital or allocate ownership. Here are some common types of securities:

    1. Common Stock
      This represents ownership in a corporation and often comes with voting rights at shareholder meetings. Common stockholders may receive dividends if declared by the company’s board of directors but are subordinate to preferred stockholders in terms of dividends and assets in case of liquidation.
    2. Preferred Stock
      Preferred stockholders have priority over common stockholders in terms of dividends and assets in case of liquidation. They often do not have voting rights but might have other preferences, such as guaranteed dividends.
    3. Convertible Preferred Stock
      This type of preferred stock can be converted into a predetermined number of common shares at the holder’s discretion, typically at a specified conversion ratio.
    4. Stock Options
      Options give employees or certain individuals the right to buy or sell company stock at a predetermined price within a specific timeframe. They are often used as part of employee compensation packages.
    5. Warrants
      Similar to options, warrants are a type of security that gives the holder the right, but not the obligation, to buy company stock at a predetermined price within a specific timeframe. Warrants are often issued in conjunction with debt securities or as part of fundraising.
    6. Convertible Notes
      These are debt instruments that can be converted into equity or stock at a future date, typically during a subsequent funding round. They are a common form of financing for early-stage startups.
    7. Restricted Stock Units (RSUs)
      RSUs are a type of compensation given to employees in the form of company shares. They typically vest over time and are subject to certain restrictions until they vest.
    8. Bonds and Debentures
      While less common in startups, larger corporations may issue bonds or debentures as debt securities to raise capital. These instruments pay interest to bondholders and have a maturity date when the principal amount is repaid.

    These securities serve different purposes in capital markets, offering investors varying levels of ownership, rights, and benefits within a company. The specific types of securities issued by a company depend on its capital structure, fundraising needs, and the agreements made with investors or employees.

  • Documents requested by Venture Capitals from Enterpreneurs

    When seeking venture capital funding, venture capitalists (VCs) typically require a range of documents and materials to evaluate the potential investment opportunity. While the specific documents may vary based on the VC firm and the stage of your business, here’s a list of common documents often requested:

    1. Video Introduction – Video recorded by the founder pitching his project
    2. Business Plan – A comprehensive document outlining your business model, market analysis, competitive landscape, financial projections, growth strategies, and team details.
    3. Pitch Deck – A concise presentation summarizing your business idea, value proposition, market opportunity, competitive advantage, financial projections, and team.
    4. Financial Statements – This includes historical and projected financial statements such as income statements, balance sheets, cash flow statements, and key financial ratios.
    5. Cap Table – A detailed breakdown of the company’s ownership structure, including information about shareholders, equity distribution, and any outstanding options or warrants.
    6. Legal Documents – Incorporation documents, operating agreements, shareholder agreements, intellectual property documentation (patents, trademarks, etc.), licensing agreements, and any ongoing or past legal issues.
    7. Market Research and Analysis – Data and reports supporting your market opportunity, target audience analysis, competitive analysis, and market trends.
    8. Operational Documents – Details about your operations, production processes, supply chain, distribution channels, and any other relevant operational information.
    9. Team Information – Resumes or bios of the founding team and key personnel, highlighting relevant experience, skills, and qualifications.
    10. Customer References or Case Studies – Testimonials, references, or case studies showcasing successful implementations or satisfied customers, if applicable.
    11. Strategic Plan and Milestones – Clear plans outlining short-term and long-term goals, milestones, and how the investment will be utilized to achieve these goals.
    12. Due Diligence Materials – Any additional documents or information requested during the due diligence process by the VC firm.

    It’s important to note that different VCs may have specific requirements or preferences regarding the documents they need for evaluating potential investments. Tailor the materials based on the VC’s guidelines and focus on presenting a compelling case for your business while ensuring accuracy, transparency, and professionalism in all documentation provided.

  • Vital Components of an Internal Audit Charter

    Vital Components of an Internal Audit Charter

    One of the great challenges every organization faces is assuring efficient and effective risk management (policies and processes designed to leverage or mitigate risks to the organization’s advantage). When done well, internal audit provides that assurance as part of its role to protect and enhance organizational value.
    For internal audit to operate at the highest levels, it must have clearly defined and articulated marching orders from the governing body and management. This is most easily achieved with a well-designed internal audit charter.

    The IIA’s Perspective

    Every organization can benefit from internal audit, and an internal audit charter is vital to the success of the activity (IIA Standard 1000). The charter is a formal document approved by the governing body and/or audit committee (governing body) and agreed to by management. It must define, at a minimum:

    • Internal audit’s purpose within the organization.
    • Internal audit’s authority.
    • Internal audit’s responsibility.
    • Internal audit’s position within the organization.

    Why the Internal Audit Charter Is Important

    A charter provides the organization a blueprint for how internal audit will operate and helps the governing body to clearly signal the value it places on internal audit’s independence.
    Ideally, it establishes reporting lines for the chief audit executive (CAE) which support that independence by reporting functionally to the governing body (or those charged with governance) and administratively to executive management.
    It also provides the activity the needed authority to achieve its tasks, e.g., unfettered access to records, personnel, and physical properties relevant to performing its work.

    The IIA has identified seven key areas that support the overall strength and effectiveness of the activity and should be covered in the internal audit charter.
    While some internal audit charters may not include all of these elements, any area the charter fails to address threatens to weaken it and, ultimately, the activity.

    1. Mission and Purpose:
      1. Internal audit’s mission is to enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight.
      2. Internal audit’s purpose is to provide independent, objective assurance and consulting services designed to add value and improve the organization’s operations.
    2. International Standards for the Professional Practice of Internal Auditing:
      1. The internal audit activity will govern itself by adherence to the mandatory elements of The IIA’s International Professional Practices Framework (IPPF) including its Standards, Core Principles for the Professional Practice of Internal Auditing, Definition of Internal Auditing, and Code of Ethics.
    3. Authority – The charter should include:
      1. A statement on the CAE’s functional and administrative reporting relationship in the organization.
      2. A statement that the governing body will establish, maintain and assure that the internal audit activity has sufficient authority to fulfill its duties by:
        1. Approving the internal audit charter.
        2. Approving a timely, risk-based, and agile internal audit plan.
        3. Approving the internal audit budget and resource plan.
        4. Receiving timely communications from the CAE on performance relative to its internal audit plan.
        5. Actively participating in discussions about and ultimately approving decisions regarding the appointment and removal of the CAE.
        6. Actively participating in discussions about and ultimately approving the remuneration of the CAE.
        7. Making appropriate inquiries of management and the CAE to determine if there are any inappropriate scope or resource limitations.
        8. Developing and approving a statement that the CAE will have unrestricted access to, and communicate and interact directly with, the governing body without management present.
        9. Developing and approving an authorization that the activity will have free and unrestricted access to all functions, records, property, and personnel pertinent to carrying out any engagement, subject to accountability for confidentiality and safeguarding of records and information.
    4. Independence and Objectivity – The charter should include:
      1. A statement that the CAE will ensure that the internal audit activity remains free of conditions that threaten the ability of the activity to carry out its activities in an unbiased matter. If independence or objectivity is impaired in fact or appearance, the CAE will disclose the details of the impairment to the appropriate parties.
      2. A statement that the internal audit activity will have no direct operational responsibility or authority over any of the activities audited.
      3. A statement that if the CAE has or is expected to have roles and/or responsibilities that fall outside of internal auditing, safeguards will be established to limit impairments to independence and objectivity.
      4. A requirement for the CAE to confirm at least annually the independence of the internal audit activity to the governing body.
    5. Scope of Internal Audit Activities – The charter should include:
      1. A statement that the scope of the internal audit activities encompasses, but is not limited to, objective examinations of evidence for the purpose of providing independent assessments on the adequacy and effectiveness of governance, risk management, and control processes.
      2. A statement that the CAE will report periodically to senior management and the governing body on the results of its department and the work the activity performs.
    6. Responsibility – The charter should include:
      1. Statements as to the responsibility for:
        1. Submitting at least annually a risk-based internal audit plan.
        2. Communicating with senior management and the governing body the impact of resource limitations on the plan.
        3. Ensuring the internal audit activity has access to appropriate resources with regard to competency and skill.
        4. Managing the activity appropriately for it to fulfill its mandate.
        5. Ensuring conformance with IIA Standards.
        6. Communicating the results of its work and following up on agreed-to corrective actions.
        7. Coordination with other assurance providers.
    7. Quality Assurance and Improvement Program – The charter should include:
      1. A statement that the internal audit activity will maintain a quality assurance and improvement program that covers all aspects of the internal audit activity including its evaluation of conformance to IIA Standards.
      2. A requirement for the CAE to report periodically the results of its quality assurance and improvement program to senior management and the governing body and to obtain an external assessment of the activity at least once every five years.
  • Dialogic vs Diagnostic OD

    Dialogic vs Diagnostic OD

    Organizational development practice is always evolving and one of the most interesting recent developments in the field has been the evolution of dialogic OD (in contrast to the more conventional diagnostic approach).

