Corporate Governance With ethical leadership

IntegratingCSR

A Narrow Definition

Corporate governance can be defined as “the system for direction and control of the corporation.”

“Corporate Governance is the system by which companies are directed and controlled…”

▪ Cadbury Report (UK), 1992 “…to do with Power and Accountability:

who exercises power, on behalf of whom, how the exercise of power is controlled.”

▪ Sir Adrian Cadbury, in Reflections on Corporate Governance, Ernest Sykes Memorial Lecture, 1993

A Canadian Definition

“…the process and structure..to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business….”

▪ Where were the Directors?

An OECD Definition

“Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

An Indian Definition

“…fundamental objective of corporate governance is the ‘enhancement of the long-term shareholder value while at the same time protecting the interests of other stakeholder.

A Gandhian Definition

Trusteeship obligations inherent in company operations, where assets and resources are pooled and entrusted to the managers for optimal utilization in the stakeholders’ interests.

Some Further Definitions

Corporate governance is essentially about leadership:-leadership for efficiency;

-leadership for probity;

-leadership with responsibility; and

-leadership which is transparent and which is accountable.- PRINCIPLES FOR CORPORATE GOVERNANCE IN THE COMMONWEALTH

A Broad Definition

“Corporate governance is… holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. The incentive to corporations is to achieve their corporate aims and to attract investment. The incentive for states is to strengthen their economics and discourage fraud and mismanagement.”

What is Corporate Governance?

The Manner in which a Corporation is Run-Achieving its Objectives-Transparency of its Operations-Accountability & Reporting-Good Corporate Citizenship

The Processes & Operating Relationships that Best Achieve Organizational Goals

PRINCIPLES OF CORPORATE GOVERNANCE

Transparency Accountability Fairness Responsibility

Some Governance Models

Finance or the Principal-Agent Model-Markets for Capital, Managerial Talent

and Corporate Control, Key determinant-In general, profit-maximization goal is co-

functional with social-welfare-maximization

-Shareholders as Residual Claimants have superior control rights

Exclusive Accountability toShareholders

Risk-bearing Entrepreneurs Residual Claimants Winding-up Ranking: Last in Pecking

Order Boards Appointed by Shareholders Non-congruence of Stakeholder

Interests

Residual Claimant Theory

“…shareholders … residual claimants to the firm’s income. Creditors have fixed claims and employees’ remunerations … negotiated in advance of performance .. Gains and losses from abnormally good or bad performance .. The lot of shareholders, who stand last in the queue .. Shareholders make discretionary decisions and bear consequences .. As such, .. Owners of business with important control rights…”

The Stakeholder Case

One-Size does not Fit All Circumstances

A Combination of Shareholder/Stakeholder Models Necessary

Some Argue, While Shareholder Claim Well Established, Stakeholder Claims Need to be Proved

Tailor Model to Suit Unique Circumstances

The Corporate Board

Central to Corporate Governance-Juxtaposed between Shareholders on the

one hand, and on the other, Managers of the Entity (Cadbury)

-Follows Distancing between Ownership and Control (Berle and Means)

-Trustee for All Shareholders-Loyalty & Commitment – Always to

Company

Board Role & Responsibility

Provide/ Exercise -Leadership and Strategic Guidance-Objective Judgment Independent of

Management-Control over the Company

Direct and Control the Management of the Company

Be Accountable at all times to All Shares

Dimensions of Board Responsibility

Direction involves-Formulation & Review of Company

Policies, Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc

-Setting Objectives & Monitoring Performance

-Oversight of Acquisitions, Divestitures, Projects, Financial and Legal Compliance, etc

Dimensions of Board Responsibility

Control Involves-Prescribing Codes of Conduct, -Overseeing Disclosure & Communication

Processes,-Ensuring Control Systems to Protect

Company Assets-Reviewing Performance & Realigning

Action Initiatives to Achieve Company Objectives

Dimensions of Board Responsibility

Accountability Involves Creating, Protecting and Enhancing

Company Wealth and Resources Timely and Transparent Reporting Good Corporate Citizenry including

Discharge of Stakeholder Obligations and Societal Responsibilities without Compromising the Shareholder Wealth Maximization Goal

Corporate Governance & Capital Market Drivers: A Conceptual Framework

Market Operators Institutional Investors Press/Media

(Rewards) (Pension Funds/Insce Cos) (Opinion Makers)

Regulators Government Stock Exchanges (SEBI/RBI) Legislation Listing Agreements

Listed Corporations(The Board & the Executive)

Lenders(Banks/

Depositors)

Shareholders/Stakeholders

Market Operations, Critique & Monitoring

Some Debates

Shareholder versus stakeholder models

Private versus public roles in controlling corporations

One size fits all versus tailor-made

Global Drivers

Rise of institutional investment - “other peoples’ money”

Privatization – the corporation dominates the economy

Deregulation/Liberalization – competition and mobile money

Crisis and scandals – no market is immune

ETHICS OF GOOD GOVERNANCE

Ethics is the distinction we make between -right and wrong, good and evil, in relation to- actions, intentions or character

Ethics is Standards, Rules, Morals Ethics is ‘the science of human duty’

But will we agree about what is good?-about the ‘duties’ of those who ‘govern’?

