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international journal for enhancing board performancevolume 8 No 3 2008

Corporate GovernanceCorporate Governanceinternational journal for enhancing board performance

volume 8 No 3 2008

Thursday, 18th September 20080830 – 0930 Tea & Registration

0930 – 10.15 Plenary 1 - Opening Session

Ola Ullsten, Former Prime Minister of SwedenLord Hunt of Kings Heath, Parliamentary Under Secretary of Justice **Baroness Flather, House of LordsDr Madhav Mehra, President World Council for Corporate Governance

1015 – 1045 Tea and networking break

1045 – 1145 Plenary 2

Keynote Session:Strengthening Capital Markets through good Corporate Governance

George Osborne, Shadow Chancellor **C B Bhave, IAS, Chairman, Securities & Exchange Board of IndiaOlivier Giscard d’Estaing, Founder Chairman of INSEAD, France

1145 – 1245 Plenary 3 - Panel DiscussionRegulating the Capital Market – Social Role of Capital

Stephen Spratt, Director of NEF’s Centre for Future EconomyPratip Kar, Corporate Governance, Tata Management Training Centre, Pune, IndiaHashim Mohammed, Chief Internal Auditor, Telekom Malaysia Berhad, MalaysiaDr Graham Wilson, Consultant, Oxford, UK

1245 – 1400 Lunch and networking break with Chairman Security &Exchange Board of India on Doing Business WithIndia

1400 – 1515 Plenary 4 - Panel DiscussionCredit Crunch – What were the boards doing?

Dr Darlene M Andert, President & CEO, Andert Governance Corporation,USAPaul Moxey, Head of Corporate Governance, ACCA, UKDr Coral Ingley, Associate Professor of Management, New Zealand,M T Raju, Director, Indian Institute of Capital Market, India*Christophe Clerc, Marccus Partners, Partner, France

1515 – 1545 Tea and networking break

1545 – 1700 Plenary 5 - Panel DiscussionManaging risk for the investors

Brigit Gandi, Head of Accounting and Corporate Governance Research -Fitch RatingsAhmed Elbadry M Abdellatif, Faculty of Management and Law, UKJermyn Brooks, Executive Director, Transparency International, GermanyRashad Ali Albakri, Advisor - Market Supervision Dept, Capital MarketAuthority, Saudi ArabiaN R Narayanan, Company Secretary, Hindustan Petroleum Corporation Ltd,India

1700 - 1830 Plenary 6 - Surviving the Downturn

Prof Colin Coulson –Thomas, University of Lincoln Cambridge, UKLalit Jain, Company Secretary, Organosys (India)Manli Fu, Research Associate, University of St. Gallen, SwitzerlandDr Rashid Rehman, Prof Dep of Bus Administration, Gomal University,PakistanAndrea Bortoluzzi – Faculty of Economics, University Insubria, Italy

1830 - 1930 Cocktail Reception

9th International Conference on Corporate GovernanceMaking Capital Markets Work through Corporate Governance

18 – 19 September 2008, London

PROGRAMME*

Friday, 19 September 2008

0845 – 0930 Plenary 7 – Keynote SessionReforming the Capital Market

Graham Ward, President and Chairman of the Institute of CharteredAccountants,Partner Global Energy & Utilities Group, PricewaterHouse CoopersNouriel Roubini Professor of Economics, Stern Business School, New YorkUniversity**Erich Kandler, Audit Partner Deloitte & Touche, Austria

0930 – 1030 Plenary 8 – Restoring Trust in the Capital Market

Dr Hugues Bouthinon-Dumas, Associate Professor, UKProf Viviane de Beaufort, Professor and Academic Director, ESSEC BusinessSchool, FranceDr V Prabhu Dev, Director, Surana College Centre For Post-Graduate Studies, IndiaDr. Florian Schilling – Partner – Board Consultants International, GermanyLt Gen J S Ahluwalia, Vice President and CEO Institute of Directors, India

1030 – 1100 Tea and Networking Break

1100 - 1200 Working Session 1Regulating Financial Markets - Enhancing Clarity and Disclosure

Prof Bjoern Fasterling, Professor of Law, EDHEC Business School, FranceMs Despina Doxaki, Partner, Kyriakides Geogopoulos & Daniolos IssaiasLaw Firm, GreeceProf Tatyana Boikova, Associate Professor, Baltic International Academy,LativiaAntoni Bosch Pujol, Director, Institute Audit & IT-Governance (IAITG), AustriaT P Subramanian, President - Costing and CFO, Ispat Industries, India

1200 – 1300 Working Session 2Making Capital Markets More Responsible

Dr Joseph Lee, Lecturer Business Law, Nottingham University BusinessSchool,Dr T V Raju, Director, RV Institute of Management, Bangalore, IndiaSanjeev Shah, CA, Consultant, All India Institute of Local Self Govt, IndiaDr Iris H-Y Chiu, School of Law, Kings College LondonDr Hana Horak, Faculty of Economics, University of Zagreb, CroatiaDr Arif Khurshed, Senior Lecturer in Finance, University of Manchester, UK

13.00 - 1345 Lunch and Networking Break

1345 – 1445 Plenary 9 - Presentation of Golden Peacock Awardsfor CSR and Corporate Governance

1445 – 1545 Plenary 10 – Case Studies of winners of GoldenPeacock Award

1545 – 1615 Tea

1615 – 1715 Plenary 11 - Presentation of Recommendations ofworking Sessions followed by discussions andfinal recommendations and conclusions

1715 – 1730 Closing Remarks

*Programme is subject to change without notice (as on 5th Sept 2008)

**Confirmation awaited

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Volume 8 No 3 2008Table of ContentsEditorial Advisory Board

Justice A M AhmadiFormer Chief Justice of India

William E HalalProfessor ManagementGeorge Washington University, USA

Ms. Barbara Thomas JudgeDeputy ChairmanFinancial Reporting Council, U.K.

Justice M.N. VenkatchaliahPadma VibhushanFormer Chief Justice of India

Professor Nada K. KakabadseProfessor of Management & BusinessResearch,Northampton Business School, U.K.

Dr Madhav MehraPresidentWorld Council For Corporate Governance, U.K.

M DamodaranChairman, Securities & Exchange Board ofIndia

Dr Sue KonzelmannReader in Corporate GovernanceClore Management School, UK

Dr. Oumar Barou MakalouPresident and DirectorCERDES, West Africa

Lynn McGregorManaging Director, Convivium, UK

James McRitcheEditor, “Corporate Governance” USA

Prof Roman TomasicChair in Company LawDurham University, England

Dr Shann TurnbullPrincipal, International Institutefor Self – Governance

Prof Anona ArmstrongDirector, CICGR, Victoria University

Raghu ModyChairman, Rasoi Group, India

Dr P L Sanjeev Reddy, IASDirectorIndian Institute of Public Administration, India

Peter L. Walker, FIPRSenior PartnerPIELLE Consulting Group, U.K.

Rev Dr Graham WilsonOxford, UK

Dr P G ApteDirector, Indian Institute of Managment,Bangalore

Lt. Gen. J S Ahluwalia, PVSM (Retd.)Vice President & CEO, Institute of Directors,India

EditorsKlaus BohnkeDirector GeneralWorld Council for Corporate Governance, UK

J C KhuranaDirector GeneralCentre for Corporate Governance, India

Editorial AssistantVT Shino

CORPORATEGOVERNANCEINTERNATIONAL JOURNAL FORENHANCING BOARD PERFORMANCE

4 From the President’s Desk

5 Capital Markets as Instruments of Social InclusionDr Madhav Mehra

7 Strategies for Risk MitigationProf Colin Coulson-Thomas

11 Social Innovation and ResponsibilityDr Iman Bibars

12 Corporate Governance in Southern AfricaAfonso Anderson Mondlane

15 Managing Information Security – An IT ExperienceDr Anuraag Awasthi & Mrs. Sunita Chauhan

19 International Academy of Law (IAL)J C Khurana

23 Can corporate governance result in triple bottom line benefits?Graham Ward CBE

24 Africa: Hot on Corporate Governance

25 Negotiating Multilateral Issues: Good Versus BestM J Cadbury

30 News & ViewsGoldman, Fidelity facing probe in USFRC updates guidance to directors on 'going concern'Over 37m poor in US; 46m without health insuranceIndian cabinet approves new Companies BillUS prime mortgage defaults worsen faster than subprimeNew York may sue Merrill over ARSUS minorities in majority by 2042UBS execs knew of risk of U.S. rule breachesNew yahoo election tally lets out big protest voteJPMorgan, Morgan Stanley settle securities probeUS closes 9th bank this yearIndian hacker behind largest cyber heist?Mobiles play banker for rural India and BangladeshThe cashless way to cash in on MFsGoogle, Yahoo partially disclose ad pactFinancial reforms to focus on i-banksEuropean fraud sinks SOCGen's India ProjectBNP, Indian executive in dock for data theftNet traffic begins to bypass USClimate fight hit by economyCalifornia moves on bill to curb sprawl, emissionsInstittue of Directors, India marches in its 20th year


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Going abroad has become expensive for British people. Even the British Prime Minister could not afford it. He had to makedo with a holiday in Britain. The decline in sterling, which began a few months ago, has become a rout. It has lost a sixthof its value against Euro. Against the US dollar, it has lost 13 per cent of its value. Thanks to a downbeat medium-termassessment from Alistair Darling, chancellor of the exchequer, fortunes of UK home owners have tumbled not only due tothe fall of 12% in house prices but in addition a sudden fall of almost 13% in exchange rate.

A feeble package to reflate the housing market as recently announced will only further reduce confidence in the pound. Itsslide and the slide of the housing market is inevitable. Both had been overvalued for a long while. UK has been living a lifeof luxury on others’ money as the financial hub of the world. UK public must now contend with rising import costs. All elsebeing equal, the weakness of sterling means the Bank of England will need tighter monetary policy than would otherwise benecessary to bring inflation back down to the target of 2 per cent from its August level of 4.4 per cent.

There is however good news elsewhere. The spotlight is back on sovereign wealth funds. While Qataris have bought intoBarclays, Abu Dhabi is investing in an English Premier Football club. The emirate has set out plans to become one of theworld’s largest film producers, with $1bn to invest in productions to be made in Hollywood, Bollywood and beyond.

Further good news is that the SWFs have come up with a voluntary code of conduct supported by countries as diverse asChina, East Timor, Libya, Norway, Russia, the US and the United Arab Emirates. This is a step in the right direction and anew hope to a dematerialised growth that I talked about in the last issue of this journal. Thanks to high commodity pricesand global imbalances, sovereign wealth funds now control at least $2,000bn in assets. It is widely accepted that the scaleof their activities is far too important to ignore. One is acutely reminded of the resistance to investments by Gazprom in theUK and by CIC (China Investment Corporation), China’s sovereign wealth fund . Last year Gao Xiqing, the president ofChina Investment Corporation, frustrated at the opposition to its investment in US said “Fortunately there are more than200 countries in the world. And fortunately there are many countries who are happy with us.”