    Books & Research

    The main champions of the dialogic approach are Gervase Bush and Robert Marshak, authors of ‘Dialogic Organization Development: The Theory and Practice of Transformational Change. Their DialogicOD website has lots of really useful resources and it is an excellent starting point for exploring the subject.

    Although not explicitly about OD, the possibility-focused ideas underpinning the recent bestselling Reinventing Organisations by Frederic Laloux (now available in an engaging illustrated version that calls to mind the inspiring Barefoot Guide series) are remarkably closely aligned with those of Bush and Marshak. The two books together provide some really stimulating ideas for OD practitioners.

    OD Practicioner Guide

    We need to recognize the importance for OD practitioners of being able to explain to those controlling resources how an investment in organizational development contributes to the ability of their organization to achieve its strategic goals and be an innovative and energizing place of work.

    Two interlinked points seem to be helpful here:

    1. The first is providing senior managers with compelling stories that illustrate how OD plays an important part in the strategic success of their organization. To tell these stories convincingly, we as OD practitioners need to have a very clear mental map of the inter-linkages between organizational development and the effectiveness and creativity of our organizations.
    2. So the second thing we need could be called a ‘theory of change for organizational development’. In other words, a conceptual map that helps us understand and explain our practice – thereby enabling us to tell more compelling stories.

    Diagnostic OD

    Diagnostic OD assumes there are fixed standards for success and the process of OD is to diagnose the current situation of the organization against these standards and develop an action plan to fix the issues. Typical practices of diagnostic OD include:

    • benchmarking,
    • leadership competency identification and
    • surveys.

    Theories like Five Dysfunctions of An Effective Team, Tuckman’s model of team development “Forming, Storming, Norming, Performing”, and 10 f(x)s of an effective team probably fall into this category of diagnostic OD. Whereas diagnostic OD focuses on changing behaviors.

    Dialogic OD

    Dialogic OD, on the other hand, is built on the premise that dialogues are powerful. Dialogue allows for “self-organizing wisdom” and requires the group to be “willing and able to communicate authentically, with common interests in creating the kinds of learning and change they need for themselves.”

    A lot of facilitative methods like:

    • Appreciative Inquiry,
    • Future Search,
    • World Café,
    • Open Space, and
    • Deep Facilitation

    fall under this category of OD. Dialogic OD focuses on changing mindset.

    A typical Dialogic OD process follows this model:

    1. Help the sponsors articulate their wants in a future-focused, possibility-centric way. Instead of focusing on what’s wrong, the sponsor kicks off the change process by picturing the desired state in a positive manner.
    2. Coach the sponsors in how to nurture emergent change. Sponsors need to be less controlling and learn how to allow the group to steer the course. Sponsors need to understand that the objective of dialogic events is not to implement an agreed change. Rather, it is to “unleash the motivation and ideas among participants towards the desired direction”.
    3. Identify and include the necessary community of stakeholders – emphasize diversity. Include all who will be affected by the change. Those with authority, resources, expertise, information, and need shall all be invited. Volunteers are welcome as well.
    4. Design and host the conversations. The role of the facilitator is to “hosting and holding a safe and hospitable container” space for the group to work.
    5. Convert possibilities into actions. This normally happens after the dialogic events when conversations are turned into actions.

    Diagnostic vs Dialogic OD

    We probably need both approaches in our organization development work.

    Diagnostic OD is helpful in creating a common language among the team and identifying where the group is currently at.

    Dialogic OD can be used to help the group deep dive on certain topics and move the group along the change curve from point A to point B. For example, in the topic of team development, I would start the work by diagnostic methods of a team effectiveness survey and a short session to introduce Tuckman’s stages of team development followed by a dialogic one-day workshop using some facilitative methods.

    Both approaches to OD have an important part to play in contemporary organizational development practice, change for OD should embrace both dialogic and diagnostic OD. The challenge for OD practitioners is not so much a question of choosing the best approach for the circumstances or even ‘getting the balance right’ between diagnostic and dialogic OD. The real challenge is being alert to what each approach can bring to our organizations and creating a dynamic interplay between them.

  • Code of Conduct

    Code of Conduct

    Adam Smith recognized the importance of corporate governance long back though he did not use the phrase.

    According to him,

    “The directors of the companies being the managers of the  peoples’(shareholders) money than their own ,it can not well be  expected that they should watch over it with the same anxious  vigilance with the partners in a private corporation frequently watch over their own. ”

     

    Meaning & Definition

    “A code is a set of rules, which are accepted as general  principles, or a set of written rules, which states how the  people of a particular organization should  behave”

    Thus it is a set of standards agreed by a group of people who do a particular job. Regulation is an official rule that lays down how things should be done. 

    Both codes and regulations are “set of rules” or “principles” or “standards”  that are intended to control, guide, or manage behavior or the conduct of individuals working in an organization, the basic difference is that codes are “self-imposed” or “self-regulated” sets of rules, while regulations are “official” i.e imposed by the State  (government).

    International Capital Markets Group (1992) listed the following benefits of self-regulation.

    1. In “self-regulation” it is possible to impose ethical standards, which goes beyond those, which can be imposed by statutory legislation.
    2. ”Self-regulators are directly accountable to the members of their group”. Self-regulatory systems have built-in motivation to regulate for effectiveness and least interference.
    3. Self-regulation operates in an environment where there is a willingness to accept regulations formulated from within the common good of the group.
    4. The regulated have an opportunity to participate at all levels of the self-regulatory process. This makes it easier for them to appreciate and accept new regulations.
    5. Self-regulators have a built-in system of checks and balances as the regulated see it as their duty to expose non-compliance.
    6. Self-regulators can identify complex regulatory problems at an early stage (early stage identification) and  develop suitable solutions before these problems reach a stage that can disrupt  group operations
    7. Self-regulations are more comprehensive than official regulations and are easier to operate and implement.

    1.  The Code of Conduct: Structure and Contents

     The code of conduct can be considered a tool of corporate governance because it identifies corporate responsibilities towards stakeholders and obliges top managers to comply with certain guidelines when exercising their authority, both inside and outside the company.

    We must distinguish between the code of conduct and the code of ethics: the former, which is ‘rules based’, aims to offer a solution to every possible situation and helps to outline corporate strategies, i.e. the behaviors to adopt when specific problems emerge;  the latter, which is ‘value based’, provides a set of ethical principles and corporate values. 

    The code of conduct is therefore closely linked to the code of ethics because the behavior to adopt in specific situations depends on the strategic mission principles, and may even incorporate a code of ethics. Many codes place themselves between these two extremes because they are composed of an introduction that sets out the ethical principles and shared values, and a subsequent section that outlines the rules of conduct to be adopted in certain situations.

    Moreover, the code of conduct and code of ethics is closely linked to the concepts of integrity and loyalty. 

    In particular, the code of ethics addresses the moral integrity of the individuals in the company, as it identifies the values that employees must respect in their tasks: for example, honesty in their actions, tolerance of diversity, and courtesy of service to customers. 

    On the other hand, behaviors dictated by the code of conduct simply require immediate execution by the members of the organization, without questioning whether or not it is opportune to do so. As a result, the code of conduct is designed to build strong loyalty to the company among employees. It contributes to creating: 

    • cohesive and aligned behavior; 
    • organizational efficiency; and 
    • better coordination between decision-making and functional areas. 

    At the same time, the code of conduct helps to contain internal conflicts by fostering favorable attitudes and consensus towards the company.

    The code of conduct encompasses a wide variety of subjects because it addresses all the stakeholders who make up the operating scenario in which the corporate management evolves concerning its environment. Moreover, it is an expression of the corporate culture since it reveals how the rules of conduct towards the company’s interlocutors derive from cultural values and principles. 

    The code is therefore structured in two sections: a preamble containing a code’s description and the corporate principles, and a section with the rules and the standards of behavior.

    The first section provides a definition of the code of conduct illustrating the mission and the values underpinning it. It then lists the stakeholders with whom the company interacts and defines their expectations and corporate responsibilities, as well as the company’s fiduciary duties concerning them.