First let’s think of something simpler …

AN EXAMPLE OF APPLIED ETHICS

For driving a car to be thought good or right what should the driver do?Obey the Rules

-Speed limit. Not too fast! Not dangerously. (Note speed a matter of fact, ‘dangerous’ of judgement)

-KEEP LEFT! (or right?), no absolute but need to agree

Get the Results-Get there ‘on time’! Stay safe! (compromise)

Build Relationships -With other drivers. Win passengers’ trust.

GOVERNANCE: WHY A CONCERN?

People are: More literate - more people more educated

-over last 40 or 50 years, two generations? More informed (two decades – global TV,

internet) Find new opportunities with new technologies Want better treatment, products, service,

‘fair play’-that require better policies and management

‘Governance’ an issue in private sector for ‘workers’, customers, shareholders

… FOR GOVERNMENTS?

1940s-1960s many thought ‘Government’ would treat people better, more fairly than private

sector -USSR, Europe, others chose command economies-US alliance of government, unions, corporations

Disillusion! Government service poor, ‘not fair’-government bad, private sector good

+ educated demanded ‘rights’, and: Globalisation of business (& crime) End of cold war; but Terrorist threats

GOVERNANCE ‘FOR DEVELOPMENT

1989. World Bank ‘Long Term Perspective Study on Sub-Saharan Africa’‘Africa needs… less government but better government …less direct intervention, more enabling others to be productive [with] political renewal, attack on corruption, accountability, public debate, empowering women and the poor…’ ‘None of these measures will go far… unless governance… improves.’Then Marxist regimes fell in Europe and world leaders enthused about governance- Mitterrand, OAU ‘heads’, (Thatcher)

RULES

Those who take employment in public serviceexpect to obey rules and regulationsEverybody obeys laws – national rules - in

daily lifeWe may accept rules as coming by divine revelation, or with the authority of community or

organisation, or as part of being human

-a ‘universal law’, found by ‘reason’(as suggested by Kant)

-‘categorical imperative’, ‘conscience-driven’?

BUT RULES BRING RISKS

Rules may enforce tyranny - a rule by law -where the law protects rulers from their

citizens,-when we want a rule of law, where the law

protects citizens from each other AND from their rulers

Rules inhibit innovation, promote inflexibility-through failing to keep pace with change

‘Rules Multiply’!-in efforts to keep pace with changes

So we use rules, but to change rules we need something more

RESULTS

In our work we are expected to get results; the utilitarian principle focuses attention on results explained as

‘seeking the greatest good for the greatest number’

That is difficult to ‘operationalize’ – to estimate -‘the greatest benefit from now to eternity’

In practice we avoid causing hurt and thus often judge actions by expected results-for example to protect the environment

BUT A RESULTS ETHIC …

A Results Ethic allows the ends (protect society) to justify the means-‘Someone who is not prepared under any

circumstances at all to sacrifice the innocent, or to plan murder, is not a utilitarian at all’ (Almond 1998)

So we shall not be utilitarians, but we use a utilitarian ethic when we judge actions right or wrongbecause of their consequences

RELATIONSHIPS

Confucius proposed a ‘golden rule’ of caring:-‘Do not do to others

what you would not have them do to you’

-a principle of reciprocity - although called a ‘rule’ the focus is

relationshipsJesus Christ spoke similarly:

-‘Do to others what you would have them do to you’

A results based ethic focused on people

‘People focus’ places value on trust

BUT RELATIONSHIPS WITH LIMITS

A colleague of Confucius wanted public servants NOT to be ‘too virtuous’!-The ‘virtuous’ would favour family, be unfair to

others-Danger of an ‘economy of affection’, as

described by Hyden for an African country in 1970s

But a ‘Relationships’ Ethic values people:-our families, communities, ‘other humans’

‘Rules, results, relationships’ may conflict-Dilemma when driving with a friend…

TRADITIONAL SOCIETIES - Agraria

What we should do is what has been done-because it has always been this way

Sanctions came from family and ancestors

Traditional ethics was based on tradition

A consensus set limits to power or corruption-if broken, society fragmented

‘Ethics’ was determined by rules from the past

MODERN WORLD - Industria An ‘Enlightenment’ brought change

-‘reason’ was given more importance-‘progress’ was expected -in technology; in society (Karl Marx, etc)-choices were based more on

expected results than past patterns Ethics looked at results, the future

-and was more relativistic, with an ‘absolute that there are no absolutes’

POST-MODERNITY - Informatia A culture defined by what it is not Lost confidence in progress, science,

reason No confidence in guidance from the past No pattern or meaning to life, no ‘meta-

narratives’-shown in art, architecture, etc

But concerns about human rights, globalisation, poverty, etc, suggest

a concern for relationships remainsPublic service priorities show same trend?

ETHICS IN CONTEXT

Different patterns of behaviour are judged right in different situations

We shall need to recognise this when we consider the relevance of ‘culture’

HERE IS AN EXAMPLE Why might I be right to choose my

cousin for a job in my own small business,but wrong to appoint her or him to work in my Government Department?

ETHICS DEPENDS ON SCALE

Cultures are associated with religion Religious teachers and their

teachings about fraud and corruption indicate long-standing attitudes in societies

We find that theft and murder are condemned-Without reason why (considered

obvious?) Bribery is condemned because it is

unfair-it hurts people, a RELATIONSHIPS ethic

ETHICS IN THE WORKPLACE

What ethical issues are likely to concern us?

