Corporate Governance Framework of the Porgera Development Authority as a Semi-Government body in Papua New Guinea – a reflective review

By Meck J. Minnala | University of Papua New Guinea

INTRODUCTION

The most serious challenges within the public sector remain the depletion of human resources and physical infrastructure as well as the desperate need to upgrade and develop outdated administrative practices. These practices have rendered public institutions unable to cope with the increasing demand for essential services. If not addressed, such a state of affairs will continue to curtail the development of the political and economic systems at the national and regional levels, seriously hindering the attainment of national development goals, including the Millennium Development Goals (MDGs) (UN-ESCWA, 2010:3). This paper gives a general overview of a review into the efficacy of corporate governance frameworks of Porgera Development Authority (PDA), as a semi-government body, established under 1989 Memorandum of Understanding (MoU) between the Independent State of Papua New Guinea (hereinafter referred to as ‘the state’)  and the Enga Provincial Government as part of a series of agreements developed following the Mining Development Contract (MDC) for the commencement of the Porgera Gold Mine in Enga Province. It includes a general background of the authority, a general statement of the problems identified, review objectives and review questions.

BACKGROUND OF THE REVIEW

The performance of state-owned-enterprises is of paramount importance to the country’s population and other private business sectors. Consequently, the  governance of these entities is critical to ensure their positive contribution to the overall country’s economic efficiency, effectiveness and competitiveness. This is buttressed by

“OECD experience has also shown that good corporate governance of state owned entities is an important prerequisite for economically effective privatization, since it will make the enterprises more attractive to prospective buyers and enhance their valuation,’’ http://www.oecd.org, accessed 29 April 2022.

Papua New Guinea experienced an economic decline that was caused by a number of factors. Lack of capital support, shortages of foreign currency, liquidity crunch and a variety of supply-side bottlenecks such as electric power, fuel, and imported inputs were some of the factors leading to the economic decline. The demise of quality corporate governance was caused by the skills flight that was witnessed during the stated period. Following the establishment of the inclusive government, stimulating investment was adopted and corporate governance frameworks in state owned enterprises was introduced with the creation of the Ministry of State Enterprises in year 2014.

The 2013 national budget statement recommends the implementation of economic governance and this entails ‘’… improving regulation and operational efficiency of institutions that offer essential services like licenses, electricity, water etc. ’It further asserts that ‘’fighting rent-seeking behavior and corruption should be prioritized.

The Porgera Development Authority

The 1989 MoA between the state and provincial government specified that a statutory authority be set up for the following purposes:

• maintenance of the airstrip at Kairik;
• receipt of royalties;
• administration and spending of any funds made to it by the CFG;
• advising the provincial government on lifting the liquor ban in Porgera District;
• assisting the provincial town planning board in planning the township at Porgera and controlling and monitoring that planning; and
• any other matters assigned to it by the enacting legislation.

In 1998, the Porgera Development Authority (PDA) was officially transformed into the Porgera-Paiela Local-level Government Special Purposes Authority. The MoA that changed the status of the PDA specified the following functions for it:

• implement the construction of infrastructure on behalf of the national government, provincial government, and LLGs within the Porgera District;
• help the Porgera and Paiela-Hewa LLGs to implement their administrative functions;
• manage the construction and operation of facilities in Paiam, Porgera, and Kairik towns;
• manage the payment of royalties and other mine-related income in the Porgera  District;
• manage and operate the Porgera District Hospital;
• advise the landowners and LLGs on natural resource project agreements;
• implement the functions of the Tenders Board, Building Board, and Physical Planning Board and other functions delegated to it by the national government, provincial government, or LLGs; and
• receive funds on behalf of the Porgera and Paiela-Hewa rural LLGs and make payments as directed by them.

Its structure was determined by the MoA to include the following members as board members and it also reflected in its constitution:

• two people appointed by the Porgera Local Government Council;
• two people appointed by the SML landowners;
• the Provincial Minister for Finance;
• the Provincial Member for Porgera;
• the Secretary of the Department of Enga or his nominee;
• the zone coordinator of the Porgera Zone;
• a person appointed by the Secretary of the Department of Finance and Planning;
• a person appointed by the PJV; and
• two people from the Porgera District with professional or managerial skills and experience.

