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CORPORATE GOVERNANCE TRENDS IN THE 21 st CENTURY PRESENTED BY MERVYN E KING S.C.

CORPORATE GOVERNANCE TRENDS IN THE 21 st CENTURY PRESENTED BY MERVYN E KING S.C. Era of entrepreneur 19 th Century – first half 20 th Century Era of professional manager Post war – to last decade of 20 th Century Wealthy Families to World War II Institutions conduit

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CORPORATE GOVERNANCE TRENDS IN THE 21 st CENTURY PRESENTED BY MERVYN E KING S.C.

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  1. CORPORATE GOVERNANCE TRENDS IN THE 21st CENTURY PRESENTED BY MERVYN E KING S.C.

  2. Era of entrepreneur • 19th Century – first half 20th Century • Era of professional manager • Post war – to last decade of 20th Century • Wealthy Families to World War II • Institutions conduit • Shareowner revolution • Institutions needed to get back in control • Unhappy with management • Remedy only to sell shares? • Governance guidelines developed • 21st century is era of corporate governance.

  3. Can we in 21st Century? • Continue shareowner dominance to the exclusion of other stakeholders ? • Have financial focus only ? • Ignore the changed world ? • Human rights, environment, e-commerce • Have backward looking financial measurements only ? • Perform but not conform ? • Not be a responsible corporate citizen ?

  4. Trends • Exclusive / Inclusive • Accountable / Responsible • Non financial aspects • Shareowner activism • Conform / Perform • Risk Management • Sustainability.

  5. Exclusive / Inclusive • Inclusive recognizes CCES • Contractual & non contractual • Purpose • Value • Identify stakeholders • Strategy combine all three • Reciprocal relationships • E.g. – parcel delivery service.

  6. Accountable/Responsible • Liable to render account • Liable to be called to account • Accountablity • Responsibility • Accountable to everyone – no one. Common law To Whom ? Statute How ? Changed world To whom ? Activism How ?

  7. Non financial aspects • Financial focus 19th & 20th centuries • Backward looking • Changed world • Forward looking approach • Scorecard approach – information at a glance • Measurements for sustained success.

  8. Non financial aspects • Examples of non financial aspects: • Innovation • Learning and training • Reciprocal relationships with stakeholders • Management credibility • How incentivise talent & attract talent • Technology • Licence to operate check • Conformance aspects.

  9. Shareowner Activism • Era of deference gone • Institutions visit companies • Measure good governance • SEE factors • Guidelines for investment • Animal Cruelty League – Huntingdon • Comparex, Primedia & OTK.

  10. Conform / Perform Importance of Conformance: • McKinsey – Institutional investors • Pay more for good governance • Premium differs by country • Borderless world • Quality of information • Capital a scarce resource • “Capital will flow elsewhere”.

  11. Conform / Perform Balance: • Conform - constraint on managers • But business success essential • Performance while conforming • Balance for success and sustainability.

  12. Risk Management: • Risk for reward • The risk accepted in business objective • Uncertain future events • Identify them • Some prudent some not • Mitigation plan • Appetite for risk • Pursue opportunities with greater confidence.

  13. Sustainability: • Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

  14. Integrated Sustainability Reporting • Social, economic and environmental • Triple bottom line - Shell • Stakeholder Relations • Ethical Practices • Safety, Health and the Environment (SHE) • Social and Transformation Issues (including Black Economic Empowerment) • Human Capital.

  15. Four Pillars • Fairness • Accountability • Responsibility • Transparency.

  16. Board responsibilities under Inclusive Approach (A) • Purpose, values, stakeholders • Strategy for all three • Implementation and monitor • Financial aspects • KRA’s, and KPI’s – risk management • Going concern • Human resources – appointments, succession, morale etc.

  17. Board responsibilities under Inclusive Approach (B) • Effective communication – internal & external • Internal controls & MIS • Licence to operate check • Non financial aspects – sustainability • Accountable & responsible • Perform but conform – balance.

  18. How to carry all this out? • Survey –studied corporate law – stakeholders • One-minute manager – Ken Blanchard • One-minute governor • Four questions, two guidelines and one foundation.

  19. How to carry all this out?Question one: • Is there any conflict? • Personal or immediate family • No interest • Disclose & vote or recuse from voting • Conflict leads to deceit by omission and/or commission.

  20. How to carry all this out?Question two: • Do I have all the facts to enable me to make a decision? • Objectively speaking • Past prejudices & present needs • Facts not assumptions.

  21. How to carry all this out?Question three: • It this a rational decision based on all the facts? • Risk and reward • Time might show wrong decision • Legal microscope years later • Law reports – 50% winners & 50% losers.

  22. How to carry all this out?Question four: • Is the decision in the best interests of the company? • Long term rather than short term.

  23. Guideline one: • Transparent communication & reporting • Substance over form • Negatives & positives • Non financial aspects • Prompt – no surprises.

  24. Guideline two: • The board must ensure that the company acts in a socially responsible manner • Good corporate citizen • Non discriminatory • Non exploitative • Safety, health, environment • Ethics.

  25. Foundation: • Integrity • Honesty in business is the first chapter of the book of commercial wisdom • A commentary on the times in which we now live is that “honesty” is often preceded by the phrase “old fashioned” • The moral world like the physical world is not exempt from the law of ceaseless change • Intellectual honesty is, however, immutable • Independence of directors.

  26. A Company: • Driver of industrial revolution • A privilege • Driver of capitalism as we know it today • Inanimate, immortal but needs directions from natural individuals • Good Corp Gov starts and ends in boardroom & executive’s offices • Self regulatory system • Each morning puts a corporation on trial & each evening passes judgment on it.

  27. A Company: • The director is the heart, mind and soul of that corporate citizen – look to person on the right of you • An awesome responsibility • But a privileged role – cherish it and carry it out with dignity, hard work and intellectual honesty.

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