For example (in any organisation): -unfair appointments and promotionssexual harassment and bullyinghealth and safety regulationsavoiding conflicts of interestreducing risks of corruption

-with its costs, damage to reputation …Think of rules, results, relationships …

‘HEALTH CHECKS’ ON BEHAVIOUR

Integrity can I live happily with this choice? am I at ease with my conscience? Transparency am I happy for others to know? and the press to report what I do? Accountability do I report to others? can they check my reports?

MORE CHECKS

Reciprocity-Would I feel no hurt or anger if others did

the same? SuspicionWould reports about my action give

others ‘reasonable grounds’ for suspicion? Commitment Am I determined to promote integrity and

to help prevent corruption?

Advice to Moses , Look for able men … who fear God, are trustworthy and hate dishonest gains; set them as officers over

thousands. Let them sit as judges.

The Law of Moses , You must not distort justice; you must not show

partiality; and you must not accept bribes for a bribe blinds the

eyes of the wise and subverts the cause of those who are in the right.THEN JUDGES RULED THE LAND …

ETHICS, AND WHAT MAKES GOVERNANCE GOOD?

‘What’s good’ about anything?Can we find a ‘good’ about

governanceon which people everywhere would agree?

Trying to decide what’s good: THAT’S ETHICS.

Competencies for Leadership and Ethics

1. Outline the evolution of management theories and traditional management functions and skills.

2. Describe the importance of leadership and the strategies that ensure its success.

3. Explain how intense and humble leadership skills can take a spa from good to great.

Competencies for Leadership and Ethics

4. Define the eighth habit of effective leaders and how they can develop it.

5. Identify specific leadership needs experienced in spas.

6. Explain why ethical leadership is essential and the specific issues that affect a spa.

Management Functions

Planning Organizing Coordinating Staffing Directing Controlling

Management Skills

Technical skills Human relations skills Conceptual skills

Leadership Strategies

Strategy I: Attention through vision Strategy II: Meaning through

communication Strategy III: Trust through positioning Strategy IV: Self-development

Definition of Good to Great

Had a transition point from good results to great results

Maintained the results for at least 15 years

Averaged cumulative stock returns that were 6.9 times the general market for those 15 years

Levels of Leadership

Level One: Highly capable individual makes productive contributions

Level Two: Contributing team member contributes capabilities to achievement of group objectives

Level Three: Competent manager organizes people and resources toward pursuit of objectives

Levels of Leadership

Level Four: Effective leader catalyzes commitment to and pursuit of a clear and compelling vision

Level Five: Executive builds enduring greatness through a paradoxical blend of personal humility and professional will

Essential Management Functions

Analyzing financial statements Forecasting and budgeting Practicing revenue management Creating marketing and public

relations initiatives Developing a compensation program Managing retail inventorycontinued)

Essential Management Functions

Maintaining a customer feedback system

Practicing strong human resources skills

Developing a sense of place and design

Organizing the workplace and attaining efficiency

Controlling risks in the workplace

Seven Habits of Highly Effective People

Be proactive Begin with the end in mind Put first things first Think win/win Seek first to understand, then to be

understood Synergize Sharpen the saw

Find Your Voice

Freedom and power to choose Natural laws or principles that are

universal Four intelligences and capacities

Four Intelligences

Mental Physical Social/emotional Spiritual

Leadership Characteristics

Modeling (conscience) Path finding (vision) Aligning (discipline) Empowering (passion)

Spa Leadership

Managing healers Strategic intent and transformational

experiences Authenticity Communication

Dimensions of an Authentic Leader

Pursuing purpose with passion Practicing solid values Leading with heart Establishing enduring relationships Demonstrating self-discipline

Verbal Communication

Keep it simple Explain or provide an example Use clear, direct words Respect your listeners Repeat the main idea Check for understanding

Listening Steps

Paying undivided attention Attaching meaning Evaluating the message Responding and remembering

Bad Listening Habits

Interrupting Prejudging Script-writing Reacting Emotionally

Ethical Issues in Hospitality and Tourism

Managing an ethical environment Relations with customers and

employees Honesty Employee privacy rights Alcohol/drug testing Environmental issues Relations with foreign governments Codes of ethics and self-governance Employee abuse of alcohol or drugs

Ethics in all human activities

“Stakeholder triple context approach” to corporate governance

Relationship ethics/governance

“Ethics of governance” Ethics is the reason for

corporate governance reports

Every aspect of corporate governance is grounded in ethical values▪ Board responsibilities▪ Risk management▪ Internal audit▪ Sustainability

“Governance of ethics” A company’s ethics

performance needs to be actively governed and managed

By means of a ethics programme

Ethics in organizations ― A statement

“Ethics is not an optional add-on to ‘normal’ business, nor it is a ‘soft’ issue. All business strategies and operations have an ethical dimension that we cannot escape — as we cannot escape our own shadow. Ethics holds enormous risks for companies, but ― more importantly ― creates reputational and competitive opportunities.”

Ethical leadership    Ethical leadership really has two elements. 