Its financial affairs were made subject to the provincial Treasury Act or any succeeding legislation.

The PDA receives a number of revenue streams from the PJV and other sources to fulfil its obligations as laid out in its constitution. In a sense, funds flowing to the PDA are accruing to the landowners, to whom they provide indirect benefits such as health, education, and infrastructure (see Figure 15).

Figure 1: Financial Allocation to the Porgera Development Authority

The PDA is to some extent, the bridge between the expectations for development and the financial payments to achieve that development. However, it is not immune from criticism; for example, it lacks an adequate approach to HIV prevention (Kolo, 2009)

The greatest concern for those most affected by the mine is the lack of publicly available information on the expenditure of funds. Based on the information that is available, it is estimated that the PDA received K240 million, although this is likely to be a substantial underestimate since it does not include funds from the public investment program (Johnson, 2012)

Between 2019 and 2020 I was an ex officio member of the governance board and there is privy to a lot of the reflection which I will be sharing as part of this review.

The Establishment of Special Purposes Authorities

The Special Purpose Authorities were established to serve the interest of landowners of Mining and Petroleum impact project areas. The Special Purpose Authorities created under the Act of Parliament include Porgera, Kutubu, Moran, Hides, Komo, Koiari and Nimamar LLG Special Purpose Authorities.

A Local Level Government Special Purpose Authority (LLGSPA) is an authority that is established by proclamation under the Local Level Governments Administrations Act 1997.

The Head of State is responsible for establishing a LLGSPA. He will establish a LLGSPA based on the advice of the National Executive Council (NEC). The Head of State will establish a LLGSPA by proclamation. The proclamation shall specify the purposes for which the Authority is established and such other matters as may be necessary. [See Section 42 of the Local Level Governments Administrations Act 1997]

The NEC advises the Head of State to establish a LLGSPA. However, before the NEC can give such an advice, it considers recommendations submitted by the Minister to establish a LLSPA. The Minister may make this commendation:

• on his own initiative, after consultation with the Local-level Governments concerned; or
• upon recommendations from one or more local level government (LLG).

(See Section 43 (1) of the Local Level Governments Administrations Act 1997)

Where one or more Local-level Governments (LLG) is or are of the opinion that an Authority should be established to assist the implementation of LLG functions, the LLG concerned shall so recommend to the Minister. (See Section 43 (2) of the Local Level Governments Administrations Act 1997)

A recommendation by the Minister on his own initiative or a recommendation to the Minister by a LLG to establish a LLGSPA shall be in writing and shall contain particulars of the recommend authority:

• the general purpose; and
• the management; and
• the funding; and
• the staffing,

The recommendation shall also contain the requirements for:

• the particular function or functions to be implemented; and
• the area or areas to which it should apply; and
• such other particulars as are considered relevant.

Where a recommend is made by an LLG, the Minister shall consider a recommendation and where he considers the establishment of the Authority desirable, he shall then submit the recommendation to the NEC for consideration as to whether the Head of State should be advised to make the proclamation.  (See Section 43 (3) (4) of the Local Level Governments Administrations Act 1997)

Incorporation of a LLGSPA

If upon recommendation by the Minister, the NEC advises the Head of State to proclaim the establishment of a LLGSPA, the LLGSPA will then be incorporated. Once incorporated, a LLGSPA:

• is a corporation; and
• has perpetual succession; and
• shall have a seal; and

The LLG has the power:

• to acquire, hold, dispose of, mortgage or pledge property; and
• to enter into contracts; and
• to borrow money; and
• to invest funds; and
• to institute and defend actions, suits and other legal proceedings; and
• to do all things necessary for the effective exercise and performance of its powers and functions.

(See Section 44 of the Local Level Governments Administrations Act 1997)

Who manages the LLGSPA?

The LLGSPA shall be managed by a managing body. The managing body shall consist of the members as prescribed in the proclamation. When making the proclamation, the Head of State, will provide the respective entities from which a member may be nominated from to join the managing body of an LLGSPA. The LLGSPA may then specify in its Constitution the membership, manner of appointment and terms and conditions of appointment of members of a management body.

