There are vast differences in the way in which corporate and public governance is approached in Australia compared to the rest of Asia. These differences were the focus of a recent program held at the Graduate School of Business and Economics (GSBE).

Associate Professor Peter Verhezen

Differences to corporate and public governance practices and the associated risks are important considerations for businesses and business people working in Asia according to Associate Professor Peter Verhezen and KPMG’s Peter Nash who both presented at the two-day Governance and Risk Management in Asia program.

Dr Verhezen is a Visiting Associate Professor at the Graduate School of Business and Economics (GSBE), Adjunct Professor Decision Making and Governance at the Vlerick Leuven Gent Management School (Belgium), Fellow Asian Studies at the Ash Institute of the Harvard Kennedy School (USA). As the Principal of Verhezen & Associates, he regularly advises boards of organisations and top executives to improve their overall performance, emphasising the importance of good corporate governance, ethical leadership and sustainable strategies embedded within integrated risk management policies and structures.

The importance of cultural intelligence in developing business leaders who are adept at navigating the complex personal, institutional, political, social and economic environments in Asia was a key focus area for the diverse group of participants, which included senior professionals from Oxfam Australia, ANZ, nab, Invest Victoria, Aurecon, and the Department of Justice.

These are issues that face Australian businesses and business people working throughout the economies of Asia, “Only Singapore and Hong Kong are almost at par in terms of corporate governance with our governance standards. Australia is often perceived as a benchmark in terms of best corporate governance practices for the rest of Asia,” according to Dr Verhezen.

Different approaches to relationships and the notion of power require serious consideration, “In Asia, relationships and the power attached to that is sometimes more important than contractual agreements. Moreover, one has additional specific risks related to assumed governance practices. This is why investors are willing to pay a premium for companies well governed in Asia. It makes them slightly more predictable,” according to Dr Verhezen.

Detailed knowledge of the local environment and customs are also essential in managing a successful operation, “When do you know a gift turns into a bribe? Who really runs the company? What are the political and country risks in addition to the firm-specific risks?” asks Dr Verhezen.

The risk perspectives of the newly globalizing Asian businesses – from China, East Asia and India in particular – was another key focus area of the course.

“One should be aware of the differences in order to avoid bad surprises. The risks can be quite significant,” says Dr Verhezen.

As National Managing Partner Audit at KPMG Melbourne, Peter Nash provides independent services to help enhance the reliability of information prepared by clients for use by investors, creditors and other stakeholders in accordance with statutory requirements.

He says that good corporate governance practices are the foundation stone of doing business in an ethical and proper manner, “Without solid governance structures and practices organisations’ expose themselves to a range of underlying risks.”

The typical governance structures in Asia can differ significantly to typical Anglo-Saxon corporate governance structures and legislation according to Mr Nash, “What we are seeing in a number of developing counties – Indonesia, Thailand and China, for example – is that corporate governance practices are still evolving. There are many companies based and operating in Asia that have very solid business practices but there are also many others who operate with less than transparent practices.”

Dr Verhezen cites the adoption of an ‘insider’ shareholder model in Asia as an example of another issue that businesses need to consider when operating in the region. “With an ‘insider’ governance model in Asia, majority shareholders – often the controlling families or states – may attempt to expropriate assets at the expense of minority shareholders. In our Western culture – especially in an Anglo-Saxon “outsider” shareholder model – all shareholders are reasonably well protected by [rule of] law. Independent directors are supposed to look after the interests of all shareholders, especially minority shareholders,” he says.

Dr Verhezen and Mr Nash agree that an awareness of the different and often specific risks is critical to mangers operating in Asia, “Most companies are aware that there are risks, but don’t know their exact nature. The risks in Thailand or Indonesia may be slightly different in Vietnam and China,” says Dr Verhezen.

According to Mr Nash the benefits of executive training in governance and risk management are multi-faceted, “training of this type promotes a greater awareness around the need to develop good governance structures and the associated risks – hopefully leading to better practices. I would also hope that people are better equipped to deal with the business practices they may encounter when working with or in those developing countries,” he said.

• The Executive Education programs offered by the Graduate School of Business and Economics are designed for managers and senior executives with 10 or more years of professional experience and assume advanced levels of education, experience and professional practice. For more information about the programs please visit the GSBE’s Executive Education website.