First, ethical leaders must act and make decisions ethically, as must ethical people in general.  But, secondly, ethical leaders must also lead ethically – in the ways they treat people in everyday interaction, in their attitudes, in the ways they encourage, and in the directions in which they steer their organizations or institutions or initiatives. 

Ethical leadership is both visible and invisible.  The visible part is in the way the leader works with and treats others, in his behavior in public, in his statements and his actions.  The invisible aspects of ethical leadership lie in the leader’s character, in his decision-making process, in his mindset, in the set of values and principles on which he draws, and in his courage to make ethical decisions in tough situations.

Ethical leaders are ethical all the time, not just when someone’s looking; and they’re ethical over time, proving again and again that ethics are an integral part of the intellectual and philosophical framework they use to understand and relate to the world.

Some important components of ethical leadership (we’ll discuss these more later under “How do you practice ethical leadership?”):

The ability to put aside your ego and personal interests for the sake of the cause you support, the organization you lead, the needs of the people you serve, and/or the greater good of the community or the world.

The willingness to encourage and take seriously feedback, opinions different from your own, and challenges to your ideas and proposed actions.

The encouragement of leadership in others.

Making the consideration and discussion of ethics and ethical questions and issues part of the culture of the group, organization, or initiative.

Maintaining and expanding the competence that you owe those who trust you to lead the organization in the right direction and by the best and most effective methods.

Why practice ethical leadership? Most people would probably agree that leaders ought to

be ethical (although there might be a lot of disagreement about what that means), but there are a number of good reasons why ethical leadership makes sense.

1.  Ethical leadership models ethical behavior to the organization and the community.  Leaders are role models.  If you want your organization or initiative – and those who work in it – to behave ethically, then it’s up to you to model ethical behavior. A leader – and an organization – that has a reputation for ethical behavior can provide a model for other organizations and the community, as well.

Accepting responsibility and being accountable.

Perhaps most important, understanding the power of leadership and using it well – sharing it as much as possible, never abusing it, and exercising it only when it will benefit the individuals or organization you work with, the community, or the society.

2.  Ethical leadership builds trust.  Leadership – except leadership gained and maintained through the use of force and intimidation – is based on trust.  People will follow an ethical leader because they know they can trust him to do the right thing as he sees it.

3.  Ethical leadership brings credibility and respect, both for you and the organization.  If you’ve established yourself as an ethical leader, individuals and groups within and outside the organization, will respect you and your organization for your integrity.

4.  Ethical leadership can lead to collaboration.  Other organizations will be much more willing to collaborate with you if they know that you’ll always deal with them ethically.

5.  Ethical leadership creates a good climate within the organization.  If everyone in the organization knows that power will be shared and not abused, that they’ll be dealt with respectfully and straightforwardly, that they’ll have the power to do their jobs, and that the organization as a whole will operate ethically in the community, they’re likely to feel more secure, to work well together, and to be dedicated to the organization and its work.

6.  If you have opposition, or are strongly supporting a position, ethical leadership allows you to occupy the moral high ground.  This is especially important if your opposition is ethical as well.  You can look very small in comparison if your ethical standards are not up to theirs, discrediting your cause and alienating your allies.

7.  Ethical leadership is simply the right way to go.  Everyone has an obligation to themselves, to their organization, to the community, and to society to develop a coherent ethical system that seeks to make the world a better place.  Leaders, for the reasons already stated, and because of the responsibilities of leadership, have a particular obligation in this respect.

8.  Ethical leadership affords self-respect.  Because you know that you consistently consider the ethics of your decisions, actions, and interactions, you can sleep at night and face yourself in the morning without questioning your own integrity. 

Finally, and perhaps most important, an ethical leader never stops reexamining his own ethical assumptions and what it means to be an ethical leader.  Like so many other important tasks, maintaining ethical leadership is ongoing; like only a few others, it can last a lifetime.

Recommendations for Business Leaders...

Take responsibility for educating your managers about corporate responsibility & business ethics

Top management needs to make sure there are visible & supported programs do not rely upon individual ethics & the

character of employees alone

Question...

Are business ethics & social responsibility directly related to financial performance?

Business Ethics Initiatives Have Been Tied To...

Greater efficiency in daily operations

Greater employee commitment Improved financial performance Higher product quality Improved decision making Increased customer loyalty Improved reputation

Trust in Corporate Citizenship

Trust is the “glue” that holds organizational relationships together

Stephen Covey contends, low trust results in organizational decay & relationship deterioration political problems & inefficiency

Most workers feel they can be trusted more than they can trust others

Employees & Trust

All organizational members should share a sense of trust

Trust should exist between departments within a firm

Ethics Resource Center study shows that 93% of employees who say trust is frequently evident in their organization report satisfaction with their employer

Companies Convicted of Misconduct...

Provide significantly lower returns on assets & lower returns on sales than firms that have not been convicted

Organizational misconduct can result in:-loss of reputation-supplier concerns-investor concerns-greater government scrutiny

Questions

What is Corporate Governance

“The importance of corporate governance lies in its contribution both to business prosperity and to accountability.”

Paragraph 1.1, Committee on Corporate Governance:

Final Report Hampel Committee

“Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals…… The aim is to align as nearly as possible the interests of individuals, corporations and society.”