The membership of the managing body shall not include a member of a LLG. The operations of a LLSPA shall be kept separate from a LLG. (See Section 45 of the Local Level Governments Administrations Act 1997)

The Head of State may make certain variations on the following aspects of an LLGSPA:

• vary its general purpose; or
• vary its composition of membership of the management; or
• vary its funding; or
• vary its staffing; or
• vary its particular function or functions to be implemented; or
• vary its area or areas; or
• change its name; or
• vary such other particulars as are considered relevant and as might be provided for in the proclamation being varied,

Furthermore, the Head of State can vary a LLGSPA by amalgamating it, in whole or in part, to two or more LLGSPA.

These variations shall be made by the Head of State through a proclamation. In a proclamation, the Head of State may make provision for the taking over by of the whole or part of the assets and liabilities of the LLGSPA by:

• the State; or
• another LLGSPA; or
• a Local-level Government or Local-level Governments.

The Head of State will make such a proclamation upon advice from NEC. (See Section 46 of the Local Level Governments Administrations Act 1997)

Can a LLGSPA be dissolved?

Yes, it can. The NEC shall advise the Head of State to dissolve a LLGSPA. Upon advice from NEC, the Head of State may dissolve a LLGSPA. The Head of State may do so by making a proclamation. A proclamation for dissolution of a LLGSPA shall only be made upon consideration of the recommendation in the manner as set out under Point E above.

In a proclamation, the Head of State may make provision for the taking over of the assets and liabilities of the LLGSPA by:

• the State; or
• another LLGSPA; or
• a Local-level Government or Local-level Governments.

(See Section 47 of the Local Level Governments Administrations Act 1997)

What are the powers and functions of a LLGSPA?

The NEC shall advise the Head of State to vest in a LLGSPA any of the powers of the LLG and the duties and responsibilities of a LLG. However, a LLGSPA shall not be vested with a LLG’s:

• Power to make local-level laws; or
• Power to impose or levy rates, taxes, charges or fees; or
• executive powers; or
• a power, which any other law may forbid a LLGSPA from exercising,

The powers which may be vested in a LLGSPA shall not exceed the powers of a Local-level Government. No power may be vested in a LLGSPA so as to have the effect of divesting a Local-level Government of that power.

Furthermore a LLGSP may act as an agent for the State for any matters within its purposes if so directed by the Head of State. A LLGSPA, however, have no power or function over a Ward Committee. (See Section 48 of the Local Level Governments Administrations Act 1997)

Does a LLGSPA make annual reports?

Yes, it does. A LLGSPA shall, at least once in each year at such time as is directed by the Minister after consultation with the Local-level Government or Local-level Governments concerned, present a report reviewing the operations of the LLGSPA during the period since the last report to:

• the LLG or LLGs concerned; and
• the Minister.

(See Section 50 of the (Level Governments Administrations Act, 1997))

Corporate Governance and Special Purpose Authorities

Good corporate governance of State Owned Enterprises is a major challenge in many in Papua New Guinea. State Owned Enterprises are deeply implicated in dismal financial and operational performance problems because of their provision of poor products and services, inefficiencies and losses. This review delves into the efficacy of corporate governance in these enterprises. The review focuses more on the corporate governance frameworks, the organizational and human factors influencing malpractices and the effect of malpractices (corruption) in job performance. The study seeks to evaluate the effectiveness of corporate governance in Special Purposes Authorities using the Porgera Paiela LLG Special Purpose Authority (PPLLGSPA), more commonly known as Porgera Development Authority (PDA), as a study case. For the purpose of this paper we use PDA to refer to PPLLGSPA.

Definition of Corporate Governance

There is no single accepted and acknowledged definition of corporate governance.

Knell (2006:5 & 6) started by defining governance and it is defined as

‘’to control and regulate the exercise of influence, to maintain good order and adherence to predetermined standards of behavior…..Corporate governance is then defined as ‘’the regulating influence applied to the affairs of a company to maintain good order and apply predetermined standards“

Solomon and Solomon (2004:14) based on their research came to a conclusion that corporate governance:

‘’is the system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity’’

Ghillyer (2010) defined corporate governance as: “the process by which organizations are directed and controlled”.

