Ethics and Corporate Governance in Al Hilal Bank - Term Paper Example

Ethics & Corporate Governance in Al Hilal Bank Corporate governance is primarily used to resolve around the basic principles of authenticity, fairness, accountability and transparency in business world or banking systems. It actually assures improvement in economic growth and activity. It reduces complications, mismanagement and inefficiency thus helping board of directors to be highly disciplined during decision making. Companies which follow basic corporate governance principles religiously are more likely to function productively attracting more investors, both domestic as well as foreign. Good corporate governance naturally attracts customers. It is generally observed that investors hesitate to make some investments in the company which has poor corporate governance. The need for good corporate governance in any bank is unmistakable. Particularly talking about Al Hila bank, this bank has responded steadily and effectively to all the corporate governance challenges and their progress in this field is pretty impressive. Effective corporate governance is essential to achieve and maintain public interest and the confidence of your customers. Not only this but poor corporate governance can cause a fall of whole banking structure followed by significant public cost and other consequences as all of its working are interconnected with insurance system and its policies. Corporate governance has multi task to perform. They elect and allocate the authorities which are responsible for business and affairs of bank and are governed by its board and senior management. They form the bank’s strategies and objectives; list out day to day functions and goals, making sure the government is performing in safe and sound manner and is meeting its customers or shareholders obligations properly. Supervisors also shoe their deepest concern in safe and sound functioning of corporate governance as it is an essential element of banking sector which failure can adversely affect the functioning and profile of a bank. Good corporate governance practices can be extremely helpful in case of crises or other problems. The supervisor can demand more attention from the board of directors to understand the problem and to seek solutions. Ways to enhance the corporate governance To enhance its corporate governance, Al Hilal bank must work on its effective legal, regulatory and institutional foundations. Here are some of the principles Al Hilal bank can follow to ensure that bank adopts and implement sound corporate governance practices. These principles can be used as both to reduce the problems and to identify the practices which can bring productive output to a governance sector. • Responsibilities of board Responsibilities of board should not be taken lightly. The overall responsibility of a bank is with board including approving the banking strategies, risk strategies, corporate governance and corporate values. All the financial soundness of bank is in board. Board should check the whole strategy of bank taking in account all the risk and effective planning to reduce the risks and its capacity to cope risks efficiently. The board must take into account and must know the legitimate interest of shareholders, stock holders, depositors and their relevant customers. Also the effective relationship with the supervisor should also be maintained properly. Board of directors should practice their duties of conduct and duties of loyalty followed by keeping up with change in bank’s business and external environment. A responsible behavior proves to be an essential foundation in good governance. So the board should carry its responsibilities effectively maintaining professional standards that ensure integrity for management and other employees. • Communication Low-key employees and other workers should be allowed to communicate about illegal and unethical practices as such practices can negatively impact on bank’s reputation and profile. Important steps should be taken to communicate throughout the bank and professional standers to without any danger report concerns or violation to any particular body. • Senior management By applicable laws and regulations the board can elect and if necessary can replace the senior management if it sees that they are not performing their required task properly. The senior management actions and activities should be monitored consistently to check whether they are working in their frame. The meeting with senior management should be held regularly. Board should demand critical explanations and ask questions if found necessary related to their assigned tasks. It should be make sure that senior management performance should be consistent with long term objective, banking strategies and financial soundness of a bank. Senior management expertise and knowledge should be appropriate given the nature of the bank and its profile. • Qualification The board should hire and possess only the compatible, well qualified and highly trained members who have great collective experience and personal qualities including professionalism and personal integrity. The board should have deep thinking and knowledge regarding all the banking principles and their areas of expertise including finance, accounting, lending, bank operations and payment systems, strategic planning, communications, governance, risk management, internal controls, bank regulation, auditing and compliance. • Training The members of the corporate governance or the board must be highly trained to ensue good corporate governance. They should deepen the knowledge in the respective fields by attending different seminars and tutorials on ongoing education and tutorials. The corporate governance should dedicate their sufficient time for this task. • Composition The composition of board or the corporate governance should be done on highly professional basis. The board should nominate and elect the candidates with proper plan and ensure appropriate succession of plans. The appropriate selection should be made by particularly distinguishing the areas of expertise of the nominated candidates, their interest and experiences. • Practices and structure The board should work only on appropriate work frames and guidelines which are solely set for the functioning of corporate governance. They should maintain and organize all the rules including their organization right, rules and responsibilities. The board should promote efficiency by holding frequent meetings, discussion of issues and the use of committees to perform its tasks professionally. • Role of chair Role of chair is important in any corporate governance. If the head of a chair is performing his/her duties effectively most chances are the outcome of the activities of corporate governance would be highly productive. The chair should ensure that all the orders and rules should be carried out accordingly. The chair should be a highly qualified person with a full understanding of the functioning and rules of corporate governance. He or she should promote critical discussion and analysis and should make sure all the employees views are discussed or taken into account in decision making process. • Board Committees To increase the efficiency of a corporate governance the board should establish highly specialized board committees. The committees made should be complete professional. The number of committees depends on the profile, structure and number of departments in a bank. Committees should hold searches and analyze data and keep the records of their decisions which should be presented to the final or annual meeting of the board or corporate governance to make significant decisions. Audit committees, ethic committee, human resources committee, compensation committee or equivalent committees can come into the example of such board committees. • Risk management system To enhance corporate governance a bank should have an effective risk management policy under which they can perform their tasks even a bank is facing some crisis. The board should elect chief risk officer or equivalent with sufficient authority and independence across the board so that they can perform their task well without any pressure. Risk methodologies and activities should be practiced. Risks should be identified and monitored within the banking system and any change in activity which may result in increase in risk from the bank profile and its working should be eliminated after profound research. Risk management requires a thorough communication within the bank and decision should be discussed with the supervisor and senior management. • Utilization of research The proper usage an implications of the research work held by internal audit functions, external auditors and internal control functions can definitely enhance the corporate governance. The board and high-ranking management should take into account all the analysis from the work before taking any major decisions (Spong & Sullivan, 2012). • Transparency The governance of the bank should be fairly transparent to its stockholders, shareholders, depositors and other relevant customers. Transparency is essential for sound and effective corporate governance. If the bank fails to provide its customers disclosure and transparency, chances are time will bring the reduction in number of investors. Information pertaining to the various important areas of corporate governance should be disclosed and made available to the investors by the bank, to allow them to make rational decisions in time. This type of disclosure should take into consideration factors like complexity, size, economic significance, structure and the risk profile of the bank, since these are the key areas that an investor is willing to know about (Awais et al, 2010). Conclusion The above listed point should be practiced by the bank to enhance its corporate governance. Good corporate governance is extremely essential to establish an environment which attracts investors and efficient financial markets. No amount of regulations and other laws can institutionalize corporate governance if the senior management and board appreciate the existence and the value addition of corporate governance for their productivity and competitiveness. Ethics, transparency and the competition for reputation, which are the cornerstone of good corporate governance, would invariably be the distinguishing features of banks that emerge ahead in an increasingly competitive market. References Awais, A., Milne, E. J., & Day, J. (2010). Basel Principles For Enhancing Corporate Governance In The Global Banking Sector: Do UAE Banks Comply? Retrieved from http://www.martindale.com/corporate-law/article_Jones-Day_1210926.htm Spong, K., & Sullivan, R. J. (2012). Bank Ownership and Risk Taking: Improving Corporate Governance in Banking after the Crisis. Research Handbook on International Banking and Governance, 163-179. Read More