Sir Adrian CadburyCorporate Governance Overview, 1999

[World Bank Report]

Corporate Governance is a mechanism through which boards and directors are able to direct, monitor and supervise the conduct and operation of the corporation and its management in a manner that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

Building Effective Board Governance

Defining key board roles - Board Chairman- Chief Executive Officer- Board Directors - executive and non-executive

Putting in place board governance arrangements- Board committees to support decision process- Supporting functions to regulate processes- Board procedures and rules, e.g. conflicts of interest- Delegated authorities for management

Ensuring proper oversight and supervision- Management reporting and public disclosures- Assurance processes and controls

The Board of Directors is Pivotal “The board should exercise compelling and relentless

leadership and should not underestimate the power of leading by example - evidenced by high levels of visibility and integrity, strong communications, and demanding expectations. This leadership should be clear to ALL within the organization, as well as shareholders (accionistas) and other stakeholders (grupos de interés).”

Boardroom Behaviours A report prepared for Sir David Walker

by the Institute of Chartered Secretaries and Administrators , UK June 2009

Board Governance Framework

Audit Committee

Remuneration Committee

OtherCommittees

Board Committees

Strategy

Board of Directors• Achievement of strategic objectives and value creation• Fulfil responsibilities and duties in law and prescribed functions

B

oard

Op

era

tions

Chairman Board

Meetings Reporting &

Disclosure

Internal Controls & Assurance

Executive Committee

Internal Audit External Audit Other Assurance Providers

Management

Combined Assurance Model

GovernanceSystem and

Controls

Corporate Policies & Procedures

Board Governance Instruments

Monitoring and Evaluation

Key A

reas

of

Resp

on

sib

ility

CEO & Management

Shareholders

In

form

ati

on a

nd C

om

mun

icati

on

Corporate Secretary

Chairman as Leader of the Board

Primary role - Provide overall leadership to the board

Function-Principal link between board and CEO/management

team-Responsible for board agenda and work plan-Work with board committee chairmen- Involved in selection and induction of new directors- Counsel individual directors on their performance-Participate in discussions with investors, key

stakeholders

CEO as Leader of the Company

Primary role - Lead the management team, reporting to the board

Function- Work closely with board chairman- Responsible for performance of management team- Formulate corporate strategy, annual business plan and

budget- Responsible for corporate and financial objectives- Formulate major corporate policies- Ensure continuous improvement in services and products - Manage relations with investors, major customers,

regulators- Responsible for company’s long-term sustainability

Board Structure and Composition

Balancing executive and non-exec. participation Ensuring an effective selection process

-Key personal and professional attributes- Skills aligned to strategy and business- Also fill board committee requirements, where appropriate

Some general guidelines - Must have time to devote to responsibilities-Must exercise judgment in best interests of company- Must be informed about the business and its markets- Must avoid interest conflicts between personal and business- Must treat board information confidentially- Should act objectively and be receptive to other perspectives-Should prepare adequately for meetings, regular attendance

Benefits of Effective Board Committees

Assist the board in its decision making - Brings together non-executives and management- Allows detailed discussion on management matters- But, filters out operational issues that remain with

management- And, focuses on strategic decisions required of the board

Supports board responsibilities in key areas- Audit, internal controls and risk-Executive compensation and management appointments- Governance issues and corporate policies - Nomination and selection of non-executive directors- Others, e.g. health, safety, environment, etc.

Defined terms of reference and limitations Generally, no executive powers

Instruments to Enhance Effectiveness

Board Charter setting out procedural rules- Clarifies leadership roles and core responsibilities- Reserves matters specifically reserved to board- Sets management delegations and reporting arrangements

Comprehensive induction for new directors- Legal and regulatory obligations- Financial structure of business, budgets and KPIs- Understanding of strategic priorities and current status Familiarize with business operations, e.g. site visits

Annual board work plan- Meetings and budget cycle, annual reporting

Code of ethics or statement of business principles- Defines corporate values and conduct of staff and directors

Role of Corporate Secretary

Board Role in Financial Oversight

-Duty to maintain proper accounting records

-Periodic reporting of financial position, performance

-Establishing, monitoring proper internal controls

Ensuring proper external controls and audit

Skills, knowledge required by directors

The Role of Board of Directors

The BOD Continuum

Degree of involvement HighLow

Monitor (40%)

•Permit officers to make all decisions.•Formally reviews selected issues•Votes as officers recommend on actions.

Evaluate & Influence (30%)

•Involved in review of selected key decisions, indicators or programs of management•Approve, question & makes final decisions on mission, objectives strategy & policies.•Perform fiscal & mgt audits.

Initiate & Determine (30%)

•Take leading role in establishing & modifying mission, objectives, strategy & policies.•Has very active strategic committees

Restoring Integrity and Trust

“Boards must re-establish and enforce the standard that risks are to be undertaken for the benefit of their constituents, not for the personal gain of management.”

The Role of Top Management

Top management is primarily responsible for the strategic management of the firm-Responsible for every decision & action of

every organizational employee -Responsible for providing effective strategic

leadership-Strategic leadership is the ability to

anticipate, envision, maintain flexibility, think strategically, and work with others in an organization to initiate changes that will create a viable and valuable future for the organization

Six Critical Questions for Directors!