This does not mean we dilute our principled approach to investments. Faced with one of the worst financial crunches inhistory we simply need to be more realist. The purchase of a soccer club hardly compromises national security. Like US weare reaching an uneasy relationship with our creditors. Time has come to review the contribution SWFs to help UK and theworld get out of the financial crisis. Of course we cant make the same mistake as we did with hedge funds. We have toensure a measure of transparency and make them accountable.

Effective Mobilisation of Sovereign Wealth Funds should go to the top of global agenda. It will be beneficial to all partiesincluding the emerging countries who are all dressed up with bagful of dollars but no strategies where to go. This is onearea that should occupy the world nations next only to climate change . The Santiago meet heightened attention to thegrowing role of these state-owned funds in the global financial system.

The world recognises the stability that SWFs investments in UBS, Merrill Lynch and Citigroup have provided to the worldfinancial system. Funds from Singapore and Abu Dhabi have helped to keep US financial markets afloat during the creditsqueeze. The decisions, at the conclusion of the two-day Santiago summit on a voluntary code of conduct that followedmonths of discussions supported by the International Monetary Fund could not have come at a better time.

The code of conduct agreed in Santiago, covers a set of 24 principles. All sides agree that the SWFs are long term and arediversely invested. The concern is only when they try to take controlling stakes in strategic companies. The voluntary codeprovides a benchmark for market participants to judge. It will go a long way towards increasing transparency in thegovernance structure and investment strategies of SWFs thereby fuelling growth and true internationalisation of the shrinkingworld economy.

POUNDING THE POUND

THE ROLE OF SOVEREIGN WEALTH FUNDS


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We are living in one of the mostinequitable worlds in history posing apalpable threat to global security. Therichest 1100 own wealth, double of halfthe world’s population. Our greatestchallenge is to bridge this widening gap.Capital markets are the best humaninnovation and our only hope to achieveour goal of an equitable society. But likeparachutes they can only function whenopen.

The current debacle of capitalmarkets is fuelled by the greed ofbankers, financiers institutions and themonied class. The shenanigans thatfollowed the collapse of Bear Stearnsshowed crass behaviour of marketmanipulators that have spelt doom of theglobal free-market capitalism. This hasmade Sarbanes Oxley Act irrelevant. Fartoo many regulators with overlappingroles are competing with each other toderegulate the financial system in a raceto the bottom.

The unique spectacle of impendingrecession coupled with rising inflationproduced by one of the most recklessmanipulations of capital markets withthe connivance of regulators hascatastrophic implications. Billions ofdollars in shareholder value has beenwiped away. Stunned Bear Stearnsshareholders have seen their investmentsvirtually wiped out overnight. Thetakeover deal with J P Morgan Chaseoffered $2.4 a share compared withBear’s $159 stock price in last April.Questions abound on the buyout.

*Dr Madhav Mehra

Shareholders, law makers and public atlarge want answers on how the deal wasarranged, and gained governmentapproval and financing, all in a fewhours, and seemingly withoutalternative bidders being canvassed.

While irresponsible subprimelending in the US stock market has

the time of Ivan Boesky in the 1980s,the head of enforcement at the USSecurities and Exchange Commissionwarned recently. Linda ChatmanThomsen, the SEC’s director ofenforcement, said she had been “quitedismayed” at the nature of thecommission’s recent insider dealingactions.

The rules of the game in the financialmarkets are set up solely to benefit thefinanciers whether in London, NewYork or Hong Kong. Globalisationtoday appears to be run in the interestof big monied class which has westerngovernments in its thrall. As Will Huttonsays in Guardian: ”Interpol should makearrests in New York, London, Tokyo,Beijing, Frankfurt and Paris, startingwith all the executives in the credit-rating agencies who blithely ranked thedebt as creditworthy in exchange for fatfees and freebies from the very bankswho were making the absurd loans.Governments should bring suits againstthe executives involved, the repositoryof vast personal wealth, to help repairthe hole in private and public balancesheets.”

The problem is that all governmentsplay hostage to the big financiers andare reluctant to regulate them despitewarnings. It is naïve to suggest thatself-regulation can work in themarkets. In an interview to Wall StreetJournal, Eliot Spitzer, the muchdefamed former Attorney General ofNew York, said: “The honour code

Capital Markets as Instruments

of Social Inclusion

Capital markets are the besthuman innovation and our onlyhope to achieve our goal of anequitable society

played havoc in the global markets, itis the derivatives, a fast growingcategory of contracts whose value isderived from the underlying value ofbonds, stocks and currency futureswhich has shaken the public confidencein the rising stock market in India.According to a recent survey, Indiancompanies may have suffered $5 billionmark to market losses due to subprimeand derivative crises.

That all this should happen despitethe draconian Sarbanes Oxley Actpoints to the abyss reached by the free-market capitalism which displaysflagrant disregard of all norms ofcorporate governance practices and riskmanagement standards which SarbanesOxley Act was supposed to uphold.

Insider trading on Wall Street isstarting to look as troubling as it was in

Presidential address at the 19th IOD Foundation Day on 2 August 2008 in New Delhi, India


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among CEOs didn’t work. Boardoversight didn’t work. Self-regulationwas a failure”. Even a staunch defenderof free capital markets as JosephAckerman, Chief Executive ofDeutsche Bank says “ I no longerbelieve in the market’s self-healingpowers.”

Markets became jittery only becausefollowing the subprime lending crisisnobody knew who had lost what.Market valuation of CDOs (CollateralDebt Obligations and CLOs(Collateralized Loan Obligations) arepresumptive. The exposures are notobjectively validated. Banks behind thesubprime loans had sold the debt toother banks and specialized fundsknown as CLOs and hedge fundsexposing them to billions of dollars ofdebt when mortgages defaulted.

We need to question theperformance of the financial systemagainst the time honoured principles ofcorporate governance of accountability,equity, integrity, transparency andresponsibility.

The crucial question in thesefinancial failures is the lack ofaccountability. The system ofcompensation of bankers and operatorsin the financial system itself is flawed.According to Nouriel Roubini,Economics Professor at the New YorkUniversity’s Stern Business School, thecompensation system is a source ofmoral hazard in the form of gamblingfor redemption. He enumerates tenfundamental issues that led to the meltdown.

One of the arguments in favor of thismarket discipline approach is thatfinancial innovation is always one ormore steps ahead of regulation; thus,one needs to design a regime that doesnot rely on rigid rules that would killfinancial innovation. But experience hasshown that markets cannot be reliedupon in a world where bankers areimproperly compensated, where agencyproblems lead to poor monitoring of

lending, where a flawed transfer ofcredit risk to those least able tounderstand it and manage it occurred,and where regulatory arbitrage waswidespread and rampant. It is becauseof this that even Paul Volker; a doyenof central bankers commends tighterregulation in the interest of the industryitself.

The current securitisation model ispacked with greed, opacity andirresponsibility. It reduces the incentivefor the originator of the claims tomonitor the creditworthiness of theborrower. Every intermediary in thechain is interested only in its fee andeventually transfers the credit risk tothose least able to understand it andbear it.

The mortgage broker, the homeappraiser, the bank originating themortgages and repackaging them intoMBSs (Market Backed Securities), theinvestment bank repackaging the MBSsinto CDOs, CDOs of CDOs and evenCDO cubed, the credit rating agenciesgiving their AAA blessing to such toxicinstruments: each of theseintermediaries was earning income from

There are fundamental accountingissues on how to value securities,especially in periods of market volatilityand illiquidity when the fundamentallong term value of the asset differs fromits market price. The current “fair value”approach to valuation stresses the useof mark-to-market valuation where, asmuch as possible, market prices shouldbe used to value assets, whether theyare illiquid or not.

Financial markets have become lesstransparent and more opaque in manydifferent dimensions. The developmentof news exotic and illiquid financialinstruments that are hard to value andprice; the development of increasinglycomplex derivative instruments; the factthat many of these instruments tradeover the counter rather than in anexchange; the fact that there is littleinformation and disclosure about suchinstruments and who is holding them;the fact that many new financialinstitutions are opaque and with littleor no regulation (hedge funds, privateequity, SIV and other off-balance sheetspecial purpose vehicles) have allcontributed to a lack of financial markettransparency and increased opacity ofsuch markets.

The absolute lack of supervision onthe non-banking financial institutionslike Bear Stearns and hedge funds hasthe real cause of the havoc. By their verynature the banks borrow in the shortterm and in liquid ways whereas theylend in the long term and in illiquidways. There is therefore need for propertab on their lending.

Finally in a world of financialmobility, mobile capital, instanttransferability, globalization andfinancial intermediation, capital willalways have a tendency to move tomore lightly regulated shore. Reformsof financial regulation and supervisioncannot be effectively carried out onlyat the national level. Indeed, the recent

The compensation system is asource of moral hazard in theform of gambling for redemption.

In a world of financial mobility,mobile capital, instanttransferability, globalization andfinancial intermediation, capitalwill always have a tendency tomove to more lightly regulatedshore.

charging fees for their step of themortgage intermediation process andtransferring the credit risk down the lineto lay investors. In this maze of CDOsno one knew the level of risk at eachstage. Contd. P. 14


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Some risks are strategic in nature.Effective boards ensure that steps aretaken to identify major trends anddevelopments in the businessenvironment, assess their consequencesand determine the steps a companyshould take in response at local, businessunit and corporate levels. Other risksmay be tactical or an inherentconsequence of operating acrossnational borders or in a complex andregulated sector. Thus there could beforeign exchange or miss-selling risks.

Traditional Approaches to Avoid-ing Risks

Many traditional approaches to riskmanagement have involved layers ofchecks, reviews and approvals whichcan increase costs and result in delays.Nervous directors who are conscious ofthe risks of being sued limit localdiscretion and require various mattersto be referred to senior and/or headoffice staff for approval.

Reviews are built into businessprocesses. A major bid may be subjectedto a succession of reviews coveringwhether or not to bid, technical issues,and commercial and quality risks. Theneed to bring people together for reviewmeetings can significantly extend thetime required to submit a proposal. Bidteam members can spend more timesatisfying internal hurdles than theydevote to meeting the requirements ofprospects.

*Prof. Colin Coulson-Thomas

The delays and overhead costs andthe inhibition of entrepreneurial spiritthat can result in a risk averse andstagnant corporate culture.Opportunities are lost – particularly forbespoke responses to individualrequirements - because directors andsenior management are afraid to let goand trust their colleagues to do whatthey feel is right for their customers.

A New Approach to AvoidingRisks

Yet there are alternative approachesand new and much more effective waysof avoiding risks. Pioneering companiesare building controls into the processesand support tools used by keyworkgroups. Quite simply those usingthe latest generation of support tools –for example to design a bespokesolution for a particular customer –cannot generate a proposal that wouldinvolve items of equipment that are notcompatible or the breach of a regulatoryrequirement.

In this paper we will examine someexamples of what particular boards andleading companies are doing to avoidtechnical, commercial, regulatory andrelationship risks in activities such asdeveloping and costing bespokesolutions, preparing proposals and salesand marketing materials, purchasing etc.They all involve the use of support toolsthat make it very easy for a particularand important work group to do adifficult job. A central feature of the

approach is to build controls into theprocesses and tools used to do difficultjobs so that areas of risk are addressedbefore outputs can be produced.