    The second part outlines the rules of conduct; these are usually expressed by prohibitions, by recommendations to avoid incorrect behavior, or simply by listing the standards, i.e. rules and preventive procedures establishing which behavior must be adopted, and how the company and its collaborators can prevent opportunistic attitudes so that corporate conduct does not diverge from the established principles.

    Research conducted by the OECD of a sample of 236 codes of companies operating in 23 countries has revealed that they regulate working conditions in 60% of cases, environmental stewardship in 59%, followed by consumer relations (47%), bribery (20%) and the transparency of information (18%).

    The codes address all individuals or groups that influence certain aspects of corporate strategic behavior, generating strengths or weaknesses. Although each stakeholder has specific expectations of proper behavior by the company, the standards concerning him refer to common and shared values such as honesty, justice, fairness, and transparency.

    Primarily, the codes of conduct address employees, they are institutional stakeholders and active members of the company. Whit regards to employees, the codes set out the rules to be observed complying with principles of fairness and legality, to guarantee a safe working environment, and in particular to avoid sex, race, or religious discrimination and favoritism in hiring. 

    Some studies show that the adoption of these codes can simplify and increase workers’ tolerance of diversity, a crucial issue in the multicultural environments in which global companies operate.

    For stockholders, who, like employees, have an institutional vested interest but are non-active members of the company, behavior standards are designed to prevent improper behavior and false declarations. The standards that guarantee the external transparency of informative documents are, above all, in the financiers’ interest.

    Codes of conduct also analyze relations with customers to establish a trusting relationship based on an assurance of the safety and characteristics of the product offered and the standards that regulate relations with suppliers. These focuses, in particular, on the ways the latter operate (for example, not using child labor, respecting the environment, etc.) and on the characteristics of their supply agreements, such as the punctuality of goods deliveries and respect of agreed quality.

    The provisions regulating relations with competitors are all based on principles of fairness and respect of anti-trust laws, to avoid unfair conduct. And finally, about the state and the local community, codes of conduct express a company’s commitment to act efficiently and profitably, respecting principles of legality and contributing to the economic and social development of its country, by punctual and total payment of its tax liability.

    2.  Codes of Conduct and Corporate Governance in Global Corporations

     Corporate governance can refer to the structures and practices by which a company manages the system of internal and external relations with its stakeholders. Two prevalent approaches can be identified: the first encompasses a ‘contractualistic’ vision of the company and highlights the need to protect the owners’ interests (i.e. of those who provide the capital); the second, defined as ‘institutionalization’, is based on recognition of several entities that influence corporate operations, and therefore considers corporate governance as a condition to guarantee the fair accomplishment of stakeholders’ legitimate expectations in the long term, to assure to the company the consensus and collaboration that it needs.

    Two distinct systems of corporate governance also emerge from the different types of relations with the capital markets about links between ownership and control, i.e.: the ‘insider system’ and the ‘outsider system’. In the former, ownership and control are concentrated in the hands of a small number of majority stockholders who are often members of the same family. The financial market is not very efficient, partly because of the strong presence of and pressure from banks in the capital, and the percentage of capital in the hands of other investors is small. In the latter, which can be defined as ‘market oriented’ and is typical of the Anglo- Saxon world, ownership is extremely fragmented and it is the market itself that regulates any conflict that arises between owners and management. The company attributes particular attention to the outside to attract potential new participants in the corporate risk.

    Based on relations that can be established between company units, it is also possible to identify two types of structure: one-tier system in which there is one governing board, the Board of Directors, whose role is both administrative and of management and control; and two-tier system in which the management and control functions are separate: the supervisory board will control the management board which only has executive powers.

    However, rather than a model of governance, it seems more appropriate to refer to a process of governance because it regulates relations between the company and its stakeholders, and is, therefore, evolves dynamically based on environmental changes and the expectations of interlocutors. As a result, it will be difficult to establish standards to be included in models that are valid in all corporate situations, and each company will put in place a specific process of governance based on its objectives, the competitive context in which it develops, and the type of organizational structure.

    In networking processes, in particular, corporate governance is modified based on two dimensions:

    • an architectural dimension that separates the networks with strongly asymmetrical powers and a central guide, from those where the branches into the network have equal decision-making powers and operational and strategic decentralization is in force;
    • a regulating dimension that distinguishes between networks created for economic reasons (contracts, price negotiation, etc.) and those for socio-political reasons (lobbying, conventions, etc.).

     Governance in networks always aims to reduce the structural complexity to guarantee the safety of trade by the definition of a network global strategy; the coordination of the relations between the players in the network; and the monitoring of network unity. However, the ways of concrete implementation vary from one situation to another. One effect of the geographical expansion of the market, typical of corporate networking, and particularly of the greater physical-spatial distance between the stakeholders and the company, is that the possibilities for control that corporate interlocutors can exert on the company system have decreased drastically. In parallel, the stakeholders’ need for information, which corporate communication should meet, has increased to the same extent. Corporate communication makes unitary comprehension of corporate phenomena possible, it influences the external evaluation of the company and constitutes a guide in employees’ training to meet the company’s needs16.

    The code of conduct is one of the tools by which companies can demonstrate their commitment to responsible, sustainable behavior by disseminating information about their corporate governance and meeting the stakeholders’ growing need for information at least in part. The code of conduct clarifies to stakeholders inside and outside the company the criteria that guide decisions, both strategic and operational, and as well as being a governance tool, it represents the company’s constitutional charter, defining the responsibilities of each member of the organization.

    3.  Analysis of the Spread of Codes of Conduct in the Global Markets

    The first one hundred companies from the United States, as classified by Fortune magazine, were analyzed to verify the importance that companies attribute to the communication of their corporate governance.

    A first examination revealed the presence of communications that we’re able to qualify how companies establish their relations with the external environment. In detail, the links included in the cases examined break down as follows:

    1. in 65% of the websites analyzed there is an ‘about corporate’ link,
    2.  in 12% an ‘investor relations’ link,
    3. in 7% a ‘corporate social responsibility’ link,
    4. in 9% a ‘citizenship’ link,
    5. in 9% a ‘corporate governance’ link,
    6. in 6% an ‘environment’ link,
    7. in 9% some other link (‘host community’, ‘sustainability’, ‘our values’, etc.).

     The link most often present, after the ‘about corporate’ link, provides information for investors, demonstrating the importance that this group of corporate interlocutors has for company development.

    Where the corporate governance communications tools used by the companies analyzed are concerned, in no fewer than 58% of cases a code exists (of conduct or ethics), which is usually incorporated into the corporate governance structure, considered a regulation dictated by the governing board that everyone must respect.

    It is followed by the ‘corporate social report’ (15%), the ‘corporate citizenship report’ (14%), the ‘sustainability report’ (9%), and the ‘environmental report’ (3%). The percentage for ‘other’ (45%) is high because this comprises numerous tools, which are neither reports nor codes, but generally tend to describe the activities performed by the company. It also includes a 13% percentage referred to cases where a charitable foundation, usually created to finance scientific research or to protect Third World children. We can underline that, in the chosen channels of communication and the tools used, little space has been dedicated to the environment and sustainable development, while a significant amount of space is dedicated to contributions to society and the surrounding community. This can be explained by the profound consumer culture that exists in the United States, where purchasers, supported by consumer associations, pay considerable attention to the behavior of companies and are ready to punish any improper conduct. The only companies interested in the environment and sustainability are, not surprisingly, those with the greatest environmental impact, like the oil company Conoco Philips, and International Paper, a leader of the paper and packaging products sector.  

    It is interesting to note that often, in the cases analyzed, there is no single communication tool but several, usually the code together with a report. This could indicate that most companies prefer to concentrate on a specific tool that provides information about the company’s most deep-felt responsibilities; to this, the firm adds others that communicate different responsibilities, which are deliberately not described in the same document, to keep the issues separate and avoid confusing stakeholders.

    Regardless of the type of social commitment or the tool adopted to inform stakeholders, we can note that all the companies taken into consideration communicate information about their relations with the outside environment. However, stakeholders would like more specific information about how corporate governance is implemented, and this need is generally not satisfied. The reasons can be found in several factors:

    1. Companies tend to communicate through their websites, thus excluding a fair number of interested people who do not have access to the Internet.
    2. The confusion on websites that do not have a section dedicated specifically to corporate communication or corporate governance might prevent interested stakeholders from finding all the information they require and might make them assume that these issues are not a priority for the company.
    3. The generic and partial nature of information addressing stakeholders, dictated by precise strategic motivations, could be perceived by the latter as behavior that is not very transparent and therefore ‘punishable’ by a display of dissent. 