Corporate governance is associated more specifically with the structures and processes related to management, decision-making and control in a company. It is explained that corporate governance is about the way in which boards oversee the running of a company by its managers and how board members are in turn accountable to the shareholders and the organization or company. Corporate governance has implications for organization or company behavior towards shareholders, employees, banks, customers and society. The Bank of Papua New Guinea provides this definition of corporate governance as “the system by which companies are directed and controlled” It further explains that corporate governance involves regulatory and market mechanisms, and the roles    and relationship between a company’s management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed. It also provides the main external stakeholder groups which include shareholders, debt holders, trade creditors, suppliers, customers and communities affected by the company’s activities. Internal stakeholders are the board of directors, executives and other employees (Bank of Papua New Guinea, 2021)

Monk and Minow (2008) asserted that one factor that can make the difference  between smart and dumb choices, are corporate governance. In essence, corporate governance is the structure that is intended to make sure that the right questions get asked and that checks and balances are in place to make sure that the answers reflect what is best for the creation of long–term, sustainable value .

The Organization for Economic Corporation and Development (OECD), described corporate governance as involving

“A set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set and how the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interest of the company and its shareholders and should facilitate effective monitoring” (OECD 2004:11)

Corporate Governance in Papua New Guinea

Before we zoom in on our case in point, being Porgera Development Authority we must also get an appreciation of the national environment under which the Special Purpose Authority is embedded.

 Papua New Guinea has undergone several changes in both the structure and conduct of business. Several years ago the economy witnessed moral bankruptcy, unethical behavior and absence of executive accountability experienced by some organizations. The result of all this was business failures and the eventual collapse of a number of corporations resulting in significant economic and social costs to the country as a significant number of people lost their savings and jobs. Rampant corruption designed to cripple the economy and diminish the condition of livelihood of the PNGean people was experienced (PNGi, 2021).  Good corporate governance requires corporate boards to be accountable, loyal, responsible, transparent and independent in order to act in the best interests of the organization and society. This Banking Prudential Standards BPS300 – Corporates Governance, which now closely regulates the superannuation and financial institutions was conceived with the following objectives in mind;

• Encourage leadership to adopt high standards of corporate governance and integrate decisions with strategy and sustainable development.
• Introduce a well-defined national and ethical value system and define the precision with which entities should be governed, controlled and directed.
• It is further aimed, in every way possible, to eradicate corruption, encourage disclosure, improve performance, competitiveness, quality of corporate governance and consequently, give a solid and sound governance foundation for key overseeing management and board of directors.
• Promote ethical and responsible decision making as well as safeguarding integrity in business leadership and management by building high performance boards of directors anchored on transparency, accountability and fairness as central value components

It is also observed by the regulating central bank that some of the benefits accruing from the standards include:

• The injection of much needed investment
• Elimination of any corruptive conduct in corporate governance improves the image of the country
• Impact positively on the operational efficiency of corporations and business
• Economic growth and poverty alleviation

Every state enterprise, or parastatal organization like PDA, should adhere to and implement the principles of sound corporate governance policies, procedures and practices, as required by the Public Finance Management Act (Chapter 22:19) (PFMA). Anecdotal evidence points to the current culture of people in various institutions not adhering to or complying with statutory and regulatory frameworks in place. The question is; what is it that could be done to make sure that people in general, businessmen/women, directors and senior managers in particular comply with and conform to set principles and laws.