Support tools can also be used toidentify areas of risk, help people toassess them and direct them to sourcesof specialist expertise as and whenfurther help is required. A good exampleis PROMPT-RPS a support tooldeveloped by Cotoco(www.cotoco.com) for the riskmanagement practices of AIG Europe,Clifford Chance, Dames & Moore,Deloitte & Touche, Hill and Knowlton,and Kroll Associates (Coulson-Thomas,2007b, pp 128-129).

The core risk management expertiseof the six firms was assembled in theform of a diagnostic toolkit that peoplecould use to carry out an initial riskassessment. The tool enabled people tocarry out an initial risk assessment. Itprovided an overview of the major areasof corporate risk – from finance toreputation – and enabled users tocapture basic information about theirsituation and identify when and wherethey required specialist counsel.

A tool such as PROMPT-RPS canbe distributed via a website or by directmailing a CD-ROM disc to a targetgroup. Its focus can be upon a problemthat recipients are either known or likelyto have. Self-assessment checklists canbe included for completion by either therecipient or colleagues to whom they are

STRATEGIES FOR RISK MITIGATION


8

emailed. Explanations can be providedwhere appropriate. Once an initialreview has been completed the resultscan be emailed to the expert sources ofadvice the tool suggests for tacklingwhatever problems have beenidentified.

The recipient of a completed reviewcan quickly check that an enquirer hasfollowed a suggested process. If this hashappened, any subsequent relationshipcan be built upon the overview obtainedand the understanding gained during theself-assessment process. The expert willnot need to spend time collecting basicinformation and may be able to avoid aniterative process to determine whether ornot there is an issue to address and inwhat area. Use of such a tool can providecompliance teams with evidence thatrisks have been identified, assessed andaddressed and that appropriate processesare both in place and used.

For many companies, for examplethose offering a large number ofproducts supplied by other parties,ensuring bought in items satisfy qualityrequirements can be an expensiveprocess in view of the risks involved incases of non-compliance. B & Q hasused a support tool which makes it mucheasier for external suppliers tounderstand and meet its quality criteria.Use of the tool has enabled it to bothincrease and speed up the flow of newproducts to its stores.

The use of a new generation ofsupport tools by pioneering companiesto increase understanding of complexissues, boost the productivity of keyworkgroups and make it easy for peopleto do difficult jobs (Coulson-Thomas,2002, 2003 & 2007b) has significantimplications for directors and boardsthat are keen to reduce risk as well asincrease performance. Let us examinethe approach being adopted andconsider some further examples,particularly those involving front linegroups dealing with customers andprospects where the penalties for non-compliance can be high, particularly inregulated sectors.

Applying A New Approach to Cus-tomer Facing Roles

Many companies initiate grandiosetraining and knowledge managementinitiatives but do little to help importantworkgroups improve their performance(Coulson-Thomas, 1999 & 2003).Putting information on an Intranet orrunning a course is not enough –especially when significant risks areinvolved. The expertise to do somethingbetter, new or different may requireadditional skills and tools, as well asaccess to relevant knowledge.Successful companies take practicalsteps to enable their people to competeand win.

Improved sales of existing productsand more successful product launchesare the ambition of every board.Practical knowledge-based job supporttools can help achieve this aim andreduce the risks of miss-selling. Theycan incorporate critical success factorsand how high performers operate,capture and spread best practice, andimprove product and marketknowledge. They can also monitor andcollect the evidence needed forcompliance purposes.

Many sales teams are beingpressured to win more orders. Withcompetitors snapping at their heels andcustomers demanding more bespokeresponses, prices and margins are underthreat. No wonder sales staff turnoveris sometimes so high. With the extrapressure comes the risk of someindividuals cutting corners.

While superstars achieve theirtargets, many average performers relyincreasingly upon specialist support.Some ignore regulatory requirements,make errors when pricing, or leave outstandard clauses from proposals. Theyalso struggle to explain what is specialand distinctive about their offerings.

Eyretel whose products recordedand analysed telephone calls found itsgrowth limited by the speed with whichit could recruit, induct and train newsales representatives and bring existing

staff up to speed with new offerings.Cotoco, a supplier of bespoke supporttools, developed a laptop based toolkitwith animations to explain Eyretel’svoice recording solution, multimediatours of its software, slide presentations,price and cost justification calculators,and report generators.

Users of the tool are taken througha list of questions and can only proceedif responses entered satisfy therequirements for avoiding certain formsof risk. For example, if an attempt weremade to incorporate into a suggestedsolution two items of equipment thatcannot operate together a red traffic lightwould appear. Tools can be designed sothat windows open to explain why a redlight has appeared. In addition toavoiding risks users of tools can alsolearn from them. In relation toimproving performance the tooldeveloped for Eyretel made such animpact on increasing sales and reducingsales costs that the company won aneBusiness Innovation Award.

Sales support packages developedfor 3Com, Cisco, Dana, ICB and TheInnovation Group have includedinteractive presentations,demonstrations of products in operation,decision trees to assist account planning,and tools for developing and pricingsolutions. Job support tools can usewhatever formats - from text andgraphics to animations, visual imagesand video and audio material - best helpunderstanding. Thus areas of risk couldbe explained.

The development and launch of anew product can be a relatively highrisk undertaking. Support tools areparticularly suited to the launch of newproducts. A single repository like K-frame (www.k-frame.com) can hold allthe information and knowledgeneeded. Technical details can bequickly communicated to groups invarious locations around the world.Animations and video footage can beused to show offerings in use, andsecrecy can be maintained until themoment of release.


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The Innovation Group has usedsupport tools to launch a new LocalAuthority operating system and roll outits project management methodology.3Com has employed a similar tool tointroduce network products to bothdirect and indirect channels. Simplyincreasing understanding can itselfreduce risk, quite independently of thecontrols that can be built into supporttools.

Advantages of a New Tools BasedApproach

A sales support package can gathertogether the critical information,knowledge and tools a sales personneeds. It can incorporate ‘best practice’and the approaches used by ‘superstars’as well as key success factors forwinning business identified by thewinning business research programmeled by the author. It can also ensure salespeople focus on value and benefits tothe customer rather than productfeatures.

Even with complex products toolscan be used to assess customerrequirements and configure and pricesolutions. The automation and checkingof calculations can reduce commercialrisks. Multimedia capabilities usuallyenhance the portrayal of corporatecredentials and capabilities, whileanimations can bring technology to life.ICB uses its ‘Navigator’ sales supporttool to build product knowledge andcommunicate with customers.

Support tools can automate routinetasks and provide support for everystage of the sales process fromprospecting and qualification tonegotiation meetings. Commercial,quality and regulatory checks can bebuilt in. A library of backgroundinformation can help users to answercustomers’ questions on the spot.Marketing materials can includetemplates, case studies, testimonials andindependent endorsements, competitoranalysis, and industry and marketknowledge.

Seamless links can be provided toweb sites and on-line applications. Indynamic situations there is a risk thatpeople may operate and take decisionson the basis of out-of-date information.Support tools can be designed so thatthey are automatically updatedwhenever users go online. Feedbackmechanisms can gather informationfrom the field.

Tools can help sales people identifycross-selling and upgrade opportunitiesand create bespoke solutions. In thelatter area the existence of built incontrols can allow senior managers anddirectors to ‘let go’ and trust users toaddress the particular requirements ofindividual customers and prospects.

Support tools can also ensureconsistent application of best salespractice and a high standard ofproposals. They can be constructed toautomatically generate high qualityproposals that contain all the clausesrequired to mitigate known areas oflegal risk. Marked improvements inproduct and market knowledge canoccur. Other benefits include fewererrors, higher win rates, greatercustomer retention, less support staff,increased order value, and lower saleforce churn.

Refining the sales process andmaking it easy for people to follow canincrease sales. Better prospecting andimproved qualification can focus efforton the most productive accounts. Newstaff can be inducted more quickly.

Prospects can use tools to discovernew options that better meet their needs.When operating it themselves somecustomers order more than they wouldwith a sales representative present. Theyfeel in control and can explorealternatives in their own time.Automated calculations enable them toquickly assess the consequences ofdifferent approaches.

Sales support tools can be used tosecure control over an indirect salesprocess. Consistent messages can be

delivered to market. Training costs canbe slashed by ensuring material is easyto learn and use, and instantlyaccessible. Reliance upon specialist staffcan be reduced considerably.

Friends Provident uses a salesdevelopment support toolkit called THEMARKiT to assist staff running localmarketing campaigns. The businessobjective was to deliver an interactivetoolkit that would help sales managersand their teams respond to requests formail shots, local ads, posters and otherlead generation material. Prior to its usesales materials such as advertisementsand fliers had to be checked by the headoffice compliance team to ensure thatclauses required by law were included.Because of controls built in, users of thetool are unable to produce outputs thatdo not include what is required. The riskof miss-selling which can lead tofinancial penalties is therefore reduced.

Support tools allow managers tomaintain quality and avoid risks whendelegating responsibilities. Theautomation of routine tasks frees up timefor the greater differentiation andtailoring that may enable a pricepremium to be charged. Sometimes lessexperienced and qualified staff can beused.

Learning through doing isparticularly effective. Buildingknowledge into tools makes it very easyfor people to get complex tasks rightfirst time and every time. Using themcan be a differentiator. A systematic andcustomer focused approach enhances asupplier’s reputation and helps to buildrelationships.

Users of support tools reportsignificant increases in productivity andthe ease with which best practice canbe spread. Quick paybacks of the costof developing them can be achieved.Returns on investment of 20:1 or morecan invariably be obtained. Forexample, an analysis of just a smallproportion of the users of one supporttool developed for Cisco Systemsrevealed a 38 times return on its cost


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during the first six months of use (Burr,P, 2007).

Eyretel’s tool helped both its ownpeople and customers to betterunderstand its technology and products.Users felt so confident in the presenceof customers that the ratio of support tosales staff was cut by a third. Win ratesincreased, orders were brought forwardand more professional presentationsdelivered.

Lessons to be Learned from theExperiences of Pioneers

There are certain lessons to learnfrom the experience of support toolpioneers (Coulson-Thomas, 2003 &2007b). Avoid using tools that de-skill.Tools should help people to learn.Cisco’s IP Telephony Sales Tool up-skills people working in its direct andindirect sales channels. As users workthrough prospect qualification and othertools windows open up to explain whycertain courses of action are advocated.People learn from each use.

Ease of use is critical to success. Thetoolkits mentioned have all beendeveloped by Cotoco. The company’sdesigners ensure they are simple to useand capable of processing a largequantity of material in an interactive anduser-friendly fashion, whilst also being

flexible enough to cater for additionalinformation to be added as requiredquickly and easily. To encourage takeup and change behaviour support toolsshould provide the easiest way toaccomplish desired outcomes.