    4.  Formulation and Dissemination of the Code of Conduct

    The code is introduced in the company at the express request of top management and only subsequently does the elaboration of the document begin, entailing negotiations that involve most of the interested parties. For it to be a useful tool of communication and awareness, the code must be drafted with the essential contribution of those it addresses, first and foremost the senior executives.

    Although no single procedure exists to draft the code, we can identify several steps that are common to all companies. First of all, the definition of the corporate mission, in which the company defines the market that it intends to address, the goals to be reached, the responsibilities it takes on about the stakeholders, and the criteria to balance their interests.

    In this regard, the seriousness and motivation that prompt the company to disseminate information through the code of conduct are important because this information underpins the document’s credibility inside and outside the company and the thrust of the actions taken by all the stakeholders to comply. If the stimulus is insufficient or non-existent, employees are not motivated to behave correctly, since the code of conduct on its own is not sufficient to guarantee fair behavior. It is a collection of pronouncements and standards which, to be effective, must be inserted in a vaster project of responsible corporate management. So if the top management is not sufficiently convinced of its utility, adoption of the code of conduct becomes a cosmetic exercise and employees tend to see it as expedient in the face of public opinion to defend the company from possible illegal behavior. On the other hand, if the company considers its social responsibility as a factor on which it bases its relationship with the environment, the code of conduct becomes a way in which this sense of responsibility can be formalized and communicated to stakeholders.

    After the initiative has been approved by top management, a work team is set up, made up of a coordinator and exponents of the various functional areas who enjoy a direct trusting relationship with top management to guarantee the pursuit of the commitments the latter has entered into. The team has to follow the procedure to elaborate and disseminate the code. Sometimes, because of the complexity of its role, the workgroup is assisted by external professionals with expertise in the field of business ethics, who are excluded from the process of identifying the values on which the company is founded, but are asked to solve the problems that require specific skills.

    This will be followed by a process to map the stakeholders to identify the key relationships for the success of the company. The representatives of every stakeholder group, both internal and external, will be consulted through detailed interviews and questionnaires designed to examine the issues of the company’s mission, ethical vision, ethical principles, rights, and duties. As regards the critical areas identified, rules and standards of conduct are defined and elaboration of the code will then begin with: an analysis of existing documents, taken as a reference; an examination of rules and regulations, corporate policy, Board of Directors minutes; and any other formal or informal texts that can reveal the company’s corporate mission and its future orientation.

    The formulation of the code is followed by its dissemination and the method employed is extremely significant because it reflects the importance that the company attributes to the code and influences the value judgment attributed to it by employees. If this operation is kept low key the code will probably be perceived as without influence and of little value; to assign the correct importance, it needs to be communicated formally at a specially called meeting, or accompanied by a presentation letter signed by the Chairman or Managing Director, underlining its importance for the company.

    The code can be disseminated by a ‘top-down’ or ‘bottom-up’ method. Usually, a top-down or ‘cascade’ process is chosen: dissemination of the document starts from top management and descends to all hierarchical levels, the top manager delivers a copy of the code to his staff, who in turn communicate it to their subalterns and so on. The second method involves more company levels and functions and envisages a greater degree of involvement of personnel, encouraging discussion of the principles and values on which the company is founded. Both methods have positive and negative aspects: if the company has a strong corporate culture, the code can be introduced with a top-down process to strengthen and preserve this culture thus ensuring the lasting development of the company. If in this situation the dissemination were to adopt a bottom-up process, it would be uselessly laborious and could trigger sterile discussions. On the other hand, if the corporate culture is still evolving, a top-down approach could be perceived as an imposition by management, creating resistance among employees. In this case, the second system is more advisable because the code is the tool that favors reflection and the evaluation of corporate values and their acceptance throughout the organization.

    It is very important to disseminate the code of conduct to the other corporate key stakeholders and, in particular, to its commercial partners and suppliers, so that they can undertake to adopt the conduct demanded by the company.

    For example, IKEA undertakes not to use child labour in its manufacturing stages and to ensure that its suppliers and sub-suppliers do not either. The latter have to sign up to ‘The IKEA way on purchasing home furnishing products’ which sets minimum requirements that must be respected. 

    5.  Managing the Code of Conduct: Checks, Sanctions, Reviews, and Updates

     After the code has been disseminated, the next problem is to manage it, i.e. checking that the principles it establishes are respected, identifying any incorrect behavior, imposing any sanctions, and reviewing it.

    To safeguard the impartiality of the judgments and to give a mark of correctness, management of the code can be entrusted to impartial external professionals, supported by internal employees. However, this does pose the problem of making the most delicate and complex aspects of company activities known to third parties who are not involved in the life of the company. To prevent any conflict from arising between internal and external parties, many companies, therefore, entrust the management of the code to employees alone.

    Although no single person or unit is made responsible for checking the effectiveness of the code, responsibility for preventing improper behavior is often entrusted to the legal office and/or administrative personnel and/or the internal auditors, who are in a position to check that the directives are respected, and can, in certain cases, intervene with top management, the ethics officer when one exists, or the Ethics Committee. This organ, usually part of the staff of the Board of Directors, guarantees an objective viewpoint because its members are chosen from both inside and outside the company. Its duties include collecting the information provided by the auditors, the possibility of judging the offenses committed, and expressing an opinion to the Board of Directors. To prevent improper behavior and to check that the principles are respected, the code of conduct must be communicated inside and outside the company. Only if it is disseminated will the document be able to influence company decisions and behavior, thus becoming part of the corporate culture. To this end, it is necessary to inform and train all the workforce (executives, managers, white-collars, and new employees) with periodical training sessions and workshops26 that can first introduce the code and its contents and then teach people how to apply it. Internal personnel needs to learn about it to activate the mechanisms to signal any deviance from the standards of behavior, and it must also be communicated to the other significant stakeholders so that they can judge the company’s behavior on this basis and also demand that it complies. The collaboration of the workforce is essential at the control stage because the company operates through numerous manifestations and the code of conduct makes it possible to establish a self-regulating system of governance. The code is the only one to govern the behavior of all members of the global company even with different nationalities, cultures, and religions. If the principles and conduct to adopt in specific situations in the life of the company are enunciated, it will be easier for each worker to understand how to behave and to recognize any deviance from a standard of behavior, regardless of his race, context or background. Since every individual can report any real or apparent illegal acts that he notes to the competent bodies, it is necessary to act prudently on the allegations of these whistle-blowers27 because they may contain false information. To avoid this problem, some companies have created the figure of the ombudsman28, a person of unquestioned moral rectitude whose role it is to check the truthfulness of the allegations and only then to communicate the offense to the competent bodies.

    The principles and general standards of behavior are therefore essential to evaluate in advance the decisions to take and to judge the behavior adopted after the event.

    Management of the code of conduct also envisages the determination and imposition of sanctions on those responsible for an offense. Usually, it is up to the immediate superior of the guilty party to establish the entity, and in more serious cases it may be necessary for the company’s Managing Director, Chairman, Board of Directors, or Ethics Committee to intervene.

    Sanctions vary according to the type of violation; the simplest is disapproval or warning letters, but they may go as far as an employee’s transfer or even dismissal.

    During the implementation and verification stages, it may prove necessary to make changes due to shortcomings or incongruences in the original presentation of the contents. In fact, by its very nature, the code must adhere constantly to the situation that it applies to and this implies a constant and continuous revision of the document, even with simple adjustments. On the other hand, a review becomes necessary in response to important variations in the corporate structure, for example in the case of mergers, incorporations, acquisitions, or changes to the stock structure, all operations that entail verification of the consistency of the values on which the company is founded, with its new organizational set-up and approval of the same by the new top management. What is more, it is necessary to monitor whether there have been any changes in the categories of significant stakeholders and this case, to redefine the expectations and duties about them. The real significance of the code, therefore, lies in the reason for which it exists and in the way in which it is used; it must not be considered unchangeable and static but as a document in progress that is used by management to verify its ideas and values and to discuss the corporate identity.

    6.  The Effectiveness of the Code of Conduct in Global Corporations

    Where the effectiveness of the code of conduct is concerned, it is interesting to consider whether there is a relationship of complementarity between this document and the rules of the legal system. However, to answer this question, we must distinguish between Common Law Countries, where the legal system is not founded on written rules but legal precedent and therefore, where the code of conduct is an important document, and Civil Law Countries, like Italy, where the legal system is based on written standards and the significance of the code of conduct is less obvious immediately29. In fact, in every situation, the codes sustain the law and encourage the understanding and applicability of the rules that apply inside the company and are not always immediately familiar to employees. It is through their formulation that corporate values can be interiorized in a formal and even more concrete dimension. The code may appear to be the company’s response to a demand for supra-national legislation that balances the gaps and the disparities that can arise from the fragmentation of the national legal systems of the various countries in which a global company operates. By implementing it, the company undertakes to impose the standards of conduct wherever it operates.