Do I believe I have all the information?

Have I the necessary skills to make this decision?

Do I have any conflict in this matter?

Objectively, is this a rational business decision?

Can I explain this in a transparent manner?

Is it a responsible discharge of my duties?

GUIDING PRINCIPLES

Build Trust and Credibility!↳Respect for the Individual↳Create a Culture of Openness and Honesty↳Set the Tone at the Top

Uphold the Law!↳Avoid Conflicts of Interest↳Set Metrics and Report Results Accurately

Do the Right Thing!↳Promote Substance over Form↳Be Loyal to your Company, your Family, yourself

Corporate Social Responsibility

The concept of social responsibility-Proposes that a private firm has

responsibilities to society that extend beyond making a profit

-Obligation of firm decision makers to make decisions & act in ways that recognize the interrelatedness of business & society.

-It recognizes the existence of various stakeholders and firms deal with them

Corporate Social Responsibility

Two Views of “who” are firms responsible to?

(1) Traditional View (Milton Friedman) “There is one and only one social

responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (M. Friedman, “The Social Responsibility of Business is to Increase Profits”, New York Times, (September 13, 1970: pp. 126-127)

Two Views of “Who” Firms are Responsible to

(2)Modern View (Archie Carroll)-Business firms have four responsibilities(a) Economic

▪ Produce goods & services of value to society so that the firm may repay its creditors and stockholders

(b) Legal▪ Defined by governments in laws that

management is expected to obey

Two Views of “Who” Firms are Responsible to

Modern View (Continued)(c) Ethical

▪ Follow generally held beliefs about how one should act in society▪ Work with employees & community in planning for

layoffs, though no laws requiring this▪ Many people expect firms to do these things

(d) Discretionary▪ Purely voluntary obligations a firm assumes

▪ Philanthropic contributions, training hard-core unemployed, providing day-care centers, etc.

▪ Many people do not expect firms to do these things

Who are the Stakeholders of Firms?

Stakeholders are individuals, groups or institutions who have a stake in or are significantly influenced by an organization’s decisions and actions-Shareholders -Governments-Political & social action groups-Employees-Customers-Communities-Suppliers Trade Associations

Corporate Governance and Leadership

Corporate governance refers to the processes and structure by which the business and affairs of the company are directed and managed, in order to enhance long term shareholder value through enhancing corporate performance and accountability, whilst taking into account the interests of other stakeholders.

What is Leadership?

the lifting of people’s vision to a higher sight, the raising of their performance to a higher standard, the building of their personality beyond its normal limitations (Drucker, 1985).

What is Leadership?

The ability to lead, including inspiring others in a shared vision. Leaders have clear visions and they communicate these visions to their employees. They foster an environment within their companies that encourages risk taking, recognition and rewards, and empowerment allowing other leaders to emerge

Relationship Between Shareholders, Board and Management: Legal PerspectiveShareholders

Board of Directors

(Management)

Major Decisions Made by Shareholders

Structural or constitutional decisions [issue of shares; reduction of capital]

Appointment / removal of directors & auditors

Directors’ compensation [e.g., retirement and compensation benefits for directors; provision and improvement of directors ‘emoluments’ (fees, benefits etc)]

Disposal of substantially the whole of the company’s undertaking

Major Decisions Made by Shareholders

Assignment of office by director or manager

Schemes of arrangements & takeovers

Winding up Conflict of interest situations [e.g.,

related party transaction rules; payment of commissions etc to directors in connection with the transfer of undertaking or property of the company]

Power of the Board of Directors

(1)   The business of a company shall be managed by or under the direction of the directors.

(2)   The directors may exercise all the powers of a company except any power that this Act or the memorandum and articles of the company require the company to exercise in general meeting.

Leadership at the Top: Board versus CEO Decisions

Questions:

In your organisation, does your board and CEO have a clear understanding as to the matters that require the board’s approval?

Are many matters left to the CEO judgement as to whether Board’s approval is required?

Should the Board always make a decision when asked by the CEO?

Leadership at the Top: Board versus CEO Decisions

In my family, my husband makes all the major decisions. So far, there have been no major decisions.

Anonymous (not my wife)

Leadership at the Top: Board versus CEO Decisions

Wondering aloud how “the board of directors allowed itself to be almost completely captured by the former CEO,” he said: “No organisation can leave just one man to make decisions. Like in old China, when the emperor says this, and that’s it, things are done.”

Roles of the Board and Management

Roles of the Board

Blurring of the Relationship Between Shareholders, Board and Management

Shareholders

Board of Directors

Management

ShareholdersBoard of Directors Manageme

nt

Governance Risks

A Good Leader

Character

Competence

Commitment

Five Suggestions for Improvement by Boards

Implement comprehensive code of conduct emphasising ethics from the top

Implement whistleblower arrangements

Clarify the board’s and CEO’s roles (develop board charters/board delegation guidelines)

Implement proper framework for internal control and risk management systems

Pay more attention to succession planning

Five Suggestions for Improvement by Regulators

Introduce legislation protecting whistleblowers

Make independent directors more accountable – disqualify those who are grossly negligent?