Gartner research suggests the key tosuccess is to improve a process beforeautomating it (Thompson and Eisenfeld,2000a & b). Building critical successfactors into tools and incorporating theinsights of superstar performers is morelikely to get outstanding results thanautomating current practices. Content iscritical. Existing approaches should bereviewed. Building in controls can allowuseful short cuts and how high achieversoperate to be included.

Friends Provident considered paper-based guides. However thoseresponsible recognised that thesedocuments could very easily becomeshelf-fillers, gathering dust and rarelyused. The company had a huge libraryof available materials. The challengewas finding how to present it in the mostuser-friendly way.

Where support tools have been usedthe best results are usually achievedwith relatively homogenous groups ofpeople undertaking similar tasks. Avoidfixed and inflexible tools in areas

undergoing rapid change, unlessarrangements are made for continuingreview and regular updating. Ongoingmaintenance can greatly increase atool’s shelf life.

Once support requirements havebeen agreed rapid progress can usuallybe made. Even complex tools can bedeveloped and tested within a fewweeks of a go ahead. The introductionof a new tool needs to be carefullyplanned if people are to obtain themaximum of benefit from it. Putting aCD-Rom disc into the post is notenough. Make sure people understandthe significance of what is provided.

Gartner’s research found thatsuccessful projects need clear goals,management commitment, a soundprocess and sales force buy in(Thompson and Eisenfeld, 2000a & b).In the case of the Friends Provident toolthere was close liaison between the fieldand the company’s IT, compliance anddesign departments. Directors who areconcerned to reduce risks in complexand customer facing operations shouldexplore the opportunities for buildingways of avoiding risks into appropriatesupport tools. The new approaches thatare being pioneered can both reduce thecost of compliance and increaseperformance.

References

Banks, E (2004), Corporate Governance: financial responsibility, controls and ethics, Palgrave Macmillan, BasingstokeBruce, M (2006), Rights and Duties of Directors (8th edition), Tottel, Haywards HeathBurr, P (2007), An evaluation study compiled for Cisco Systems, Cotoco, SouthamptonChambers, A (2002), Corporate Governance Handbook, Butterworths Tolley, LondonCoulson-Thomas, C (1999), Developing a Corporate Learning Strategy, Policy Publications, BedfordCoulson-Thomas, C (2002), Transforming the Company, Manage Change, Compete and Win, Kogan Page, LondonCoulson-Thomas, C (2003), The Knowledge Entrepreneur, Kogan Page, LondonCoulson-Thomas, C (2007a), Developing Directors, Policy Publications, Water Newton, PeterboroughCoulson-Thomas, C (2007b), Winning Companies; Winning People, Policy Publications, Water Newton, PeterboroughMallin, C (2004), Corporate Governance Textbook, Oxford University Press, OxfordSouster, P (2002), Directors – responsibilities and liabilities (5th edition), Croner, Kingston-upon-ThamesThompson, E and Eisenfeld, B (2000a), Top 10 Management Failings in Sales Technology Rollouts, Research Note, 3 November, Gartner Group, Egham,SurreyThompson, E and Eisenfeld, B (2000b), Top 10 Technology Failings in Sales Technology Rollouts, Research Note, 21 November, Gartner Group, Egham,Surrey

*Colin Coulson-Thomas, author of ‘Developing Directors, a handbook for building an effective boardroom team’ and ‘Winning Companies; WinningPeople’ (both Policy Publications, 2007) is an experienced chairman of award winning companies and Professor of Direction and Leadership at theUniversity of Lincoln. He has advised over 100 boards on director, board and/or business development.


11

Social Innovation and

ResponsibilityOut of a deep concern for social

responsibility and involvement in non-profit work for years, I consider it anobligation to advocate social innovationor social responsibility for all citizensespecially heads of businesses. It is acharacteristic of advanced countries forthe business sector to financially supportcivil society and provide citizens with theexpertise and confidence required.

Money is not everything civil societyneeds; as far as money is concerned,NGOs receive money mostly frominternational organizations andsometimes from the government. SocialResponsibility means that business menand women feel that they have aresponsibility towards society in waysthat make them care for their society inaddition to establishing organizationsserving their own interests. Such a feelingof commitment prevents them frominflicting any damage to the surroundingenvironment caused by industrialemissions and drives them do their bestto develop and support the manpowerworking for them. They also develop andsupport the civil sector and differentNGOs that has the technical expertise indevelopment.

I want to start a dialogue on how tohelp and encourage the business sectorto change its perception of socialresponsibility from mere benevolence or'Zakat', which is a religious obligation,to a national duty. In fact, business menand women working in different fieldshave done splendid efforts such asdeveloping schools, establishing newones, and building hospitals. We wantthese efforts to continue and aspire to seereal institutions funding projects ofdifferent organizations not only theprojects that serve their own interests.

*Dr Iman Bibars

Plenty of international companies,banks and cellular-phone-servicecompanies have adopted the concept ofsocial responsibility and supportingdevelopment projects, which is verypromising. It is very strange that mediaoutlets refuse to mention the names ofthe companies supporting social workout of a belief that highlighting thesenames is a way of making PublicRelations on their behalf. We owe a lotof Egyptian companies much becausethey have supported us repeatedly in the

that is new and different only because itis new. For instance, in a TV seriesentitled, “A Poor Rich Man,” the seriousand patriotic star, Mohamed Subhi, saysthat business people use socialcontributions to hide a great deal ofcorruption. I wish this concept does notspread, and I hope that the media wouldemphasize the bright side and encouragethe business sector to play a role inmodernizing and developing Egypt byciting the names of active and patrioticbusiness people instead of highlightingthe names of those indicted even prior toa court decision. If anything, it is thepublic interest that is injured by suchneglect.

There are obviously corrupt elementsor business people with political goals.However, these are few, but the mediadoes not highlight the serious ones andcast light on the corrupt ones. This is whywe only see the bad side.

To conclude, I suggest reconsideringthe new tax law in a way that allowsbusiness people to enjoy greater tax reliefif they prove to be funding developmentprojects. All over the world, donationsare discounted from taxes, not only forbusiness people but also for the regularcitizen, and they could reach 25 percent.In Egypt, it does not exceed 7 percenteven though the state is calling for socialresponsibility and the “new socialcontract.”

Henceforth, I call for spreading andadvocating social innovation or socialresponsibility and stopping those whohighlight only the negative side so thatwe don't lose those business people andtheir contributions. Government ordersand rules are not the sole source ofdevelopment. All of us should voluntarilycontribute to it.

*Dr(Ms) Iman Bibars is Chairperson of the Association for the Development and the Enhancement of Women and an International Expert in Gender andDevelopment Studies in Egypt

Viewpoint

"Business people use socialcontributions to hide a great dealof corruption"

medical convoys to Misr Al Qadima thatserved more than three thousandEgyptian families. Other companieshave helped us develop more than elevenschools in Misr Al Qadima and fiveschools in Gharbiya governorate andplenty of other projects. Despite all that,their names are not even mentioned inthe media! Why don’t we reward thosefor helping society? Why don’t we keepa profile of everything these companieshave done to society? Bringing up theirnames in the media would refresh thecitizens’ confidence in their country onthe one hand and their confidence in thebusiness sector that has been under wideattack on the other. Accordingly, I believewe should encourage them instead ofmaking hasty charges, and the mediawould play a prominent role in thisregards. In fact, many of them contributeto development projects that have directimpact on the masses.

What is worse, I noticed that mediaoutlets are being so cynical towards all


12

Introduction

The regional integration process ison top of the agenda of both theEuropean Union and the SouthernAfrican Development Communitymember countries. The EU is seen insome quarters to be pushing an agendawhich will leave most countries in theSADC Region poorer in that they willnot be able to sustain competition oncetheir economies are open to countrieswell equipped with resources andadvanced technology. Besides the EU isseen to be using a divide and ruletechnique in that it segregates the regionas it goes about negotiating theEconomic Partnership Agreements.

On the other hand, in opinion ofSouth Africa Minister of Finance, TrevorManuel the region’s integration comesas a need not only to remove tradebarriers but also to harmonize economicactivities in the region especially,because you have countries belongingto more than one trade blocks in thecontinent; these include the CommonMarket for Eastern and Southern Africa-COMESA and the Southern AfricanCustom Union-SACU.

This paper looks at how CorporateGovernance will influence or beinfluenced by this integration, taking inconsideration the economic imbalanceswithin the region and Zimbabwe’s

crises. As Corporate Governance inAfrica is often appreciated on the pointof view of the Republic of South Africa,the paper explores the subject at a pointof view of one of the countries ratedpoorest, but with a fast growingeconomy-Mozambique.

Background of economic partner-ship agreements

According to the EU Publication onEU-SADC, Economic PartnershipAgreements, the negotiations on EPAsbetween the EU and the 77 ACPcountries started in Brussels inSeptember 2002. These continued untilthe ACP-EU interministerial meeting ofOctober 2003, in which the ministersapproved the joint report which markedthe beginning of regional EPAnegotiations. On the other hand EPAnegotiations between the EU and somemembers of SADC started on 8 July2004 in Namibia. It is important to notethat not all the SADC member countriesare part of the negotiations, while SouthAfrica is negotiating a differentagreement on its own.

The EU points at various benefitswhich will come with the opening upof the regions economies and theseinclude better access to the market, clearand transparent trade rules, stablebusiness activities and growth incommercial services. The EU also sees

the agreements as capable ofaccelerating regional integration whichis aimed at allowing freedom of tradewithin the SADC member countries.Above all to the EU the EPA willenhance investment in the region.

On the other hand, concerns havebeen raised over EPA especially bymembers of the civil society in thesedeveloping countries. ‘STOP EPA’groups emerged pointing out dangers ofthese agreements. In the centre of theirarguments are; retardation of theregional integration process, in thatthere would be stiff competitionamongst the SADC countriesthemselves when you have majorimbalances in economic muscles.Another point focused is the fact thatEU chose to negotiate with the regionalblocks who themselves are weak andpoor. Therefore the EU is perceived tobe creating an environment where byAfrica will be a perpetual supplier ofraw material and importer of finishedgoods and services.

Regional integration

Regional integration is the processthrough which the SADC membercountries are endeavoring to harmonizetheir tax regimes or systems and levelthe trading grounds. Within the sameregion with an agenda to developtogether, you find trading segregations

CORPORATE GOVERNANCE IN

SOUTHERN AFRICA

An analysis of Corporate Governance Processes,

Inequalities in the Region and their Implication to the

Integration Process *Afonso Anderson Mondlane


13

in the form of SACU and COMESAwhere some of the SADC membercountries belong in neither of them,while others belong in one or both.Integration is set to review the region’stax regime from 2008 resulting in a freeflow of goods by 2015.

Corporate governance challenges

It is a fact not to be debated that anytrade agreement or tax regime reformin the region is directly linked to howinstitutions are directed and controlled,or as Head of Global CorporateGovernance Forum, Philip Armstrongputs it ‘who controls what for whosebenefit?’. In short there is a greatcorporate governance challenge aheadof the SADC member countries in thedawn of the integration process and theEPAs.