The Papua New Guinea Institute of Directors strongly believes that PNG should have its   own national code on corporate governance that should take into account the   country’s peculiar corporate governance challenges. They observed that as a country, PNG has been ‘dogged’ by continued negative publicity emanating  from company closures, reduced industrial capacity utilization, high unemployment, banks going under curatorship and others closing, abuse of shareholder funds or assets, fraud, environmental contamination, among others (PNGID, 2021)

Corporate Governance Theoretical Frameworks

There are a number of theories that have affected or influenced the development of corporate governance. (Malin, 2007) highlighted that the main theory that has affected corporate governance is the agency theory. He pointed out that stakeholder theory is also coming into play as companies increasingly become aware that they cannot operate in isolation and that, as well as considering their shareholders, they need also to have regard to a wider stakeholder constituency. The Corporate Government theories are shown below:

Figure 2: Corporate Governance Theories

Source; own diagram adapted from (Malin, 2007)

Agency Theory at Porgera Development Authority

The agency theory defines the managers as the agents and the shareholder as the principal (Solomon, 2004). The shareholder (owner) delegates the day to day decision making in the company to directors who are the agents. The challenge that arises as a result of this system is corporate ownership is that the agents do not necessarily make decisions in the best interest of the shareholders. In the context of Porgera Development Authority the shareholders, or principals, are:

1.  Porgera Rural Local Level Government,
2. Paiela Rural Local Level Government,
3. Enga Provincial Government
4. Porgera Landowners Association; and
5. The State through the Department of Provincial and Local Level Government.

In the 30 years of the PDA’s existence the goals of the principal and agent, being the management of PDA, has always been in conflict. Managers are supposed to be the agents of a corporation’s owners’, but managers must be monitored and institutional arrangements must provide some checks and balances to make sure they do not abuse their power. It must be noted that though the PDA constitution provides a general scope of the powers and administrative limitations of the management team the Human Resources Management Manual of the company is manipulated such that managers have not been representing the best interest of the agents (The National, 2016). The agency costs resulting from managers misusing their position, as well as the costs of monitoring and disciplining them try to prevent abuse has been recurrently high for this third tier government agency.

 

Stakeholder Theory and Porgera Development Authority

Solomon and Solomon (2004) suggested that a basis for stakeholder theory is that companies are so large and their impact on society so pervasive that they should discharge accountability to many more sectors of society than solely their shareholders. They further state that stakeholders include shareholders, employees, suppliers, customers, and creditors, communities in the vicinity of the company’s operations and the general public. The stakeholder theory is demonstrated in figure 2.1 below

Figure 3 Stakeholder Theory at Porgera Development Authority

Source: Own diagram adapted from (Ghillyer, 2010)

The OECD Principles of Corporate Governance

The Organization for Economic Co-operation and Development (OECD) 2009 came up with some principles of corporate governance in 1999. In order the assess the performance of the Porgera Development Authority we shall make a comparative listing of OECD principles for corporate governance. The following OECD principles were reviewed and revised in 2004:

	PRINCIPLE	NARRATIVE
i	Ensuring the Basis for an Effective Corporate Governance Framework	The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.
ii	The Rights of Shareholders and Key Ownership Functions	The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.
iii	The Equitable Treatment of shareholders	The     corporate    governance             framework should ensure the equitable treatment of all   shareholders, including minority and foreign   shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.
iv	The Role of Stakeholders in Corporate Governance	The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co- operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
v	Disclosure and Transparency	The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company.
vi	The Responsibilities of the Board	The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

Table 1: OECD principles of corporate governance – Source: Mallin (2007: 32.)

THE SEVEN CHARACTERISTICS OF GOOD CORPORATE GOVERNANCE:

The King Report on Corporate Governance for South Africa (The Kings Report, 2010) provides seven  characteristics of good corporate governance principles and practices. For the purpose of this this review I will list the principles from the Kings Report   and make comparative commentaries in the context of Porgera Development Authority’s observed performances.