    For this reason, the concepts present in the code are occasionally expressed in

    generic terms, with few references to concrete cases, so that they are adaptable to the many contingencies; whereas, at other times, they are expressed specifically and in great detail. Both methods present positive and negative aspects: an excess of detail is inflexible and any behavior not mentioned is therefore considered admissible; on the other hand, a lack of precision may imply a lack of clarity and cause hesitation in delicate situations.

    The code of conduct is accompanied by a series of conditions influencing its success. First of all is the fact that the code must be a sincere expression of the will of top management and must entail the participation of top executives and the Board of Directors as well as of employees so that the content will tend to be closer to the characteristics of the business, constituting an opportunity to develop a sense of belonging to the company. It is also indispensable that the conduct of managers should be an example to all the workforce, who are therefore more motivated to behave properly.

    Secondly, values must be communicated with a clear, simple language, that is direct and comprehensible to everyone to avoid misunderstandings and confusion that might be used by people in bad faith to justify illegal acts. The contents must not be too generic but focused on the specific characteristics of the sector and the company; their organization is in line with the description of the company and also includes the management of possible critical situations.

    The method adopted to disseminate the code is also important, and the more it underlines the code’s importance the more this will be respected and taken into consideration. For this reason, a formal method of dissemination that can highlight its value is advisable. The code must be publicized inside and outside the company; inside, by distributing a copy to all new employees who must sign up to it, as a part of a convention, or by posting it in the workplace. And on the outside, by distributing it to the main stakeholders at dedicated encounters, meetings, or training courses30.

    Once the values have been accepted, a further condition for the effectiveness of the code lies in the involvement of personnel who need constant ethical training that will teach the individual how to deal with any behavioral problems that he may come up against because of his position.

    The final condition is the creation of a control structure and a system that can establish the correct sanction for any illegal deed.

     

  • 5 types of strategic partnership

    5 types of strategic partnership

    In a strategic partnership, two businesses intertwine their efforts in a certain area, such as marketing, supply chain, integration, technology, finance, or a combination of these.

    Such an agreement might exist between a digital marketing agency and a graphic designer, a web designer and a database management firm, or an Internet service provider and an email provider, just to name a few of the many possibilities.

    Whether you’re a startup or a growth company, there are many reasons to consider entering into a strategic partnership agreement. At the very least, a strategic partnership will add value to your product or service by expanding what you have to offer. A strategic partnership can even be a proverbial ‘match made in heaven’ if the two parties involved reciprocating each other well enough.

    Let’s take a look at five common types of strategic partnerships, as well as what goes into a typical strategic partnership agreement.

    Why a strategic partnership?

    First, let’s consider why you would want to enter into a strategic partnership agreement in the first place.

    A strategic partnership is a mutually beneficial arrangement between two separate companies that do not directly compete with one another.

    Companies have long been engaging in strategic partnerships to enhance their offers and offset costs. The general idea is that two are better than one, and by combining resources, partner companies add advantages for both companies through the alliance.

    But that’s just the tip of the iceberg.

    Virtually everyone who’s anyone is partnering in some way, even if it’s not obvious to the public. In an ideal partnership, you benefit not only from adding value for your customers but lowering costs as well. That’s why every strategic partnership is ultimately an act of leveraging costs versus return.

    Before diving into a partnership, size up the other party and carefully evaluate the benefits and risks of entering into the agreement. If you can satisfy your profit goals and customer expectations through the partnership, then it’s the right call for your business.

    Now let’s look at each of the 5 types of strategic partnership agreements.

    1. Strategic marketing partnerships

    This type of strategic partnership agreement is most beneficial to small businesses with a limited selection of products and services to offer customers.

    Maybe you have a company that provides one service, say logo design. You might do well to partner with a web developer that will always refer you when graphics are necessary, and vice versa.

    Referral agreements are probably the most basic and informal type of strategic alliance, but strategic marketing partnerships can be considerably more complex.

    Case in point:

    Pharmaceutical company, Abbott India’s agreement to market Zydus Cadila drugs across India. An agreement like this one allows each company to focus on what it does best. In this case, Zydus Cadila gets to focus on manufacturing medications while Abbott India hones in on marketing the drugs.

    Marketing partnerships are extremely common in the automotive industry, such as the Toyota IQ also being marketed as the Aston Martin Cygnet. The idea is that one company makes a product and another adds its own marketing spin to it in order to tap into a new market.

    The same logic can be applied to a variety of different products, so it’s something worth considering in many situations. If you’re interested in forming a strategic marketing partnership, you want to look for either a referrer that you share a customer base with or a company operating in a related field that can market your goods or services to a new audience.

    2. Strategic supply chain partnerships

    A popular (and extremely valuable) type of alliance is the strategic supply chain partnership. One of the most obvious places that you can see strategic supply chain partnerships in action is the film industry. If you’ve ever noticed the opening credits of most movies list various oddly named companies before the film starts, it’s because movies are typically made in a supply chain method. A comparatively small production house will handle the filming and post-production, and a larger studio will handle financing, marketing, and distributing the film. Think of J.J. Abrams’ Bad Robot and Paramount Pictures, which maintain such a partnership agreement.

    Other examples of supply chain partnerships come to us from the technology sector. Intel makes processors for many computer manufacturers. Toyota makes engines for Lotus sports cars. Texas Instruments makes chips for everything you can think of. These companies are entered into strategic supply chain partnerships with other companies.

    If you make a tangible product that you think could benefit from a strategic supply chain partnership, the decision to enter into an alliance comes down to cost. If you can make it for less yourself, then you don’t need a partner. But if you can hand off manufacturing to a dedicated factory and maintain profitability without sacrificing quality, then, by all means, do it. For those of us in the service world, it’s often an even easier decision.

    Companies usually enter into supply chain partnerships to cut costs, streamline processes, or improve quality. Unfortunately, as valuable as they can be, supply chain partnerships can also be among the hardest types of alliances to maintain.

    “Supply chain partnerships run into problems because, on the supplier’s side, the measures of success focus on time, cost, and quality, whereas your perspective likely focuses on sales and revenue. A supply chain partnership only works if each party involved can meet with end customers’ expectations for quality and price while remaining individually profitable.”

    According to Dr. Andrew S. Humphries

    3. Strategic integration partnerships

    Strategic integration partnerships are extremely common in the digital age since it’s always great to have different applications work together or at least communicate with one another.

    And, both sides get to offer a more streamlined service to our customers. Strategic integration partnerships can encompass agreements between hardware and software manufacturers or agreements between two software developers who partner to have their respective technologies work together in an integral (and not always exclusive) way.

    For instance, Uber and Spotify partnered together to create their “Soundtrack for Your Ride” campaign. In this effort, each brand relied on the other’s technology to create an extraordinary experience for customers. While waiting for their Uber ride to arrive, passengers can connect to their Spotify accounts and control the playlist they’ll be hearing during their trip.

    On top of providing a pleasurable ride experience for passengers and improved ratings for drivers, the integration also positioned each brand in a positive light, likely gaining return customers in the process.

    Another fantastic example of a strategic integration partnership is the agreement between Nike and Apple. Beginning in the early 2000s, Nike and Apple began pairing their respective products and technology to create what would eventually become Nike+. Upon buying the specific fitness shoes and apparel, customers can pair their products with their Apple iPhone or Watch to track fitness progress and achieve other health goals.

    4. Strategic technology partnerships

    Another type of alliance is a strategic technology partnership. This type of strategic partnership involves working with IT companies to keep your business afloat. This can be a partnership between your web design firm and a specific computer repair service that you always call in exchange for a discounted rate on services. It could also include partnering with a cloud-based storage platform to handle all of your file storage needs.

    Basically, any kind of technological expertise that is necessary for your business that you cannot provide in-house can be relegated to a strategic technology partnership. Choosing a technology partner has to be based on an assessment of your needs and the identification of a positive benefit from entering into the agreement.

    You don’t need a monthly retainer on printer servicing if you’d save more money by moving to a paperless solution. So again, assess the situation before signing up for any strategic partnership. Never enter into an alliance just for the sake of being able to say you have a strategic partner.

    5. Strategic financial partnerships

    Many modern companies wholly outsource their accounting to strategic partners. Strategic financial partnerships are helpful because when you use a dedicated company for accounting, for example, they can monitor your revenue with greater focus than you can do in-house. Because finances are critically important to any business, strategic financial partnerships are among the most important relationships you can foster.