While the history of contemporarycorporate governance could in mostcountries be traced from about 15 yearsago, some countries in the region wouldstill be in their first year or year zero.South Africa for example with aglobally recognized corporategovernance code is seen as a countrywith all it takes to compete in an openregional economy.

On the other hand you havecountries like Angola in which thesubject is not yet an issue for debate.While the debate is going on inMozambique, it will take some time forthe concept to be consolidated. In factthe challenges in these two countries isthat the concept does not easily translateto Portuguese and any attempt to do soresults in bringing Brazil Portuguese‘Governance Corporativa’ which is notfavoured by some academicians orprofessionals.

It is worth noting that these countrieshave no codes on corporate governanceand there are yet no sign at least to havethem in the next 2 years, when theirnational companies would be expectedto trade with companies from wellstructured systems of corporate

governance. The situation is even worsefor countries like Democratic Republicof Congo which has just had its firstdemocratic elections. In such situationstatements like, ‘we do things our ownway are common’ but will this stand thetest of integration?

In turn, within the region you havesmall economies like Swaziland andLesotho. These with both Botswana andNamibia who are also members of theSouth African Custom Union, are seento be heavily dependent on SouthAfrica. As most of the major companiesin these countries are branches ofcompanies in South Africa, they oftenbring with them the corporategovernance tendencies in South Africa.This however, does not have muchimpact on national companies as theyhave no national codes binding them.In these economies again the stock

Robert Mugabe, still talks aboutnationalization of the private sector.This arrogant attitude of course willundermine the whole process. Whencountries should be focusing instrengthening their systems they haveto turn their efforts in trying to resolvethe Zimbabwe crisis.

One can wish that Zimbabwe be leftalone, but the fact is she is part andparcel of the SADC region, and will notbe excluded from the integrationprocess. At the same time both theeconomy and corporate governancehave deteriorated over ages andcontinues to deteriorate in that country.The great challenge here is thatZimbabwe will be freely trading withits SADC counterparts while sufferingsanctions from EU, but EU in turn willbe trading well with Zimbabwecounterparts.

Triple bottom line challenges

In their governance, institutions arechallenged to meet the triple bottomline. Gone are the days when companiesbelieved that they existed to maximizeprofits gain and again. Sustainabledevelopment and environmentalconcerns are boardroom matters now.This is evident in the King II Report onCorporate Governance (South Africa),but to countries where nothing much ishappening this seem to be of norelevance. This is coupled with thesituation where by the enforcement oflaws in most of the SADC countriesleave a lot to be desired. This leaves thecountries at the mercy of good corporatecitizens, and in situations where thecompanies and their directors areunscrupulous, the economies aredepleted.

Again in an unbalanced region,where you have countries with a strongcivil society on one hand, and otherswith a toothless civil society on the otherhand, mitigating issues of degradationof environment and social impactscaused by economic activities will bechallenging. Companies are expected to

Environment as having fourdimensions which are bio-physical, social, economical andpolitical. Both the biophysical andsocial environments have in thepast been subjected todegradation by corporateactivities in their quest forcreating wealth.

markets which could be sort ofenforcement agents of standards are notvisible.

Though privatization has swepteconomies of almost all the countriesin the region, since the last 15 years,government linked companies stillconstitute a major part of the privatesectors of most of the countries. Thistakes us into another dimension ofcorporate governance, where politicalinfluence is unlikely to be avoided andit puts in danger directors independenceand independent mindedness. Thesituation is tough in Zimbabwe whereat this stage of the processes President


14

trade at an equal level and playing thegames according to the sustainabilityrules. Of course sustainability is seenin both terms of profits andenvironment. Rhodes UniversityProfessor Rob O‘Donoghue sees theenvironment as having four dimensionswhich are bio-physical, social,economical and political. Both thebiophysical and social environmentshave in the past been subjected todegradation by corporate activities intheir quest for creating wealth. Mostcountries in the SADC Region havebeen victims of mining activities whichleft them with open and dangerous holesand dongas. Most rivers which oncewere a source of food for mostcommunities can no longer be used forconsumption.

Companies and other laws

Corporate Governance recognizesthat it has as its base the law in generaland Companies’ Act in particular,independent of what it is called in thedifferent countries. Again, in this areathe region is faced with severalchallenges. We still have countrieswhich are using colonial laws such asthe Companies Act of 1912.

While this will have some basic ofwhat is required for compliance bycompanies, surely the environmenttoday has changed from what used tobe and companies here will surely betaken advantage of by their counter partsfrom the EU and other countries in the

*Afonso Anderson Mondlane, a lecturer in the Rhodes University, is currently the promoter of theInstitute of Directors of Mozambique-IoDmz and has trained senior officials from most Africancountries on Corporate Governance and Sustainable Development. He regularly contributed to anumber of news papers and journals. Afonso has participated in many conferences as both delegateand speaker.

Recommendations

1. Countries in the SADC Region should be analyzed individually yet recognizing that they shouldmove as a block

2. Corporate Governance should be in the centre of the EPA and the integration process and theEU should commit itself to helping uplifting Corporate Governance standards in the region

3. The EU should consider going to the other countries which were left out of the EPA negotiationsas without them the SADC block is not complete

4. Zimbabwe issue should not be ignored.

US debate on reforming capitalmarkets was driven – before the currentmarket turmoil – by the concerns thata tighter regulatory approach in theU.S. (say the Sarbanes-Oxleylegislation) was leading to acompetitive slippage of New Yorkrelative to London in the provision offinancial services. There is therefore a

A need to encourage cross-national fora and develop a globalfinancial monitoring system forstronger coordination to avoid arace to the bottom of financialregulation.

Contd. from P. 5

need to encourage cross-national foraand develop a global financialmonitoring system for strongercoordination to avoid a race to thebottom of financial regulation.

At the heart of the matter is whetherthe corporate governanceinfrastructure, built over the decadesto provide checks and balances to evermore powerful chief executives, hasbeen exposed as woefully inadequateby recent events. Where exactly werethe boards & the independent directorsof financial giants such as Citibank,Bear Stearn, Freddie Mac, Fanny Mae,Merryl Lynch, Lehman Brothers &Morgan Stanley etc when all this washappening? This is the question beingincreasingly asked by shareholders andemployees and the public at largewhose lives have been destroyed bythese market manipulatorsis. We aretasked today to find out the answers,not only for improving the quality ofcapital markets but also to ensureworld security.

*Dr Madhav Mehra is President of WorldCouncil of Corporate Governance, andPresident of World Environment Foundation,based in UK.

region. Other countries which have donesome reforms in their Companies Actmay not have brought issues ofcorporate governance when debating asthis was never one of the subjects ondebate in the country. Besides theCompanies’ Act, corporations areexpected to comply with other laws suchas environmental and insider trading.These in most of the region’s countriesneed yet to be reformed.

Summary

Let me conclude by saying that evenat this late stage, the integration processand the EPA should see corporategovernance as inherent to the wholeprocess. The core aspects of corporategovernance include compliance, ethicsand strategy. Companies should be ableto comply with the various legislationsnot only in the SADC countries but alsothe EU countries. Companies are alsoexpected to exhibit a high standard ofbehaviour and be in a position tostrategically match any company in anypart of the world.

The King Committee on CorporateGovernance identified what it termedthe pillars of corporate governance andthese are: transparency, accountability,responsibility, independency, fairness,discipline and social responsibility.These need to be inculcated in all thecompanies and directors within theSADC region. Above all participatorylearning should be one of the key itemsin boardroom debates.


15

Introduction

We are living in an information age.Information in all it’s forms is handledlike a hot resource. It is the competitiveadvantage that an entity has over others.Increasingly it is becoming a regulatoryrequirement as well. As informationtakes myriad forms and becomes allpervading, and the world gets ever moreconnected, the risks associated with thisinformation handling multiply manifold.All this information brings with itenormous risks in terms of maintainingthe confidentiality, integrity andavailability of the data, as well as abilityto recover in case of any disaster.

How does one manage risksassociated with handling all thisinformation? What are the organizationsthat have been in this area in these earlyyears doing? Different organizations /industries may deploy differenttechniques for managing the risks. Thispaper talks about the risks managementfrom an IT organization perspective, andthe lessons learnt.

Background

This is truly the age of information.Information pervades all aspects of ourlives. And this is not just restricted toorganizations handling information as aresource like IT, but any business worthit’s salt handles information in it’s myriadforms. From paper to Paper-less, all

organizations handle information be itpertaining to Customers, Orders,Employees, Products or any thing else.Information provides the competitiveedge.

With the world getting more andmore connected, the informationrepositories have become exposed to therisks of sharing. With LAN, WAN andInternet connecting the world like notime before, the risks to the informationwere never greater. The Wi-fi and Wi-Max’s of the world have made thesharing both easier as well as riskier.

Employees increasingly oweallegiance to their profession and not tothe organization they work in. As thebusiness models change, there is moreoutsourcing of tasks that were earlierdone in-house. These inadvertentlyincrease the people based risk. As per arecent survey, 59% of security risksemanate from within the organization byemployees or others who are legallywithin the organizational LAN.

How does one protect one’sinformation in such a scenario? Withpeople, process and technologyconstantly throwing up issues, noinformation is safe. With daily newthreats coming up, how does oneminimize the risk to one’s business andcontrol the damage? How does oneensure business continuity?

As networks and applications growin complexity and security threatsbecome more prominent andincreasingly sophisticated, perimetersecurity is no longer regarded sufficient.There is a need to have layered securityto ensure in-depth defense.

For an IT company, whereinformation is a key resource, ensuringthe confidentiality, integrity andavailability of information is even moreimportant. As the world moves fromProduct to Service, even a minor lossto business can result in the businessclosing down. Who can forget thenumber of IT companies operating fromWorld Trade Tower filing forbankruptcy after 9/11 because they hadno disaster recovery plan in place?Kingfisher airlines was duped of $3.8million in online fraud. Anotherexample is fraudulent transfer of$400,000 from Citibank customeraccounts to bogus accounts in India bya BPO employee. Recently there was acase of a major SW Company declaringthat they expect losses of Rs. 80 croresdue to some unauthorized transactionsdone by one of their senior employees.Last year during heavy rains in Mumbai,all Servers of a major Oil company wentdown, as a result of which Petrocardsfor filing Petrol across India didn’twork. These are no stray cases. Virusattacks, Website hackings, Phishingwhere the organization is fraudulently

Managing Information Security –

An IT ExperienceDr. Anuraag Awasthi & Mrs. Sunita Chauhan

“Security is like oxygen; when you have it, you take it for granted but when youdon’t, getting it becomes the immediate and pressing priority”Joseph Nye, Harvard University


16

represented as a sender, Spyware attacks,key logging, IM, peer-to-peer, blendedthreats, threats of customer / employeedata, insider abuse of Net access, instantmessaging misuse, unauthorized accessto information, financial fraud, sabotage– the list is endless.