	Principal	Expected Behavior	PDA’s Performance
1	Discipline	A commitment by a company’s senior management to adhere to behavior that is universally recognized and accepted to be correct and proper.	The company’s senior management, even though some are even expatriates, their lack of prudence in their expected behaviors is highly deplorable.  Recurrently they failed to deliver on their performance indicators.
2	Transparency	A measure of how good management is at making necessary information available in a candid, accurate and timely manner – not only the audit data but also general reports and press releases.	In the time that I was a board member I have never seen a properly audited financial reported being presented to the board. If anything they were always incomplete. The incomes generated from the subsidiary companies like Paiam Housing Development Company and Paiam Hospital where never presented. Paiam Hospital actually went to insolvency and the state unceremoniously took over the facility. In 2016 the Enga Provincial Government, as one the key stakeholders (Principal) asked for the books to be audited (EMTV News, 2016) but a court injunction by the Board chairman at that time prevented it from happening.
3	Independence	The extent to which mechanisms have been put in place to minimize or avoid potential conflicts of interest that may exist, such as dominance by a strong chief executive or large shareowner. These mechanisms range from the composition of the board, to appointments of board committees and external auditors, the decisions made, and internal processes established, should be objective and not allow for undue influences.	All composition of the board is stipulated in the constitution of the authority but the manner in which the non-ex-officio members are elected has always been flawed that on numerous occasions they always ended up in the courts (Post Courier, 2017). Refer Waigani National Courts Court orders of OS NO 152 OF 2021. The general manage then took advantage and squandered funds from the company to support his run for the provincial governorship in the then National General Election but was subsequently terminated by the new board (The National, 2016).
4	Accountability	Individuals or groups in a company, who make decisions and take actions on specific issues, need to be accountable for their decisions and actions.	Transparency is key to accountability. However at PDA the managements reporting obligation, is often regarded by boards as a necessary task rather than a desirable one, with only minimum levels of disclosure provided.  Unfortunately the PDA board does not even receive a fully furnished report itself.
5	Responsibility	Responsibility pertains to behavior that allows for corrective action and for penalizing mismanagement. Responsible management would, when necessary, put in place what it would take to set the company on the right path.	At PDA it took more than three years to terminate a Managing Director who was embezzling funds from the company and also it took 27 years to remove a former board member who was nominated to sit at the Board of Mineral Resources Enga (MRE) and fraudulently redirected benefits from the income stream from MRE and never submitted a report back to PDA for over 20 years even after he was no longer a board member any more.
6	Fairness	The systems that exist within the company must be balanced in taking into account all those that have an interest in the company and its future. The rights of various groups have to be acknowledged and respected.	Though the representation in the board is structurally fair service delivery and benefits sharing is not at all. The people in the Paiela LLGs, not more than 20 km from the Porgera township, lacks basic services in all forms and shapes though they have two elected representatives in the PDA board to represent their interest.
7	Social responsibility	A good corporate citizen is increasingly seen as one that is non-discriminatory, non-exploitative, and responsible with regard to environmental and human rights issues. A company is likely to experience indirect economic benefits such as improved productivity and corporate reputation by taking those factors into consideration.	The initial intent of the establishment of PDA, and one of its fundamental responsibility is to service the communities. It seem to have started well in the early 1990s but from the onset of the new millennia those social investment projects have deteriorated. PDA could not even support Porgera International School which is its own subsidiary operation at this time.

Literature Review – What Happens When Corporate Governance Fails?

According to Solomon and Solomon (2004) the Enron saga presents a poignant illustration of what happens when corporate governance is weak and when the checks and balances are ineffective. They further asserted that if there was unethical     behavior at the highest level, little if anything, can avoid eventual disaster.

Monetary policy statement by the Minister of Finance (2013) observes that the global financial crisis and its dampening effects on global economic activity, which almost brought the international financial system to a screeching halt, was largely attributed to failures and weaknesses in corporate governance arrangements.

Cadbury (1992) cited by (Ghillyer, 2010) observed;

That the code of best practice was designed to achieve the necessary high standards of corporate behavior. By adhering to the code, companies will strengthen both their control over their businesses and their public accountability. In so doing they will be striking the right balance between meeting the standards of   corporate governance now expected of them and retaining the essential spirit of enterprise”.

Knell (2006: 17) observed that;

”in both Enron and WorldCom, the rot stemmed from the top. A regime of dishonesty was encouraged and few had the nerve to blow the whistle; the executives involved were totally driven by their personal reward. Boardrooms were totally lavishly rewarded friends who would not create waves or ask difficult questions. The independent Non-Executive Directors (NEDS) were heavily rewarded  and their independence was questionable. The watch dogs (auditors) were bribed with generous non-audit work, making their audit report somewhat fanciful’’.