    Dedicated finance professionals offer rock-solid expertise in managing cash flow and can report your current revenue position readily and objectively. And that can be of paramount importance to your business.

    Types of legal strategic alliances

    Similar to strategic partnerships, legal strategic alliances also provide businesses with a series of advantages including additional resources, manpower, and brand power through a legal agreement.

    There are 3 main types of strategic alliances:

    1. Joint venture

    A joint venture occurs when two or more parent companies form a smaller (child) company together.

    Partners can choose between a 50/50 joint venture, in which both parent companies own an equal portion of the child company, and a majority-owned venture. In a majority-owned venture, for example, one partner company could own 80% of the child company, while the other partner owned the remaining 20%.

    2. Equity alliance

    For an equity alliance to occur, one company must purchase a specific percentage of equity in another company.

    3. Non-equity alliance

    A non-equity alliance occurs when two companies mutually agree on a contractual relationship which allocates specific resources, assets, or other means to one another. Many of the previous strategic partnership examples are also considered non-equity alliances.

    What’s in a strategic partnership agreement?

    Once you’ve found a strategic partner to work with, you need to create and sign a proposal or strategic partnership agreement with them. This type of document can range for relatively simple to utterly complex, depending upon the scope of the partnership, the terms of the agreement, and the scale of the businesses involved.

    In all cases, a basic strategic partnership agreement should include the following:

    • The parties involved in the agreement;
    • The services to be performed by each partner;
    • The terms of the agreement (percentages of profit, method of billing, etc.);
    • The reporting structure, person of contact, etc.;
    • The duration of the agreement;
    • The signatures of company officers or their designees.

    It can get quite a bit more complex than that, but you’ll always see these types of things on a strategic partnership agreement. You want to lay everything out in print, so there are no questions of who does what later. Many companies opt for quality control and auditing clauses in their partnership agreements to help maintain the integrity of the products or services that result from the partnership, so that’s something you might want to consider when creating your own agreement.

    What is a strategic partnership business model?

    A strategic partnership business model is about pursuing partners not only because they provide value to you, but also because they can benefit from your company’s products, services, or brand recognition.

    When looking to form a strategic partnership business model, always consider what value you can provide and as well as what resources you require. The business model should be a mutually beneficial structure, not a one-sided relationship formed solely out of a desire for additional revenue. Look for partners you can trust to properly display your brand name and with which you’d be proud to team up in future endeavors.

    Would a strategic partnership help you grow your business?

    It seems like every company has at least one strategic partner these days. That being said, some are certainly still totally insular. (Look at Dell.) The decision of which way to go with your business comes down to your needs and goals.

    If you can perform every function in-house, maintain quality and make a profit, then your company might not get much out of a strategic partnership agreement. But there’s almost always an opportunity to either reduce the costs column or otherwise increase the bottom line in any business, and that’s where strategic partners come in handy. If there’s an opportunity for your company to improve, chances are there’s a partner that can help you do it.

    One more thing to bear in mind is that strategic partnerships can also mitigate risk. That means, for example, if you choose a strategic manufacturing partner that operates a factory and insures its workers, you are removed from the liability of operating a similar facility yourself.

    Likewise, many accountants and financial advisors are bonded and insured. By partnering to fulfill those roles, you remove the need to incur the costs of operating those types of businesses yourself. Ultimately, two really are better than one. I guess that’s part of why marriage is such an enduring institution in our society.

    That’s also why the various strategic partnerships that we’ve mentioned throughout this article exist between some of the biggest names in the business. Joining forces in a strategic partnership has worked for major players like Nokia and Microsoft, and, with careful planning, it can work for your business, too. It all comes down to taking the plunge and saying, “I do” to a strategic partnership agreement.

  • Corporate Governance

    Corporate Governance

    Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or controlled. The term encompasses the internal and external factors that affect the interests of a company’s stakeholders, including shareholders, customers, suppliers, government regulators and management. The board of directors is responsible for creating the framework for corporate governance that best aligns business conduct with objectives.

    An example of good corporate governance is a well-defined and enforced structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards, best practices and formal laws. Alternatively, bad corporate governance is seen as poorly-structured, ambiguous and noncompliant, which could damage the image or financial health of a business.

    Principles of corporate governance

    While corporate governance structure may vary, most organizations incorporate the following key elements:

    • All shareholders should be treated equally and fairly. Part of this is making sure shareholders are aware of their rights and how to exercise them.
    • Legal, contractual and social obligations to non-shareholder stakeholders must be upheld. This includes always communicating pertinent information to employees, investors, vendors and members of the community.
    • The board of directors must maintain a commitment to ensure accountability, fairness, diversity and transparency within corporate governance. Board members must also possess the adequate skills necessary to review management practices.
    • Organizations should define a code of conduct for board members and executives, only appointing new individuals if they meet that standard.
    • All corporate governance policies and procedures should be transparent or disclosed to relevant stakeholders.

    Benefit of Corporate Governance

    Increased Profitability

    • Gaining technological leadership via Research and Development
    • Increased productivity
    • Selling More

    Cost Reduction

    • Lower cost of operations, via centralising support functions
    • Reduced duplicate Job Titles
    • Centralised Inventory Control
    • Buy Less
    • Buy Effectively
    • Increased Collection rate

    Personal Benefits

    • Less Stress
    • Improved Quality of Life
    • Increased efficiency, i.e. Do Less – Achieve More
    • Conflict Management –  One purpose of corporate governance is to implement a checks and balances system that minimises conflicts of interest. Conflicts typically arise when two involved parties have opposing opinions on the way the business should be conducted. Since a board of directors is typically a mix of internally and externally involved members, corporate governance is a non-biased way to approach conflict.Conflicts could occur when executives disagree with shareholders. For example, the shareholders will typically want to solely pursue interests that generate profit while the chief executive officer might want to invest in better employee engagement efforts. Another type of conflict could arise if multiple shareholders disagree with each other. It would be the role of corporate governance to define how these matters are settled.

    Brand

    • Increased Market Value
    • Recognition
    • Pride
    • Legacy
    • Sense of Reliability for Stakeholders
    • Attractiveness for Investors & Lenders

    Publicity

    Efficient Control

    • Centralized Effort
    • Transparency
    • Over gain and loss
    • Minimize conflicts of interest.
    • Improved Communication

    Faster Business Processed

    • Easy integration in the case of merging or acquisition with lesser time, efforts and costs
    • Adapt to changes at a  faster rate and thus help the organisation to survive in  the ever-changing environment

    Regulation of corporate governance

    Corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power or alleged criminal activity by corporate officers. Therefore, laws and regulations have been passed to address the components of corporate governance.

    Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or controlled. The term encompasses the internal and external factors that affect the interests of a company’s stakeholders, including shareholders, customers, suppliers, government regulators and management. The board of directors is responsible for creating the framework for corporate governance that best aligns business conduct with objectives.

    An example of good corporate governance is a well-defined and enforced structure that works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards, best practices and formal laws. Alternatively, bad corporate governance is seen as poorly-structured, ambiguous and noncompliant, which could damage the image or financial health of a business.

    Principles of corporate governance

    While corporate governance structure may vary, most organizations incorporate the following key elements:

    • All shareholders should be treated equally and fairly. Part of this is making sure shareholders are aware of their rights and how to exercise them.
    • Legal, contractual and social obligations to non-shareholder stakeholders must be upheld. This includes always communicating pertinent information to employees, investors, vendors and members of the community.
    • The board of directors must maintain a commitment to ensure accountability, fairness, diversity and transparency within corporate governance. Board members must also possess the adequate skills necessary to review management practices.
    • Organizations should define a code of conduct for board members and executives, only appointing new individuals if they meet that standard.
    • All corporate governance policies and procedures should be transparent or disclosed to relevant stakeholders.

    Benefit of Corporate Governance

    Increased Profitability

    • Gaining technological leadership via Research and Development
    • Increased productivity
    • Selling More

    Cost Reduction

    • Lower cost of operations, via centralising support functions
    • Reduced duplicate Job Titles
    • Centralised Inventory Control
    • Buy Less
    • Buy Effectively
    • Increased Collection rate

    Personal Benefits

    • Less Stress
    • Improved Quality of Life
    • Increased efficiency, i.e. Do Less – Achieve More
    • Conflict Management –  One purpose of corporate governance is to implement a checks and balances system that minimises conflicts of interest. Conflicts typically arise when two involved parties have opposing opinions on the way the business should be conducted. Since a board of directors is typically a mix of internally and externally involved members, corporate governance is a non-biased way to approach conflict.Conflicts could occur when executives disagree with shareholders. For example, the shareholders will typically want to solely pursue interests that generate profit while the chief executive officer might want to invest in better employee engagement efforts. Another type of conflict could arise if multiple shareholders disagree with each other. It would be the role of corporate governance to define how these matters are settled.