How does one manage these risks?How does one minimize the loss tobusiness due to unavailability of anyinformation processing facility. Todaythere are so many interfaces to anorganization – partners, vendors,customers, employees, support staff,contract workers, auditors etc. Any ofthese is a potential risk. Similarly,facilities like a Power Supply,Communication link etc. can becomea risk to business by being unavailable.Any Housekeeping person who accessthe facility at odd hours can lead topilferage of important information.Photocopier, Concierge, Transport,Canteen supplier, even Securitypersonnel can pose a threat to business.

Telecommuting work culture alsoposes significant security risks such asdata loss or leakage. With PDAs, Black-berrys, laptops and other wireless dataaccess means freely available, datasecurity is emerging as a key area ofconcern for Indian enterprises asincreasingly mobile employees arecarrying confidential company data intheir laptops, handhelds or PDAs.

In the recent times, regulators havealso come in the picture. Regulatorybodies like RBI, SEBI, BASEL II, PCIetc have laid down guidelines especiallyin the areas of Banking and Financialindustry. Growth of data centres acrosscities and growing outsourcing contractsalso require integration of InformationSecurity in outsourcing agreements.

All the above reasons justify the needto have a comprehensive and robustinformation security framework. It canmean the difference between success andfailure.

Information Security

This is the age of information.Information is power. Information is

competitive advantage. Information isrisk. Information needs security.

Information Security consists of allthe activities we perform to protect theimportant information assets from lossof confidentiality or integrity orunavailability. This also covers theequipment on which these reside and thepeople who are critical for running thebusiness from business continuity pointof view.

Information resides in the form ofInformation Assets, which are sprinkledacross the organization. TheseInformation Assets include not just thePaper documents, computer files,databases, emails, photographs, websitesetc. but also all the elements, whichensure their integrity, confidentiality andavailability of these. This includesPeople, Facility, Databases and ITinfrastructure, which ensure access toinformation, Processes, Facility,Electricity availability, Backups etc. Theinformation itself can be of any type –Employee related, customer related, IPR,financial records, Product designs, emaillists, telephone numbers, Salesinformation, Business knowledge,competitor information etc. - virtuallyany information whose unavailability /loss of integrity or unauthorized accessmay harm the interests of theorganization. The list is endless. Everyorganization needs to identifyinformation and assets which are criticalfrom business point of view and whosecompromise and unavailability may leadto business risk.

These Assets, which are critical frombusiness point of view, need to beprotected. Also, the organization needsto ensure business continuity in the eventof a disaster. Thus disaster recovery (DR)is also a part of information securitymanagement.

Risk Management

Central to the implementation of anyinformation security system is theconcept of risk management. Riskmanagement contains all the coordinatedactivities, which an organizationperforms to manage and control risk.

The traditional steps in riskmanagement are :

Risk assessmentRisk treatmentRisk acceptanceRisk communication

Risk Assessment :

Risk assessment involvesidentification of the assets, threats andvulnerabilities and estimating the levelof risk – estimating the probability of anevent occurring and the magnitude ofeffects if the event does occur. Riskassessment lies at the heart of riskmanagement, because it assists inproviding the information required torespond to a potential risk.

Risk Assessment consists offollowing steps :

Identification and valuation ofassetsIdentification of securityrequirements, i.e. threats,vulnerabilities, legal and businessrequirementsRisk analysis (Likelihood of threats& vulnerabilities to occur &importance of legal, businessrequirements)Risk evaluation - compare theestimated risk against the riskcriteria to determine thesignificance of risk

An Asset is something that has“value”. Possible Information assets ofan organization are :

business dataemployee informationresearch recordsprice liststender documents

As per Webster’s a Risk is thepossibility of incurring misfortune, loss,injury, disadvantage or destruction. It isany event that affects business objectives’accomplishment. Something is at risk ifit is vulnerable or likely to be lost ordamaged. Risk has followingcharacteristics associated with it :

Uncertainty i.e. the probability thatit may happen, andLoss – extent of loss in the event ofrisk becoming a reality


17

Vulnerabilities are potentialweakness that can cause a threat to occur.In itself, a vulnerability does not causeharm - it is merely a set of conditionsthat may cause a threat to materialize.For example, absence of Security guardsis a vulnerability; absence of firedetection system is a vulnerability.

A Threat is a declaration of intent tocause harm. A threat may be intentionalor unintentional, man-made or natural.Threats exploit vulnerabilities. Forexample, presence of an unauthorizedperson in our premises is a threat,presence of inflammable material is athreat. The threat may exploit avulnerability and become a risk.

A business faces several securityrisks. These could be related to :

Country : The country a businessoperates in may pose a risk if it isnot stable in terms of social stability,terrorism, political stability, rule oflaw etc. - for example it is not safeto operate in a country where thereis dictatorship and the governmentpolicies keep changing.People Management : People are amajor security risk. With majoradvances in Network and systemsecurity, people have become themajor cause of security relatedincidents.Process related risks : Informal andfragmented processes providevulnerabilities, which can beexploited. For example if a processdoes not take care of all types ofmedia that go out of theorganization, it could be exploited.Technology : The pace oftechnology is frightening. Nothingis impossible. It is a challenge tokeep pace with the technologicaladvances, which create newer waysof doing business, and also createnew vulnerabilities in the system.The availability and widespreadusage of mobile computing devices,Wi-fi and Wi-max are areas, whichare still not secure.Operational : With multi-location,multi country businesses, spreadingsecurity culture is becoming aHerculean tasks. With acquisitions

and large-scale outsourcing,suddenly the field becomes open toall sorts of threats.Legal challenges : With increasingcontrols required by regulatorybodies like SEBI, RBI and IT Actetc. making security requirementmore stringent, it is a challenge tokeep meeting the legalrequirements.Time to deliver : With deliverytimes under pressure, time toimplement all security controls isjust not available. Shortcutsintroduce vulnerabilities.

Apart from above general businessrelated security risks, which areapplicable across industries, these arerisks, which are specifically IT related.These are :

Security of IT infrastructure,including Applications and DataAvailability of IT services 24x7 atall locations under all conditionsPerformance assurance (e.g.Latency)Compliance with regulatoryrequirements

Risk Treatment

Having done the risk assessment onearrives at the Risk value for each Asset.Based on management decision,appropriate controls are put in place tobring down the Risk value of the assetswith more than that value. Thus, risktreatment consists of :

Selection of appropriate risktreatment optionSelection of controls to reduce risksto acceptable level

Controls could be Preventive, Detectiveor Corrective. For example, assets couldbe moved away from the risky areas, riskcould be transferred to third party thruoutsourcing, insurance etc.

Controls should ensure that risks arereduced to an acceptable level taking intoaccount:

National and Internationallegislation requirementsOrganizational objectivesOperational requirements orconstraintsCost of implementation

The cost of implementation andoperation of controls is to be balancedagainst the loss likely to result fromsecurity failures.

For example, if there is a risk of fire inpublic auditorium, controls could include

Reducing probability by banningsmokingReducing impact by fireextinguishers

In case of a risk of project delays byattrition, possible controls could be :

Reducing probability by humanrelationsReducing impact by backup staff,processes being followed, trainingetc

Risk Acceptance

Risks, which cannot be broughtbelow acceptable level, the managementdecides to accept the risks. Such risks thatremain after risk treatment are calledResidual risks. It is not possible toachieve absolute security. Just like thereis nothing called zero-defect quality,there is nothing called foolproof security.It is not always financially feasible toreduce all risks to acceptable level. If aresidual risk is unacceptable, themanagement takes a decision to deal withit. By putting suitable controls, we try tominimize the risks associated withknown threats, and have a readiness fordisaster recovery when the need arises.

Risk Communication

Having put all the controls,processes, policies and guidelines inplace, it is the time to communicate tothe organization, make them aware of allthe Do’s and Don’ts, and finallyimplement the Information SecurityManagement System (ISMS). All theemployees, partners, vendors,contracting parties etc. must be madeaware of their revised roles under theISMS. This requires ongoingcommunication from time to time thruvarious media.

Recommendations

Having been there and done that,especially from IT perspective, we


18

recommend following approach :

Top management commitment : Itgoes without saying that this is acritical piece in the whole pictureas without this commitment time,people and money resources wouldnot be released. Top managementalso defines the Security policy andObjectives and have to periodicallymonitor the implementation.Constitute Information Securityoversight board : Create a seniorpeople steering committee tooversee the definition anddeployment of ISMS. This could bea two-tier committee withfunctional representative to drivethe activities within their functionat the next level.Adopt an existing standard : Insteadof re-inventing the wheel, it wouldbe pragmatic to start with a basicframework like ISO 27001 as thebase standard. This is acomprehensive Process modelbased on PDCA approach and alsoprovides a relevant InformationSecurity benchmark.Focus on critical business processes: Depending on the size andgeographical spread of theorganization, it can select the scopeof the ISMS deployment. It can bedone at the corporate level, one unit,all units, some functions etc. Thekey functions whose processesundergo biggest revision are IT,Admin. (facilities), Commercialand HR. Thus time needs to be spentwherever these lie. One may alsochoose to implement security incertain critical functions / processes/ areas like Physical Security,Disaster Recovery, OutsourcingContracts etc.

Ongoing management &measurement of securityeffectiveness :

Periodic user awareness trainings: It is a major area where most of theISMS implementations fail. After theexternal audit is over and the certificateis on the wall, implementationsgenerally fail because employees fallback on the old ways, whereas newemployees are not given awareness,and management is not serious. This istypically a weak area.

Conduct periodic security audits :It is not sufficient to just implementISMS unless its deployment is notmaintained over a period of time. Anysuccessful deployment requires acontinuous oversight. One simple wayof doing this is through Internal /external Security Audits.

Have simple Metrics to tracksecurity incidents : Post deployment,it is important to keep a tab on securityrelated incidents that happen. Severalmetrics could be implemented are :No. of intrusions detectedNo. of Security Awareness trainingsgivenAmount of downtime caused bysecurity incidentsNo. of vulnerabilities detectedTime to handle incidents etc.Regulatory Compliance :Depending on the country oneoperates in and regulatoryframework an organization issubject to, it is important to keepcompliance with all laws of the landas a high priority area. IT Act 2000,SOX are examples of this.

Existing Security Models

Though an organization can make itsown roadmap for implementing security

practices, today there is a plethora ofmodels and frameworks available tochoose from. Instead of reinventing thewheel, it is advisable to select one basicframework and then add to it by referringto it from other models and industryspecific regulatory guidelines. An list ofsome such models is given below.

ISO 27001 ISO 20000INDIAN IT ACT SSE-CMMCOSO COBITHIPPA FISMAIEEE P1074SARBANES OXLEY ACT (SOX)GRAMM-LEACH-BLILEY ACT

Conclusion

With security fast becoming a mandatoryrequirement in all types and sizes ofbusiness, it is only a matter of time whenit becomes a mandatory requirement.From early model of business followedby risk management is now turning intoRisk management followed by Business.

The early experiences in this area by theorganizations that have implemented itand see some cycles can come handy fornew organizations. The suggestionsgiven above would help organizations inseveral ways:

It provides a structured approach tomanaging information securityrisks.There is adequate Management andemployee buy-in.It ensures compliance to regulatoryrequirements.Representation from all functions,ensures seamless implementationacross departments.Starting with a model as a baseensures benchmarking and bestpractices roll out.Metrics ensure a basis for ongoingvendor evaluation.

