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Structuring Success: Corporate Governance Within Papua New Guinea

Corporate Governance in Papua New Guinea leaves much to be desired, particularly in the government sector and the many ‘State Owned Enterprises’. We spoke to Ray Clark Consultants about the challenges and opportunities developing in the region.

Ray Clark Consultants was established in 2012 to provide services that enhance the standards of corporate governance in Papua New Guinea. Since then, we have developed some unique methodologies for Board and Corporate Governance assessment and Director Performance evaluation that have global relevance. After considerable research of the 100 or so Codes in place throughout the world, we have also drafted a PNG National Code of Corporate Governance that, whilst generally supported by professional and private sector groups, is still awaiting government comment. With PNG being 145th on the Transparency International Corruption Index, such a document to provide CG standards throughout the Country is considered imperative.

Ray Clark, the Managing Director of our company, is a seasoned Director who has been on numerous Boards in Australia and Papua New Guinea over the past 30 years. In 2000, he was instrumental in establishing the PNG Institute of Directors (PNGID). Here he developed its Constitution, its Code of Professional and Ethical Standards and a Director Training Course that all Directors are required to undertake before gaining Professional Membership of the Institute. Additionally, Ray is a Fellow of the Australian Institute of Directors and the PNGID and a Fellow of the Australian Institute of Management.

Board Assessment and Evaluation (BAE)
In recent years, more and more Boards have come to accept that regular Board assessment and evaluation makes a major contribution towards the improvement of Board performance and transparency. These discerning Boards treat evaluation and advice as a continuous improvement process and as a key element of effective corporate governance. It is viewed as a worthy investment that will positively impact upon the long term health of the Company and a process that Shareholders have come to expect.

Globally there are many firms providing Board assessment services, most of which are corporate and financial analysts such as Fitch, Moody’s, Deutsche Bank, IFC, Standard & Poors, Governance Metrics International (GMI), the FTSE/ISS etc. Whilst being comprehensive, many of these place considerable emphasis on the financial stability of the Company, as opposed to Board performance in the context of good corporate governance, the absence of which was a major factor contributing to the GFC.
Such global players tend to be extremely expensive, to the extent of being beyond the budgets of many small to medium sized Companies, as is the case in Papua New Guinea. This is the main reason for the development of the approaches offered by our company.

In 2013 the PNG Government declared that all State owned enterprises (SOEs) would have the same disclosure requirements that apply to publicly listed Companies on the international stock exchanges. The Bank of PNG has also announced that its Prudential Standards on Corporate Governance will require the Boards of all Life Insurance, Superannuation, Banks and Financial Institutions to undertake an adequate system of Board Assessment and Evaluation. Unfortunately, the majority of Boards, including those of all the State Owned Enterprises, have yet to take action.

BES ‘5 Star/70 Criteria’ Board Assessment/Evaluation
The BAE ‘5 Star’/70 criteria assessment methodology addresses the five elements of corporate governance, in consideration that financial analysis is largely carried out by the auditors of the financial statements. Each element is addressed on the basis of the following criteria, that are weighted and assessed on a rating of 0 - 15. Each element attracts a maximum ‘score’ of 100 thus providing total rating out of 500.

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