Waqf Fund Corporate Governance workshop held

Manama, Nov. 7 (BNA): The Waqf Fund, which has been serving the Islamic finance industry in Bahrain since 2006, organised its ninth Corporate Governance workshop in Bahrain to discuss culture, compensation design and conduct risk. The workshop was attended by 27 people including Chairmen, Board members and CEOs of Waqf Fund member institutions. Dr. Nabil El Hage, an expert on corporate governance and a former professor of Harvard Business School, led the workshop. He presented three cases during the sessions, including the cases of two global banks and a global retailer which has recently filed for bankruptcy. The key lessons learned from these case studies were that Key Performance Indicators (KPIs) are a result of the strategic planning exercise. KPIs should always map to strategic objectives of the company. Other lessons were that it is best to keep the KPIs simple, to the extent possible, and that a person should be held accountable only for factors that are within his or her control. If the cause and effect relationship is not well established, it is counterproductive to include the factor in their KPIs. El Hage said that in order to choose the right KPIs, three criteria must be kept in mind- alignment with strategy, measurability and linkage to value. Three common problems while designing performance measurement systems are controllability, alignment (of all stakeholders’ interests) and interdependency (team performance vs. an individual’s contribution). Compliance with legal and regulatory requirements is a pre-requisite and cannot be compromised, no matter how good the financial performance may be, he said. Reputational damage as a consequence of misconduct is far more serious than financial loss (for example, due to penalties and fines). It does not make good business sense for companies to take this risk. Non-financial considerations relating to conduct should be integrated in a balanced way to performance assessment and compensation, El Hage said. Compensation policies and procedures should be transparent, consistent and fair in order to promote clear expectations and accountability for conduct. The consequences of misconduct risk may take years to materialize; companies should structure the compensation incentives to account for this long timeframe (e.g. through clawback), he added. El Hage stressed that sound governance, robust risk management frameworks and adequate involvement by control functions including human resources in compensation design and decision-making are critical to the effectiveness of compensation incentives in addressing misconduct risk. The ultimate responsibility for ensuring accountability for misconduct lies with the Board of directors. The Board should oversee and senior management should implement a compensation system designed to promote ethical behaviour, they should be explicit to the employees what values, behaviour and culture you expect of them. The Waqf Fund offers several programmes targeted to Islamic finance practitioners, Shariah resources and other stakeholders. The Waqf Fund has 22 member institutions including the Central Bank of Bahrain (CBB).