*Dr. Anuraag Awasthi is heading the Quality and IT functions in his present organization – Bharti Telesoft. Ltd, which is the software arm of BhartiEnterprises, the telecom giants from India. He is a CSQA, Six Sigma Black Belt, Masters in both Computers and TQM, and PhD in Computers withspecialization in Software Quality. He also has several publications to his credit.

Sunita Chauhan With more than 15 years of enriched, varied experience in Quality domain across industries, Mrs. Sunita Chauhan is a mover andshaker who believes in leading from the front. A BE (Electronics), MBA (Finance) and CSQA (QAI, US), Presently working as Senior Manager (Quality &Testing) with Bharti Telesoft Ltd. she has earlier worked with Continental Device (I) Ltd., Aithent Technologies, Chipsoft Technlogies etc.

References1. ISO 27001 : 2005 framework2. CSI Computer Crime and Security Survey 20073. Indian IT Act4. Other standards like SOX, COBIT etc.


19

There is a prevailing belief that law and its execution isnot giving justice to the common man. The whole body oflaw and governance are under the scanner today. The emergingissues of human rights, equity, security and terrorism, cyberlaws climate change, economic laws, inclusive growth,transparency, capital market laws, public awareness of laws,rules & regulations, inter governmental co-operation on globalissues demand a proper forum to discuss & debate these issues.

The ‘International Academy of Law’ an independent not-for-profit organization established by the World Council forCorporate Governance, UK, and the Centre for SocialResponsibility of India, focuses on the development,legislation and enforcement of laws on issues such as above.Its mission is to stimulate and channelise debate on thedevelopment and application of laws that respond to the newchallenges in a holistic manner. Details of the Vision, Mission& Objectives of IAL are on our website www.wcfcg.net. The

*J C Khurana

International Academy of Law (IAL)

Justice P N Bhagwati addressing the IAL Executive Council meeting at New Delhi

Academy is chaired by Justice P N Bhagwati, former ChiefJustice of India, Member UN Human Rights Commission.

The IAL is a Registered Society registered in the NCT ofDelhi.

In the last meeting of the Executive Committee of IALheld on 1st August 2008 at the India International Centre,New Delhi, suggestions and views on the “Nature of Activities& Topics” the IAL should engage, in were discussed.

There was wide-ranging and lively discussion, on this.The members suggested that the IAL could engage on Legaland Statutory Aspects of issues, such as, economic laws;environmental laws; climate change; noise & hazardous wastepollution; cyber laws; human trafficking, alcoholism,gambling laws; dowry laws; validity of many old laws andlegislative drafting; capital market laws , rules and regulations;


20

depts. and international law experts, in suitable areas,including public awareness and debate, as the IAL has a strongnetwork of experts and eminent persons, nationally andinternationally, and a wide reach through its variousconferences and workshops/seminars.

There was a consensus that the IAL should concentrateon limited issues intended to give it wider visibility &involvement to begin with. The issues suggested, included :

1. Cyber Laws - Security issues

2. Climate Change

3. Economic Laws

It was felt that Cyber Law was possibly the most topicalissue, which is critical for cross-border control & worldsecurity. It was decided to hold a two days conference on“Legislation, Monitoring & Enforcement of Cyber Laws” tocontain global terrorism, on 29th & 30th November 2008,New Delhi.

A Standing Committee was formed to plan and progressthe activities of IAL under the chairmanship of Justice R CLahoti, former Chief Justice of India

Dr Madhav Mehra addressing “the IAL conclave an legal measures to combat climate change” at the Raj Bhawan, Nainital

L to R: HE Sudarshan Agarwal, Governor of Uttaranchal; HE S S Banwala, Governor of Tamil Nadu; Justice MN Venkatachliah, former Chief Justice of India; PadmaVibhushan Sonal Man Singh; Dr CK Gariyali, IAS Principal Secretary to Governor of Tamil Nadu; Smt. Venkatchaliah; Dr Madhav Mehra, President, World Council forCorporate Governance; J C Khurana, Director General, International Academy of Law; Seema Mustafa, Chief Editor, Asian Age; Dr Veena Pande and Dr Kotlia; Professor ofClimate Change at Kumoun University (back) and B C Roy, Director, NTPC (back).

Ladies who joined in for the Dinner with Mrs P N Bhagwati

political reforms; 6th Schedule of the Constitution of India;reservation; and federalism vs. regionalism. It stronglyemerged that public awareness of laws, rules and regulationsis weak. Emphasis was placed on implementation areas ofadministering the laws and regulations.

It was recommended that IAL may make effort to workin conjunction with the Law Commission of India, Govt law


21

International Conference On Cyber Security

29-30 November 2008, New Delhi

Theme : “Legislation, Monitoring & Enforcement of CyberLaws”

Need for the Conference

“Internet has become an integral part of our professionaland personal lives. Consequences of cybercrime, cyberterrorism and cyber warfare can be catastrophic.Internationally regulated and policed cyber laws are criticalfor humanity’s survival”.

Conference Objectives

Discuss strategy for formulation and implementation ofholistic measures for development, legislation & enforce-ment of laws for Cyber Security to contain terrorism &promote public interest.

Sharing of knowledge and experience of leadingInformation Technology Experts and Companies,enforcement agencies & jurists in adopting strategies &processes for improving Cyber Security.

Develop plan of action for promotion of Public awarenessof Laws, rules and regulations on e-governance andsecurity of information in Cyber Space.

Identify available hardware & software products /services for Cyber Security and share. experience ofusers such as Cos, agencies, government departmentsand institutions.

Recognize industrial enterprises which have achievedhigh standards of cyber security in the interest of clientsand public good.

Sub-themes

Power, potential andperniciousness of the web

Cyber security & terrorism –monitoring and regulation of cybertraffic

Regulation, detection andprevention of hacking and viruses

Capital Markets : RegulatingCross-border capital movementsand trading to ensure transparencyand prevention of fraud

Unsolicited e-mails, SMSs &phone calls-Dealing with junk andviruses

Data protection, privacy andpiracy

“Private International Law andIntellectual Property Rights” –promulgated by ‘WORLDJustice R C Lahoti, former Chief Justice of India and Dr Madhav Mehra engrossed in IAL future plans

Justice R C Lahoti, Shri Suresh Prabhu, MP, Dr A N Saxena


22

L to R HE Sudarshan Agarwal, Governor of Uttaranchal addressing the conclave on climate change; JC Khurana, Director General International Academy of Law;Justice MN Venkatchaliah, former chief justice of India; Padma Vibhushan, Sonal Man Singh, Padma Bhusan; Dr CK Gariyali, IAS Principal Secretary to Governorof Tamil Nadu and Smt. Venkatchaliah

Justice P N Bhagwati, founder Chairman andDr Madhav Mehra, founder President IAL

INTELLECTUAL PROPERTY ORGANISATION’,Geneva-2001 – adherence and areas of improvement.

Information & Technology Act of India (2000) –experiences : positive and negative, areas ofimprovement.

Regulation of Internet Service Providers (ISPs)

Raising public awareness of laws, rules & regulationson cyber security and privacy

Capacity building – school curriculum to includeawareness of cyber laws, penalties for hacking,monitoring the web, respect for privacy laws andspecially training of key personnel such as police, banks& corporations on regulation and monitoring of cyberlaws

Legislation and implementation of cyber laws

*J C Khurana is Director General, International Academy of Law


23

aspects of value creation and resourceutilisation. This emphasizes thatgovernance is a means to an end, not anend in itself.

So how does governance achievebusiness benefits? It begins with the toneat the top but requires the right approachto be embedded in the way in which acompany does business, throughout thewhole business, including systems ofinternal control and reward systems. TheBoard takes responsibility not only fordoing things right but for doing the rightthings - and for requiring systems withinthe company to enable it to demonstrateto the Board, and ultimately, via itsannual report and other means, to allstakeholders that the right things arebeing done right.

Experience of the performanceaspects of governance has shown thatmanagement exercises control over abusiness in three ways:

Culture and values - which establishan individual’s sense of appropriatepersonal behaviour and business ethicsset by the “tone at the top” and supportedby a corporate Code of Conduct.Guidance on preparing andimplementing such a code is availablefrom IFAC.

Management systems - providinginstructions and guidance on howparticular types of task should beachieved and the processes andtechnology to achieve them.

The triple bottom line: social,environmental and economicsustainability, is of great interest tocompanies and to stakeholders.Customers care about financial strengthand the way in which a company dealswith social and environmental issues.Staff and potential staff also care deeplyabout these things. Indeed, in my firmthe first question asked by potentialrecruits at interview is not about careerprospects but about our approach tosocial and environmental matters.Investors, increasingly, also care aboutthese issues. Recent research with fundmanagers carried out for the Institute ofChartered Accountants in England &Wales shows that “sustainability of thebusiness in the longer term” is their mostimportant issue when deciding where toinvest. A company’s attitude to the triplebottom line is an important risk factorin investment appraisal.

Similar views are shared by businessleaders, for example:

“Corporate social responsibility is ahard edged business decision. Notbecause it is a nice thing to do or becausepeople are forcing us to do it…becauseit is good for our business” – Unilever,Former CEO.

“People are going to want, and beable, to find out about the citizenship ofa brand, whether it is doing the rightthings socially, economically, andenvironmentally” – Proctor and Gamble

*Graham Ward CBE

Europe, President of BusinessDevelopment.

“Ethics is the new competitiveenvironment” – Mountain EquipmentCo-op, CEO.

“The brands that will be big in thefuture are those that tap into the socialchanges that are taking place” –Centrica plc, Chairman.

Corporate governance was definedby Sir Adrian Cadbury as “the systemby which companies are directed andcontrolled”. Such a system is not,however, an end in itself but a means toan end: to facilitate strong, sustainablecompanies respected in the markets bycapital providers, customers andemployees alike. Indeed it is importantfor this respect to go wider, into thepolitical community and the communityas a whole, since companies can onlyexist in the form that they do becausesociety gives them a licence to do so, alicence that is increasingly difficult toobtain and to retain.

This wide concept of governance hasbeen emphasized by the InternationalFederation of Accountants(1) in its report“Enterprise Governance”. EnterpriseGovernance encapsulates not onlytraditional corporate governance, whichit describes as “conformance” but alsobusiness governance: the achievementof performance. It brings together theconformance aspects of accountabilityand assurance with the performance

Can corporate governance result

in triple bottom line benefits?


24

Oversight - ensuring the right peopleare asked to do the right tasks, that theyhave sufficient resource and training tosupport them and that they are properlysupervised and monitored.

Key questions to be asked by theboard in relation to the triple bottom lineinclude:

What does success look and feellike – how is this measured?

How are triple bottom line issuesintegrated into strategy andstrategic conflicts avoided?

What Executive and Boardaccountability structures are inplace?

To what extent do risk processesincorporate robust analysis of triplebottom line issues?

How are KPIs selected and whatKPI analysis is performed?

What assurance mechanismsensure effective controls andreliable disclosures?