Increase transparency of ownership (look at nominee ownership issue/disclosure of substantial shareholdings)

Consider allowing cumulative voting for directors

Reconsider the nature of interested party transactions

Effective Leadership & Strategy for Steering Through Turbulent Times

Creating the right Culture-Business CultureA corporate culture is the sum of the

unwritten norms, beliefs and values that define appropriate behavior-Like human personalities, corporate

cultures result from the interaction of temperament and experience Over time, their dictates slip from the consciousness into the realm of habit:

Changing the culture is the most nebulous area of corporate management, by far the most challenging It is about changing the often unspoken values and beliefs that guide any organization’s conduct-Executive power cannot accomplish

much here Subordinates’ voluntary cooperation becomes essential

-The difficulty of the task is such that even revolutionary leaders usually place cultural change last on their agendas

-However, no transformation is complete without it…

“Control your destiny or someone else will”

Culture as it should be The way in which a group of people

solves problems and reconciles dilemmas

Creating the right business culture

Could transform a company Make the difference between

success & failure Create significant increase in

stakeholder value

What is the most important driver of innovation for companies?

Supportive Corporative Culture (53%)

Top Management Support (21%)Clear Processes and Measurable

Goals (13%)Creative Talent (5%

Inspiring them to soar

Engage the worker’s hearts and minds •Direct correlation between employee engagement

and the productivity, profit and revenue growth •Employees who contribute the most to corporate

performance also tend to Trust management Be stimulated by their jobs Believe their work affects corporate performance See opportunities for career growth Take pride in the company Have co-workers who feel the same way Believe the company wants to help build their skills Like their bosses

How to stay ahead of the curve

Build and protect the culture "Stay focused on culture, people, and values; it is the area most likely to get compromised in this environment”

-Eric Foss, Chairman & CEO of Pepsi Bottling Group “If you don’t invest in the future and don’t plan for

the future, there won’t be one”

-George Buckley, CEO of 3M Companies that nurture flexibility, awareness and

resiliency are more likely to survive the crisis, and even to prosper.

Food for Thought

Think about The culture that exists in your business

What have you done to create / change that culture?

Ask yourselves the following questions

To lead, create a shared vision

-Being forward looking, envisioning exciting possibilities and enlisting others in a shared view of the future

-This is the attribute that most distinguishes leaders from non-leaders

-What leaders struggle with the most is communicating an image of the future that draws others in –that speaks to what others see and feel Leaders need to listen closely to others

-Appreciate their hopes-Attend to their needs

Engaging Others Engagement is not just about

conversation Small voices can silence a room if

used at the right time

Culture Spurs Innovation

What is the most important driver of innovation for companies?

Supportive Corporative Culture (53%)

Top Management Support (21%)Clear Processes and Measurable

Goals (13%)Creative Talent (5%)

Innovation

McKinsey Study “Innovation: What’s your score?” Berwig,

Marston, Pukkinen, Stein▪ Business model innovation tends to generate bigger gains

than product or process innovation Harder for competitors to copy

-Strong innovators do consistently well as regards stock-market performance▪ Top innovators continued to outperform their peers even

during the tough times Agility & capacity to innovate made it easier to cope with challenges

▪ Many important products have been introduced during times of crisis

Innovation and Recessions

Digital computers were born during the Great Depression•The Ethernet during the 1970s oil crisis•The IBM personal computer in the early 1980s recession•The World Wide Web emerged from the recession of the

early 1990s•During the last recession (in the early 2000s), innovative

companies began staking out new leadership positions via the Internet.

- Apple changed the business model in the music industry when it launched its popular iPod music player synched to its popular iTunes music store

Google became an online industry leader by linking its search engine to advertising

Innovation

-To become a world-class center of innovation, a society/organization / business must have three basic elements Drive –A culture that supports change and hungers for it

-Human Capital –The personal abilities that make world-class innovation possible

-A capacity for mobilization –a society’s ability to pursue ambitious new goals

Growth Values at GE

Need to embed growth into the DNA of a company

Leadership traits necessary for innovating, creating new businesses and expanding into new markets External focus-Clear thinking Communicates clearly and concisely

-Imagination Takes risks; displays courage and tenacity

Inclusiveness-Expertise Has domain knowledge; continuously

develops self; loves learning

Effective Leadership & Strategy for Steering Through Turbulent TimesRisk-taking Critical Success Factors.Constantly step back and think about organizational effectiveness. View this as your company. Every action should be justified by

asking yourself “Would I do this if I owned the company”

Encourage risk taking.-It is okay to make mistakesThe most important things are What did you learn from the

experience?What do you do to prevent such a mistake from happening again?

Learn from the past but do not focus too much on the pastUse the past to make the future a brighter one

People who focus too much on the past will get confined to the history heap.

Conflict resolution what is it?

