CORPORATE GOVERNANCE TRENDS IN THE 21st CENTURY

PRESENTED PRESENTED BY BY

MERVYN E KING S.C.MERVYN E KING S.C.

1. Era of entrepreneur

19th Century – first half 20th Century

2. Era of professional manager

Post war – to last decade of 20th Century

3. Wealthy Families to World War II

Institutions conduit

4. Shareowner revolution

Institutions needed to get back in control

Unhappy with management

Remedy only to sell shares?

Governance guidelines developed

5. 21st century is era of corporate governance.

Can we in 21st Can we in 21st Century?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 ?

TrendsTrends

Exclusive / Inclusive

Accountable / Responsible

Non financial aspects

Shareowner activism

Conform / Perform

Risk Management

Sustainability.

Exclusive / Inclusive Exclusive / Inclusive

Inclusive recognizes CCESContractual & non contractualPurposeValueIdentify stakeholders Strategy combine all threeReciprocal relationshipsE.g. – parcel delivery service.

Accountable/Responsible Accountable/Responsible

Liable to render account

Liable to be called to account

Accountablity

Responsibility

Accountable to everyone – no one.

Changed world To whom ?Activism How ?

Common law To Whom ?Statute How ?

Non financial aspects Non financial aspects

Financial focus 19th & 20th centuriesBackward lookingChanged worldForward looking approachScorecard approach – information at

a glanceMeasurements for sustained success.

Non financial aspects Non financial aspects

Examples of non financial aspects:InnovationLearning and trainingReciprocal relationships with stakeholdersManagement credibilityHow incentivise talent & attract talentTechnologyLicence to operate checkConformance aspects.

Shareowner Activism Shareowner Activism

Era of deference goneInstitutions visit companiesMeasure good governanceSEE factorsGuidelines for investmentAnimal Cruelty League – HuntingdonComparex, Primedia & OTK.

Conform / Perform Conform / Perform

McKinsey – Institutional investorsPay more for good governancePremium differs by countryBorderless worldQuality of informationCapital a scarce resource“Capital will flow elsewhere”.

Importance of Conformance:

Conform / Perform Conform / Perform

Conform - constraint on managers

But business success essential

Performance while conforming

Balance for success and sustainability.

Balance:

Risk Management: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.

Sustainability:Sustainability:

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

Integrated Sustainability Integrated Sustainability ReportingReporting

• 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.

Four PillarsFour Pillars

Fairness

Accountability

Responsibility

Transparency.

Board responsibilities Board responsibilities under Inclusive Approach under Inclusive Approach

(A)(A)Purpose, values, stakeholdersStrategy for all threeImplementation and monitorFinancial aspectsKRA’s, and KPI’s – risk managementGoing concernHuman resources – appointments,

succession, morale etc.

Board responsibilities Board responsibilities under Inclusive Approach under Inclusive Approach

(B)(B)Effective communication – internal &

externalInternal controls & MISLicence to operate checkNon financial aspects – sustainabilityAccountable & responsiblePerform but conform – balance.

How to carry all this How to carry all this out?out?

Survey –studied corporate law – stakeholders

One-minute manager – Ken Blanchard

One-minute governorFour questions, two guidelines and

one foundation.

How to carry all this How to carry all this out?out?

Question one:Question one:Is there any conflict?Personal or immediate familyNo interestDisclose & vote or recuse from votingConflict leads to deceit by omission

and/or commission.

How to carry all this How to carry all this out?out?

Question two:Question two:

Do I have all the facts to enable me to make a decision?

Objectively speakingPast prejudices & present needsFacts not assumptions.

How to carry all this How to carry all this out?out?

Question three:Question three:It this a rational decision based on all

the facts?Risk and rewardTime might show wrong decisionLegal microscope years laterLaw reports – 50% winners & 50%

losers.

How to carry all this How to carry all this out?out?

Question four:Question four:Is the decision in the best interests of

the company?

Long term rather than short term.

Guideline one:Guideline one:

Transparent communication & reporting

Substance over formNegatives & positivesNon financial aspectsPrompt – no surprises.

Guideline two:Guideline two:

The board must ensure that the company acts in a socially responsible manner

Good corporate citizenNon discriminatoryNon exploitativeSafety, health, environmentEthics.

Foundation:Foundation:IntegrityHonesty in business is the first chapter of the

book of commercial wisdomA 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, immutableIndependence of directors.

A Company:A Company:

Driver of industrial revolutionA privilegeDriver of capitalism as we know it todayInanimate, immortal but needs directions

from natural individualsGood Corp Gov starts and ends in boardroom

& executive’s officesSelf regulatory systemEach morning puts a corporation on trial &

each evening passes judgment on it.

A Company: A Company:

The director is the heart, mind and soul of that corporate citizen – look to person on the right of you

An awesome responsibilityBut a privileged role – cherish it and

carry it out with dignity, hard work and intellectual honesty.