Mallin (2007) found that companies with active and independent boards appear to perform much better that those with passive, non-independent boards. She further cites McKinsey‘s survey concluded that the majority of investors would be prepared to pay a premium to invest in a company with good corporate governance and the survey observed that good corporate governance in relation to board practices includes a majority of non- executive directors who are truly independent and good responsiveness to shareholder requests for governance information. The survey concluded that the investors perceive and believe that corporate governance is important and that leads to the willingness to pay a premium for good corporate governance. Mallin (2007) cites many authors of various studies that have concluded that there is sufficient evidence in support of the view that good corporate governance improves the long term performance of companies.

Requirements to Strengthen Corporate Governance at Porgera Development Authority

The Porgera Development Authority (PDA) has failed to deliver its objectives and let its stakeholders down repeatedly for a very long time and we can’t let that continue on forever. With the Porgera currently on Care & Maintained and state about to restart the mine under the name tag of New Porgera this service delivery mechanism also needs new corporate operational ecosystem.   With the help of literature review above it now provides a platform on what is required to strengthen   corporate governance.

• Enforcement of rights by minority shareholders – encourage shareholder activism.
  • Quality of audit – government to strengthen the quality of audit so as to make auditor accountable for the disclosure of information in the annual report         and monitor audit firmEnsuring the independence of directors – an appropriate and acceptable system that ensures independence of board to discharge their duties.
  • Awareness of adoption of corporate governance practice- efforts for propagation of corporate governance norms amongst company for better    compliance.

• Accountability of the board to stakeholders – efforts to revamp code of conduct for the board members so that they are more accountable to the stakeholders.
• Upgrading the efficacy of the system – ensure the quality and effectiveness of the legal, administrative and regulatory framework
• Report on corporate governance – make statutory compliance for listed and non-listed companies

The Boards Role at PDA needs to be revamped

The corporate governance efforts by the  board also needs to be revamped. The following are the six steps that should be followed by the new look board for it to be truly effective:

1. Create a climate of trust and honesty– the board of directors and the senior executives should be working in partnership towards the successful achievement of PDA’s organizational goals rather than developing an adversarial relationship where the board is seen as an obstacle to the realization of the general CEO’s strategic vision or the CEO trying to override board functions.
2. Foster a culture of open dissent– proposals should be open for frank discussion and review rather than subject to the kind of alleged rubber- stamping. Dissent ensures that all aspects of proposals are reviewed and     discussed thoroughly.
3. Ensure individual accountability – rubber stamping generates collective indifference – how can you consider yourself accountable if you were only voting with a clearly established majority? If there is significant fallout from a major strategic initiative, all members should consider themselves accountable. This approach would address any pretense of being ambushed or in the dark.
4. Let the board assess leadership talent– the board members should actively meet with future leaders in their current positions within the organization rather than simply waiting for them to be presented when a vacancy arises.
5. Evaluate the board’s performance– Effective corporate governance demands superior performance from everyone involved in the process.

During the swearing in of a new interim board for PDA in 2018 the Secretary for Provincial and Local Level Government Affairs , Dickson Ginua, importantly stressed on good governance to be delivered to the people (LOOP PNG, 2018). He also stressed on the need for transparent reporting to relevant stakeholders.

If the new board is to be a high performing board than it must aspired to achieve the following:

• Provide superior strategic guidance to ensure the company’s growth and prosperity
  • Ensure accountability of the company to its          stakeholders, including shareholders, employees, customers, suppliers, regulators and community.
  • Ensure that a highly qualified executive team is managing the company.”

 

The ill-fated Predicament of Porgera Development Authority

There is a complete lack of transparency and accountability in many of the institutions associated with the Porgera mine. Comments by the PJV, MRA, EPG and the

Department for Provincial Affairs, indicates that the PDA does not produce the required financial reports, the board is no longer functioning properly, and the legally required annual reports to the minister are not being made. Furthermore, the financial affairs of the PDA are subject to the provincial Treasury Act. This may not have always been the case, but at present there is no accountability, transparency, or adherence to legal requirements.