Methods for reducing or eliminating conflicts

Conflicts between nations, within governments, between companies and governments, between and within companies, between individuals

Usually involves tools such as negotiation, mediation, and diplomacy

Always involves communication

External Corporate Disputes

International Trade Intellectual Property Labor Cases Tax Cases General Commercial (joint ventures,

M&A) Product Liability Anti-trust cases (anti-competitive

issues)

Internal Corporate Issues

Personnel Management Productivity Sales Subcontractors Delivery Customer Service Overseas affiliate issues

Different Cultural Approaches

Individualistic Culture

More contentious, shorter term approach;

Want answers now and clearly outlined;

Less likely to negotiate, and if they do, prefer to do so on their own terms;

Can walk out of talks, especially if must answer to constituents

Collectivistic CultureMore consensual, longer term approach;Want to develop a long-term positive relationship; More likely to negotiate, and when they do, more likely to cooperate; More likely to concede or engage in problem solving

Leading & Managing Change

Putting it all together to steer a business-History shows there are great opportunities during recessions More companies achieve dramatic gains during recessions than during expansions

Take your business from your current position in the downturn to a stronger leadership position when the economy recovers by Cutting the right costs in the right way while sustaining margins and brandTargeting the right customers, maximizing revenue while building your brand-Preparing for bold moves, such as game-changing acquisitions-Differentiating your firm as one of this recession’s breakaway outperformers

As a leader you need to: -Manage current resources while identifying new opportunities -Lead change amid new challenges

Difference between merely surviving the downturn and emerging from it stronger

How to stay ahead of the curve

Forecasting Tell it like it is; Do not sugar-coat it Understand and adapt to drastic shifts in market

and consumer behavior Consumers are likely to display substantially altered

preferences and tendencies as a result of their experiences in a recession

Do not be afraid to take action and change things, even if a business is doing well

Do not be afraid to take risks but manage risks carefully

Need courage to make hard decisions quickly

Need appropriate mechanisms and governance models to confront multiple scenarios

Be receptive to different points of view Do not create a blame culture Communicate, Communicate, Communicate

“The only way to address uncertainty is to communicate and communicate; and when you think you have just about got to everybody, then communicate some more” Terry Lundgren, CEO of Macy’s.

Integrating CSR into Auto Industry of the IRAN

According to French automaker Peugeot, Iran has one car for every 21 inhabitants. Turkey has one for every 12. Western European countries and Japan have nearly one car for every two people. That indicates tremendous market growth potential, and in part explains substantial foreign car manufacturer interest in the Iranian market. Iran's domestic vehicle production is growing quickly. In the first quarter of the Iranian year starting March 20th, Iran produced 187,135 light and heavy vehicles, including 165,000 automobiles; 52,500 Pride models were manufactured, followed by 31,100 Paykan cars and 19,500 Peugeot 405 injection models. In July, Iran resumed the importation of foreign cars following a 10-year break.

Growth potential

The import arrangement includes 130 percent customs fees, and a 10,000-car total to year-end. The customs fees are intended to support the domestic car industry, as well as facilitate the import of cars to meet the chronic shortage of new vehicles. This fits with the stated interests of Iranian manufacturers.

The import fees will generate some 6 trillion rials ($760 million) for the government in the current Iranian fiscal year. Joint ventures. Over the last few years several major automobile manufacturing companies from have traveled to Iran to explore opportunities there.

In May, French company Renault-Nissan formed a joint-venture car manufacturing company called Renault-Pars to produce light passenger vehicles in Iran. Fifty-one percent of the company's shares are owned by Renault-Nissan, and the remaining 49 percent by the Automotive Industry Development Company, a concern owned by the Iran's two main government-controlled carmakers, the Saipa Group and Iran Khodro.

In 2006, Renault-Pars will produce the Logan under Renault license, a vehicle based on Type B of the L90 series of Renault automobiles. Currently manufactured in Romania, there are also plans to produce the Logan in Russia, Morocco, Colombia and possibly China.

According to Andreas Gabriel, managing director of Renault-Pars, the Logan will be sold in the Iranian market for 65-80 million rials. Half the L90 production volume will be targeted for exports to 26 countries. Schweitzer, said the company has a startup production capacity of 150,000 units per year with an initial capital of 300 million Euros.

Export markets

The cars will be assembled by BAMCO, a subsidiary of Kerman Automotive Industries, and will be sold in Iran by an exclusive dealer network owned by Modiran Pars Co., another Kerman subsidiary. The 1.8-liter four-door Comfortline version of the Gol is essentially a stripped-down version of the VW Golf developed in Brazil.

VW also sells Gol with some success in Argentina, Mexico, China, South Africa and Eastern Europe. In its tie-ups with foreign car manufacturers, Iran hopes for technological exchange.

Toward the end of July, Minister of Industries and Mines Es'haq Jahangiri in a meeting with the managing director of Renault-Nissan Alliance called for cooperation between the research departments of France's Renault and Iran Khodro as well as Saipa. We need the expertise of the French Renault Company in designing the automobile body, he added.

In response, Schweitzer said: "It is a joint undertaking for full transfer of technology to the Iranian partner." The size of the Renault-Pars investment at 300 million euros is a significant gesture of faith in Iranian industry.

The amount nearly equals total foreign investment in Iran by French companies in 2002. Renault's investment is the first large-scale, long-term direct investment in Iran by a French company since the 1979 revolution. It could help pioneer further foreign investment flows into the country. Iran could also graduate into becoming a substantial car exporter. In June, Iran plans to export $150 million worth of automobiles by the end of 2004, $350 million in 2005, and $1 billion in four years.

Besides partnering foreign companies in Iran, the country is also exploring opportunities for partnerships in other developing countries.

Applicability and design in the Iranian environment

Iran khodros' responsibility

Ethical Responsibility

Altruism Responsibility

Thank you