In many organisations we find governance systems written with great care, detailed regulations and multiple committees… and yet governance fails dismally.
The question is not: do we have laws? The question is: why do these laws not work?
1. The existence of a law ≠ its application
The law exists on paper. But:
- Selectivity: it is applied to the small, and the big are exempted.
- Delay: the penalty arrives years later and so loses its deterrent effect.
- Loopholes: we write a watertight law… then the executive regulations strip it of its substance.
- External leniency: sometimes the regulatory bodies themselves are lenient or slow, and so give additional cover to internal failure.
The result: people respect “power”, not “the law”.
2. Conflicts of interest kill independence
This is the most dangerous cause. You find that the board member is himself the supplier, or that the chairman of the audit committee is a friend of the chief executive. However strong the system, the decision comes out “tailor-made” to serve individuals, not the institution.
The example of the co-operative societies: when the board of directors is the principal tenant of the society’s shops… how can you expect fair governance over the rents?
3. The ownership structure weakens governance at its roots
In the Kuwaiti and Gulf environment, failure is very often the product of the ownership structure itself: family control, large government ownership, or a concentration of shares in the hands of a few. In such cases the independent committees turn into a mere façade, because the final decision remains in the hands of the actual controller. Real governance begins with a balance of powers within the ownership structure, not with a multitude of committees.
4. A culture of “quantity” prevails over “quality”
Board meetings every month + reports + committees… and everyone signs without reading. Governance turns into a “checklist” to satisfy the external audit, not a tool for making a better decision. More dangerous still, quantity itself is used as a shield: “We held 12 meetings and wrote 40 reports, therefore we are practising governance”. We call it: “governance in form only” (Form over Substance).
5. The absence of real accountability and answerability
The law says “whoever errs is held to account”. Reality says:
- No clear performance indicators (KPIs).
- No removal of those who fail.
- Remuneration is tied to relationships, not to results.
When a person knows that he “will not be held to account”… the law becomes mere ink on paper.
6. Weak competence and awareness
We impose a complex governance system, copied from an American company, on a co-operative society or a family company. The result: the accountant, the manager and the board members themselves do not understand the system, so they evade it or work around it.
7. The absence of “tone from the top” (Tone at the Top)
Even if excellent systems and independent committees exist, if the chairman of the board or the chief executive behaves in a way that betrays contempt for the rules, everyone will imitate him. Organisational culture is built from the top, and it collapses from the top too.
6 practical solutions to rescue governance
| The problem | The practical solution |
|---|---|
| 1. Selective application | A genuinely independent governance committee + rotation of the auditor every 3 years + seriously activating the role of the regulatory bodies and following up on results, rather than settling for reports |
| 2. Conflict of interest | Mandatory immediate disclosure + a bar on voting where an interest exists + a public register of related-party contracts + a cooling-off period (Cooling-off) after membership ends |
| 3. Form over substance | Reducing the number of meetings and raising their quality. One question for every member at the end of every meeting: “What is the difficult decision we took today?” |
| 4. No accountability | Linking at least 50% of board and management remuneration to real operating and financial indicators (after IFRS 18), with a long-term portion (3–5 years), and a clear separation between board remuneration and executives’ remuneration |
| 5. Weak competence | Mandatory annual training for board members on understanding financial statements, risks and governance + a systematic annual evaluation of the performance of the board as a whole and of each member individually |
| 6. Weak oversight and culture | Real protection for those who report violations (Whistleblower) + the use of technological tools to monitor contracts and conflicts of interest + building a culture that makes the loss of professional reputation hit harder than the legal penalty |
The conclusion in one sentence
The law prevents failure. But governance creates success. And success needs four things other than the law: will + independence + culture + a balanced ownership structure.
The final message
Systems without professional conscience = a lock without a key. And laws without accountability = a car without a driver. And real governance begins when the decision-maker fears losing his reputation more than he fears the legal penalty.
IFRS 18 has exposed the numbers, but it is governance that will protect the numbers from being “window-dressed” a second time.