A Special-Purpose Authority (including the PDA) must present to the LLG and the Minister a report reviewing the operations of the Authority during the period since the last report (if any) has not been provided. A lack of sanctions (such as withholding of funding) makes it almost impossible to provide transparency and accountability on landowner and government institutions.

The MoA agreement stipulates that the PDA cannot be abolished except by the wish of the landowners, funding arrangements such as payments of SSG should be changed until it can be determined with confidence that the money is being spent properly.

Conclusion & Way Forward

This review was developed by looking at the important concepts addressing the corporate governance performance of Porgera Development Authority. In doing so we focused on defining the concept of corporate governance, role of the board, the composition and the corporate governance practices and conduct. It also looked at the benefits and how important corporate governance can be to the company or organization. The presence and effectiveness of corporate governance ensure accountability, transparency, responsibility and discipline on the part of managers and the Board of Directors.

Nonetheless the predicament of PDA is not uncommon to the mannerism of governance of other state owned enterprises or semi-government originations in which poor corporate governance and corruption is prevalent.

Unless the governing board are revamped and the right people with the right attitude are aligned the board room the issues will not run away. It’s about time the entities like the Porgera Development Authority rethink its board structure and appointment process if it is to prosper and become a success story.

References

 

• Bank of Papua New Guinea. (2021, February 15). BANKING PRUDENTIAL STANDARD BPS300: CORPORATE GOVERNANCE [Issued under Section 27 of the Banks & Financial Institutions Act 2000. Retrieved from Bank of Papua New Guinea: https://www.bankpng.gov.pg/wp-content/uploads/2014/06/BPS300-Corporate-Governance.pdf
• EMTV News. (2016, October 5). Sir Ipatas – Probe Porgera Development Authority Books. Retrieved from EMTV News Online: https://emtv.com.pg/sir-ipatas-probe-porgera-development-authority-books/
• Ghillyer, A. W. (2010). Business Ethics: Areal world approach . New York: Published in the United States by Oxford University Press Inc.
• Johnson, P. (2012). LODE SHEDDING: A CASE STUDY OF THE ECONOMIC BENEFITS TO THE LANDOWNERS, THE PROVINCIAL GOVERNMENT, AND THE STATE FROM THE PORGERA GOLD MINE. PNG National Research Institute. NRI Discussion Paper No.124, 125.
• Kolo, P. (2009). HIV/AIDS Ravaging Porgera Valley. Post Courier, 2.
• Level Governments Administrations Act. (1997). Level Governments Administrations Act 1997. Port Moresby: Indepedent State of Papua New Guinea.
• LOOP PNG. (2018, February 18). Porgera Authority Swaers in Interim Board. Retrieved from Loom PNG News Onlin: https://www.looppng.com/png-news/porgera-authority-swears-interim-board-73592
• Malin, C. A. (2007). Corporate Governance (2nd Edition). New York: Published in the United States by Oxford University Press Inc. Retrieved from 21. Mallin C A: Corporate Governance, 2007, second edition, Published in the United States by Oxford University Press Inc. New York.
• PNGi. (2021, December). Final Report of the Commission of Inquiry into the National Provident Fund. Retrieved from PNGi Website – The Governance Reporting Portal for Papua New Guinea: https://pngiportal.org/directory/final-report-of-the-commission-of-inquiry-into-the-national-provident-fund
• PNGID. (2021, September 16). PNGID Strategic Plan. Retrieved from Papua New Guinea Institude of Directors: https://www.pngid.org.pg/wp-content/uploads/2021/09/PNGID-Strategic-Plan.pdf
• Post Courier. (2017, March 17). PDA Still Without Board. Retrieved from Post Courier Newspaper Online: https://postcourier.com.pg/pda-still-without-board/
• Solomon, S. J. (2004). A corporate Governance and accountability. Manchester: John Willey & Sons Ltd ,U.K.
• The Kings Report. (2010, March 1). King Report on Corporate Governance in SA. Retrieved from Institute of Directors South Africa: https://www.iodsa.co.za/page/kingIII
• The National. (2016, October 7). Porgera Development Authority lauds support. Retrieved from The National Newspaper Online: https://www.thenational.com.pg/porgera-development-authority-lauds-support/

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