    Brand

    • Increased Market Value
    • Recognition
    • Pride
    • Legacy
    • Sense of Reliability for Stakeholders
    • Attractiveness for Investors & Lenders

    Publicity

    Efficient Control

    • Centralized Effort
    • Transparency
    • Over gain and loss
    • Minimize conflicts of interest.
    • Improved Communication

    Faster Business Processed

    • Easy integration in the case of merging or acquisition with lesser time, efforts and costs
    • Adapt to changes at a  faster rate and thus help the organisation to survive in  the ever-changing environment

    Regulation of corporate governance

    Corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power or alleged criminal activity by corporate officers. Therefore, laws and regulations have been passed to address the components of corporate governance.

  • Oman Foreign Capital Investment Law (promulgated by Royal Decree 50/2019)

    Oman Foreign Capital Investment Law (promulgated by Royal Decree 50/2019)

    The Foreign Capital Investment Law Promulgated by Royal Decree 50/2019

    Translated by Ministry of Legal Affairs

    Foreword

    Royal Decree  50/2019 Promulgating the Foreign Capital Investment Law

    We, Qaboos bin Said, the Sultan of Oman

    after perusal of the Basic Statute of the State promulgated by Royal Decree 101/96, and the Commercial Agencies Law promulgated by Royal Decree 26/77,

    and the Law on Expropriation for Public Interest promulgated by Royal Decree 64/78,

    and the Law on Organising and Promoting the Industry promulgated by Royal Decree 1/79, and the Land Law promulgated by Royal Decree 5/80,

    and Royal Decree 5/81 Regulating the Usufruct of the Lands of the Sultanate, and the Commercial Law promulgated by Royal Decree 55/90,

    and Royal Decree 57/93 promulgating the Provisions Governing Gulf Investment, and the Foreign Capital Investment Law promulgated by Royal Decree 102/94, and the Financial Law promulgated by Royal Decree 47/98,

    and Royal Decree 67/2003 Applying the Unified Customs Law of the Cooperation Council for the Arab States of the Gulf,

    and the Law (System) of the Standard Industrial Organisation of the Gulf Cooperation Council for the Arab States of the Gulf promulgated by Royal Decree 61/2008,

    and the Income Tax Law promulgated by Royal Decree 28/2009,

    and the System of the Public Authority for Investment Promotion and Export Development promulgated by Royal Decree 35/2012,

    and Royal Decree 11/2017 Determining the Competences of the Ministry of Commerce and Industry and Adopting its Organisational Structure,

    and the Commercial Companies Law promulgated by Royal Decree 18/2019, and after presentation to Majlis Oman,

    and in pursuance of public interest, have decreed as follows

    Article I – The attached Foreign Capital Investment Law shall apply.

    Article II – The Minister of Commerce and Industry shall issue the executive regulation of the attached law within a period not exceeding 6 (six) months from the date of its implementation, and shall also issue the necessary decisions for the implementation of its provisions, and until they are issued, the decisions in force shall continue to operate to the degree that they do not contradict with its provisions.

    Article III – The benefits, incentives, and guarantees granted to investment projects existing at the time of entry into force of the attached law shall continue until their terms expire, in accordance with the laws and agreements derived therefrom.

    Article IV – The Foreign Capital Investment Law promulgated by Royal Decree 102/94 is hereby repealed, as well as every provision contrary to the attached law or in conflict with its provisions.

    Article V – This decree shall be published in the Official Gazette and shall come into force 6 (six) months after the date of its publication.

    Issued on: 27 Shawwal 1440
    Corresponding to: 1 July 2019
    Qaboos bin Said
    Sultan of Oman

    Chapter One – Definitions and General Provisions

    Article 1 – In the application of the provisions of this law, the following words and phrases shall have the meaning assigned to each of them, unless the context requires otherwise:

    • (a)  Ministry: Ministry of Commerce and Industry.
    • (b)  Minister: Minister of Commerce and Industry.
    • (c)  Authority: Public Authority for Investment Promotion and Export Development.
    • (d)  Centre: Investment Services Centre in the ministry.
    • (e)  Competent bodies: Government bodies competent with issuing approvals, permits, or licences.
    • (f)  Foreign investment: Using direct foreign capital invested to create, expand, develop, finance, manage, or own an investment project.
    • (g)  Investment project: Any economic activity established in the Sultanate by a foreign investor individually, or in partnership with another foreigner or an Omani.
    • (h)  Foreign investor: – Every natural or legal non-Omani person who establishes an investment project in the Sultanate.
    • (i)  Invested foreign capital: All types of assets included in an investment project regardless of type, and which have a financial value, whether monetary, in kind, or intangible.
    • (j)  Regulation: The executive regulation of this law.

    Article 2 – The provisions of this law shall not prejudice the provisions of the royal decree concerning the provisions governing gulf investment, and royal decrees relating to the Special Economic Zone at Duqm, the Public Establishment for Industrial Estates, and free zones.

    Article 3 – It is prohibited for a foreigner, whether a natural or a legal person, to undertake any investment activity in the Sultanate except in accordance with the provisions of this law.

    Article 4 – Assets included in the investment project include specifically the following:

    • Currency, financial securities, and commercial
    • Machinery, equipment, installations, spare parts, modes of transportation, raw materials, and production means connected to the
    • Rights over intellectual or industrial property, trade marks, trade names, patents, publicity, trade secrets, technical processes, and engineering and technological
    • Profits of foreign investment if used in increasing capital, expanding existing projects, or establishing new

    Article 5 – The centre shall undertake the registration of the foreign investor, and facilitating and simplifying the procedures for obtaining all approvals, permits, and licences needed for his investment project.

    In all cases, the centre and competent bodies shall abide by the prescribed procedures and deadlines for issuing such approvals, permits, or licences, and if no response is obtained within the statutory periods prescribed in the regulation, the request shall be deemed accepted.

    Article 6 – Foreign investment shall be carried out by an establishment or a company in a permitted activity by owning the invested foreign capital in whole or by contributing to it, and a licence for this shall be issued from the centre.

    Article 7 – The foreign investor shall abide by the timeline submitted by him for executing the investment project adopted in accordance with the economic feasibility study. It is not permitted for him to make any substantial changes to the investment project except after the approval of the ministry.

    Article 8 – The investment project shall undertake to protect the environment and matters relating to work ethics, and it shall undertake to preserve public health and safety, in accordance with the laws and regulations in force in the Sultanate.

    Article 9 – Notwithstanding international agreements in force in the Sultanate relating to investment and the avoidance of double taxation, the investment project shall be subject to all laws in force in the Sultanate in regard to all that is not governed by a special text in this law.

    Article 10 – It is permitted by a decision of the Council of Ministers – based on a recommendation by the minister – to grant an investment project established for strategic projects contributing to achieving the development of the activities of public utilities and infrastructure, or new or renewable energy, roads, transportation, or ports a single approval for establishing, operating, and managing the investment project, including construction and manpower licences, and this approval shall be effective on its own without the need to undertake any other procedure.

    The regulation shall specify the conditions and procedures for acquiring this approval.

    This approval shall not prejudice the rights of competent bodies to oversee and follow-up to ensure that the investment project abides by the laws in force in the Sultanate.

    Article 11 -It is prohibited for the investment project to undertake any activities to achieve political or religious objectives, that involve discrimination between nationals or residents, or that prejudice public order or public morals.

    Article 12 –The employees identified by a decision from the competent authority, in agreement with the minister, shall have judicial enforcement status for the application of the provisions of this law.

    They shall have the right to enter the sites, facilities, or headquarters of establishments or companies, the authority to monitor and to inspect them, and to view their records, documents, and work regulations, to ensure their conformity with the provisions of the laws and regulations implementing them. The owners and those responsible for the affairs of these establishments and companies shall provide the necessary facilities to enable them to perform their tasks.

    Article 13 –It is prohibited to disclose any information relating to the investment opportunity or to the technical, economic, or financial aspects of the investment project that came to the knowledge of an employee by virtue of his employment work.

    Article 14- The list of activities that are prohibited to be undertaken by foreign investment shall be issued by a decision of the minister.

    Article 15 – The regulation shall – after coordinating with competent bodies – specify the conditions, controls, procedures, and timelines for issuing approvals, permits, and licences relating to investment projects subject to the provisions of this law.

    Article 16 – The authority shall undertake the competences of the ministry, and the chairman of its board of directors shall undertake the competences assigned to the minister, and as stipulated in this law, in regard to investment projects that the authority deals with.

    Article 17 – Omani courts shall have the competence to examine any dispute arising between the investment project and others, and the cases of investment projects shall have urgency status when examined by these courts. It is permitted to resolve differences and disputes by arbitration.

    Chapter Two – Foreign Investment Incentives

    Article 18 – An investment project shall enjoy all the benefits, incentives, and guarantees enjoyed by a national project in accordance with the laws in force in the Sultanate. It is permitted, by a decision of the Council of Ministers on the basis of a recommendation by the minister, to declare a preferential treatment for a foreign investor in application of the principle of reciprocity.

    It is also permitted by a decision of the Council of Ministers to grant a collection of additional benefits to foreign investment projects that are established in the least developed areas in the Sultanate.

    Article 19 – It is permitted to designate land and real estate required for the investment project through long term leases or by granting a usufruct right over them without adhering to the provisions of the Royal Decree Regulating the Usufruct of the Lands of the Sultanate and the Land Law, and that is in accordance with the rules and provisions specified in the regulation after coordinating with the competent bodies.

    The authority shall undertake to coordinate with ministries and bodies competent with specifying locations that are designated in each governorate for establishing investment projects by usufruct right in accordance with this law.

    It shall also coordinate with the bodies competent with providing public services such as water, electricity, gas, wastewater, public roads, communications, and others to the boundary of the project.

    Article 20 – Without prejudice to the provisions of the Unified Customs Law of the Cooperation Council for the Arab States of the Gulf, the regulation shall specify the investment projects that may be exempt from taxes, customs duties, and non-customs duties, and their duration from the date of commencement of the project by providing services or the date of actual production. It shall also specify – after the approval of the Council of Ministers – other benefits that may be granted to investment projects, their duration, and the rules and controls for granting them, including the customs tax on machinery, devices, equipment, instruments, machines, and production inputs imported for the project, or for expanding or developing it, and any other duties due on imports necessary for the purpose of the investment project referred to in article 21 of this law.

    Article 21 – It is permitted for the investment project to import on its own, or through another, production supplies, materials, machinery, spare parts, modes of transportation required for its establishment, expansion, or operation and that are appropriate for the nature of its activity without the need to be registered in the Importers Register.

    The ministry, or competent bodies, shall specify the aforementioned materials that are needed for the investment project on the basis of a request by the foreign investor.

    Article 22 – Tax exemption for the investment project shall be in accordance with the provisions of the Income Tax Law.

    Chapter Three – Foreign Investment Guarantees

    Article 23 – It shall not be permitted to confiscate any investment project except with a judicial decision, nor impound its assets, freeze them, or hold them in custody or under guardianship except with a judicial decision.

    Taxation debt due to the state shall be exempt from this provision.

    Article 24 – It is not permitted to expropriate an investment project except for public benefit in accordance with the Law on Expropriation for Public Interest, and in return for fair compensation to be quantified at the time of expropriation. The due compensation shall be paid without delay, and it shall not be permitted to terminate usufruct or lease contracts in cases of the privatisation of land and real estate, except in the cases prescribed by law, or by a judicial decision.

    Article 25 – It shall not be permitted for competent bodies to revoke the approval, licence, or permit issued for an investment project except by a reasoned decision after warning the foreign investor in writing of the offence attributed to him, hearing his point of view, and providing him a period that does not exceed 30 (thirty) days from the date of his warning to remove the reasons for the offence, and in all cases the opinion of the ministry must be sought prior to revoking the approval, licence, or permit.

    Article 26 – Notwithstanding the laws in force in the Sultanate, the foreign investor has the freedom to carry out all transfers relating to the investment project from/to outside the Sultanate at any time. Transfers shall include the following:

    • Returns of the foreign.
    • Proceeds from the sale or liquidation of all or part of the investment
    • Proceeds resulting from the settlement of disputes for the investment
    • Compensation obtained as a result of the expropriation of the investment project for public benefit.
    • Premiums from loans or finances obtained by the investment project from
    • Any transfers for import or export connected to the activity of the investment
    • Any foreign dues for the rental of machines or service contracts within the framework of the project.

    Article 27 – It is permitted for the foreign investor – in accordance with the laws in force in the Sultanate – to transfer the ownership of the investment project in whole or in part to another foreign or Omani investor, or transfer it to his partner in case of a partnership, a merger, an acquisition, or transformation of its legal form, and in these cases the treatment of the investment project shall continue in accordance with the provisions of this law, provided that the new investor continues to work on the investment project, and takes the place of the former investor in regard to rights and obligations.

    Chapter Four  – Administrative Penalties

    Article 28 – The ministry shall notify the foreign investor in writing when he violates any of the provisions of this law, or the regulation and the decisions issued in implementation of it, to rectify the offence within a period not exceeding 30 (thirty) days from the date of receiving the notice. It is permitted to extend the aforementioned period for a similar period if reasons for this exist.

    Article 29 – If the foreign investor fails to rectify the offence within the period referred to in article 28 of this law, one of the following penalties shall be imposed against him depending on the severity of the offence:

    The deprivation of all or some of the incentives and benefits prescribed in this
    Suspending the activity for a period not exceeding 6 (six)
    Revoking the licence permanently in case of offence repetition, notwithstanding the provisions of article 25 of this

    The regulation shall specify the conditions and procedures for imposing any of these penalties.

    Article 30 – A committee or more shall be established in the ministry to examine grievances submitted from persons concerned against decisions issued by the ministry or the competent bodies.

    The committee shall be formed of an advisor in the Administrative Court nominated by the chairman of the court as chair, and a senior judge of the primary court nominated by the Chair of the Council of the Administrative Affairs for the Judiciary and a person of expertise nominated by the Oman Chamber of Commerce and Industry as members, and the secretariat of the committee shall be undertaken by an employee of the ministry.

    The membership of the committee, its work system, and the procedures to be followed before it shall be issued by a decision from the minister.

    Article 31 – Grievances shall be submitted to the committee stipulated in article 30 of this law within 60 (sixty) days from the date of the notification to the person concerned of the decision appealed against or the date he certainly knew of it. The committee may contact the ministry and competent bodies to request clarifications and respond to the queries that it sees necessary to decide on the grievance, and it may also seek the opinion of whoever it deems necessary from various experts and specialists in the ministry and competent bodies.

    The committee shall settle the grievance with a reasoned decision within 30 (thirty) days from the date of its submission. It is permitted to extend this period for another similar period and for one time only if the grievance is unfit for examination. The decision of the committee shall be final and binding on the ministry and competent bodies.

    It is permitted for the person submitting the grievance to resort to the competent court to challenge the decision.

    Chapter Five – Punishments

    Article 32 – Without prejudice to any punishment more severe in any other law, the crimes stipulated in this law shall be punished with the punishments stipulated in it.

    Article 33 – Every foreigner who undertakes any investment activity in violation of the provisions of this law shall be punished by a fine no less than 20,000 (twenty thousand) Rial Omani and not exceeding 150,000 (a hundred and fifty thousand) Rial Omani, and every Omani who participates with a foreigner in an investment project in violation of the provisions of this law shall be punished by the same punishment.

    Article 34 – Whoever prevents the employees stipulated in Article 12 of this law from performing their job shall be punished by a fine no less than 1,000 (one thousand) Rial Omani and not exceeding 5,000 (five thousand) Rial Omani.

    Article 35 – Whoever discloses any information relating to the investment opportunity or to technical, economic, or financial aspects of an investment project that came to his knowledge by virtue of his employment that leads to the loss of that opportunity, or directly affects the investment project shall be punished by imprisonment for a period not less than 6 (six) months, and not exceeding 3 (three) years, and a fine no less than 5,000 (five thousand) Rial Omani and not exceeding 50,000 (fifty thousand) Rial Omani, or one of those two punishments, except in cases where the law permits this or in implementation of a judicial decision or order.

    Article 36 – Except for the crime stipulated in article 35 of this law, it is permitted for the minister, or whoever he authorises, to settle the crimes stipulated in this law, at any stage in the public prosecution and before the issuance of a decision regarding it, in return for the payment of a financial amount no less than double the minimum limit of the fine prescribed for this crime, and not exceeding double the maximum limit of it. The settlement shall result in the lapse of the public prosecution of the crime.