How are stakeholder needsunderstood and responded to?

What basis is used for determiningmateriality?

How is the effectiveness ofcommunication assessed?

What are your competitors doing?

Research carried out by METAGroup on behalf ofPricewaterhouseCoopers showed thatan integrated approach to governance,risk and compliance that properlyutilises culture, process and technologycan enhance reputational value (by23%), employee retention value (by10%) and revenue (by 8%).

Achieving stakeholder trust requiresrobust and honest reporting. Is the rightinformation being reported? Not just isthe reported information right? ierelevance as well as reliability. Not onlytrumpeting virtue but admitting to vice- and saying what will be done to dealwith it. No company is perfect in everyrespect and an annual report whichclaims that it is will lack credibility andintroduce distrust into the minds ofinvestors, customers and staff. Whatshould be a means of reducing the costof capital and increasing customer andstaff loyalty will, if a balanced pictureis not given, have exactly the oppositeeffect.

Some worry that honest disclosurewill depress the share price. In fact,research carried out forPricewaterhouseCoopers indicates that,when analysts feel that they arereceiving a balanced view of thecompany, the share price goes up,because the risk premium foruncertainty goes down. There is alsoevidence that balanced disclosure leadsto lower share price volatility.

Guidance for companies onenvironmental management accountingis available from IFAC and theInternational Auditing and AssuranceStandards Board is preparing guidanceon assurance for emissions disclosuresand a standard which embracesassurance on sustainability reporting.

In conclusion, can corporategovernance result in triple bottom linebenefits? My answer is an emphaticyes, if it is properly used. Companieswith high standards of enterprisegovernance can look forward to a highershare price and greater loyalty from staffand customers alike.

*Graham Ward is Immediate Past President of IFAC and a Senior Partner in PricewaterhouseCoopersLLP. He is a member and former Deputy Chairman of the Financial Reporting Council, a member ofits Corporate Governance Committee; a board member of the UK India Business Council andChairman of its Audit Committee.

Reference

1. See www.ifac.org

Africa: Hot

on Corporate

Governance

Dr Madhav Mehra, President,World Council for CorporateGovernance, chaired the AfricanDirectors Forum at Johannesburg inSouth Africa on 14 and 15 August2008 comprising 160 directors,CEOs, Chairmen and Presidents ofcorporations right across Africa.Participants included formerchairman of Ernst and Young andpresidents of African StockExchanges.

The African Directors Forumwas organized by Marcus Evans,world’s largest event managementand conference producingcompany. The organisers expressedgratitude to Dr Mehra saying thiswas their most successful directorsconference in Africa. Mr Vadulatheir South Africa based GeneralManager confided “Ïn the past wehave done many conferences usingMervyn King's name” . Mr King isthe guru of corporate governanceand highly respected inCommonwealth. He is the authorof 3 reports on corporategovernance – King Commission 1,2 and 3. King Commission 3 hasjust come. Mr Vadula continued,“this time we thought we will notuse King's name because it hasbecome commonplace in Africaand instead use WCFCG and DrMehra in our promotion material.We have been amazed by theresponse. We never had such highlevel participation in such largenumber. They lapped up DrMehra’s cohesive approach tocorporate governance.”


25

Introduction

It is generally accepted that the bestway to handle international issues, bethey environmental, social or, economicis through multilateral agreements. Thebelief that multilateral is best can,however, lead to a view that any otheractions are therefore not desirable. Theconsequence of this view can be an “allor nothing” approach to global issues.In many cases there are second bestsolutions that can be implemented byindividual countries, but these solutionsmay not get considered. This paper looksat opportunities that could be consideredby individual countries without the needto wait for a multilateral agreement,drawing parallels between action on theenvironment and the economy.

Environment: Multilateral andUnilateral

The Kyoto agreement entered intoforce without the USA signing theagreement and attempts to negotiate afollow-up agreement have so far notbeen successful. The negotiations arestuck over insistence by developedcountries that the developing world mustalso play a role in reducing greenhousegasses and the view held by developingcountries that they should be exemptfrom the agreement. Looking after theenvironment is seen as a zero sum game,a tragedy of the commons, wherecountries gain by polluting and losewhen they reduce emissions. It is seenas being in every country’s economicinterest to pollute to the maximum.

As a consequence of zero sumthinking, countries see themselves in a

*M J Cadbury

Negotiating Multilateral Issues:

Good Versus Best

situation where they can only makeprogress through a multilateral deal orput themselves at a significant economicdisadvantage versus other countries, asthe UK’s King Review of Low CarbonCars states “Achieving internationalconsensus and co-operation is essentialin many areas” and “Internationalagreement on Measurementmethodology, incentivisation andenforcement will be needed”. Assumingthat environmental progress isdamaging to the economy is notnecessarily correct and there are waysfor countries to improve theirenvironmental performance withoutcompromising their economies. It is truethat a multilateral agreement would bethe best option of all, but this does notautomatically mean that second bestoptions are not also good options. Thereis a similar issue occurring withenvironmental technologies themselves,it is natural that we should search forthe best, carbon neutral, solutions to ourenergy needs, but that should not blindus to second best options which may beeasier, cheaper and quicker toimplement.

According to the UK’s Stern Review“Climate change presents a uniquechallenge for economists: it is thegreatest and widest-ranging marketfailure ever seen”. The total cost of usingfossil fuels, including the effect on theenvironment, has not been understooduntil recently and as a consequence fuelshave been widely sold at their marginalcost of extraction. Cheap fuel has helpedeconomies develop, but has created theproblem of global warming; a problemthat was first identified some 120 yearsago and which is now well accepted.

However we are now largely stuckin an “all or nothing” thought process,where we believe that only multilateralsolutions and carbon free technologycan work. The consequence of this kindof thinking is that we are making toolittle headway whilst waiting for theperfect solution; it is time to take a lookat whether second best solutions mightbe useful until such time as the perfectsolutions become available.

The first step that an economistwould take towards finding a solutionto global warming would be to correctthe market failure “Establishing acarbon price, through tax, trading orregulation, is an essential foundation forclimate-change policy” (Stern Review).If the cost of CO2 emissions is notfactored into prices, then there is noeconomic incentive to reduce emissionsand hence to develop lower emissiontechnologies. The King Report on Low-Carbon Cars states “The urgentchallenge for the short term is to developa strong and rapidly growing market forlow emission cars”. The simplest wayto correct prices is to have a tax onemissions of greenhouse gasses and asubsidy for the removal of greenhousegasses, providing an economicdisincentive to all emitting activities andan economic incentive for all removingactivities i.e. a carbon tax. The mainargument used against such a move isthat any country that applies a carbontax unilaterally will make its economyuncompetitive compared with othercountries that do not have a carbon tax.There are two reasons why thisargument isn’t valid.

Firstly overall taxation does not haveto increase. Critics of a carbon tax tend


26

to assume that it would be an additionaltax, but there is no reason why thisshould be so. The main sources oftaxation today are typically incomefrom employment, business profits andvalue added. Today’s taxesdisincentivise employment, profit andvalue added. It would surely make senseto shift some of the tax burden ontodisincentivising something that weactually want to reduce, rather thanthings that are beneficial to society? Acarbon tax could be applied togetherwith tax reductions in other areas, suchas employment, and it is quite likely thatthis would improve allocation ofresources within the economy and havea net economic benefit.

The second point to note is that taxis not a net loss to an economy and as aresult there is no direct link between taxlevels and the competitiveness of aneconomy. Taxes are simply money spentcommunally by the government; if thegovernment spends tax money wiselythere is no loss to the economy, thushigh tax countries like Norway are ascompetitive as lower tax countries likethe USA. Taxes are only bad forcompetitiveness when badly spent.

A carbon tax could be increased in apredictable pattern over several years tominimise the cost andwaste of adjustment inthe economy “Clarityand predictabilityabout the future rulesand shape of schemeswill help to buildconfidence in a futurecarbon price” (SternReview). In theabsence of similarforms of taxation inother countries, therewould need to be sometaxation and subsidyfor trade, particularlyin carbon intensiveproducts likealuminium.

Directly correctinga market failure is a

good approach since this harnesses theenergies of the market into findingsolutions. The alternative approach isfor the government to choose solutionsand regulate them or provide directsubsidies. The problem with this non-market approach is that it is verycomplicated to get an accurate pictureof what actually works in reducing CO2emissions, as the King Review states ”Asignificant international challenge willbe to establish a robust and accurateagreed methodology for measuring thelife-cycle emissions of fuels”. Both theEU and the USA have chosen to actdirectly, with the EU choosing tomandate use of Bio-fuels in vehicles andthe US choosing to subsidise productionof Bio-fuels for vehicles. However theanalysis in the King Review shows thatthese choices are unlikely to have beengood ones “Car transport is currentlyone of the least cost-effective uses ofBio-mass in saving CO2”. It turns outthat it would make more sense tosubstitute Bio-fuels for oil used in oilfired boilers than to refine it to use invehicles, exactly the sort of trade-offwhere the market is more likely to makegood choices than governments.

There is, therefore, no reason whycountries should not pursue a unilateral

policy on climate change, irrespectiveof whether a satisfactory multilateralagreement comes into force, without asignificant negative impact on theireconomies. At the same time there isreason to suggest that there might be akey economic benefit in doing so.According to the Stern Review themarket for low carbon energy productswill reach US $500 billion by 2050, anycountry which tackles climate changefaster than its peers will ensure itself afirst-mover advantage in this market.Aggressively tackling climate changecould be a driver of futurecompetitiveness for an economy.

Environment: Good and BestTechnologies

The world has total CO2 emissionsof 42 Giga tonnes. The biggest sources ofemissions from energy use are electricitygeneration and road transport (see Chart1), in the long run carbon neutralelectricity generation and transport are thekeys to reducing energy related emissions.There are also very significant emissionsfrom non-energy related activity, mainlyde-forestation and agriculture, a halt onde-forestation would be the single mosteffective contribution to combatingclimate change.

World CO2 Emissions

24%

14%

14%8%

5%

3%

14%

18%

PowerTransportIndustryBuildingsOtherWasteAgricultureLand

Source: The Stern Review

Chart 1


27

Another way to look at energy is tosplit it by final use, as shown in Chart 2for the UK. This shows that heating ofbuildings is the largest energy use aftertransport, followed by heating of water,“buildings account for almost half of theenergy consumption and carbonemissions in the UK” (HM Govt). Heatis the simplest form of energy and is theeasiest form of energy to obtain directlyfrom sunlight, yet withthe exception of China,relatively little has beendone in this direction.New houses in Chinaalmost invariably havesolar hot water heatingand the rest of the worldlags behind. One reasonis that winter timeprovides less solarheating than thesummer, making a solaronly heating system notsufficiently reliable, buttoo little has been doneto develop viablesystems using solarheat with a secondaryback-up heat source.Solar heat is by far themost effective way ofharnessing the sun’s

energy in terms of the energy that canbe obtained per area of ground surface,as shown in Chart 3. Using solar energyfor heating would reduce energy costsand hence have a positive economicimpact as well as reducing carbonemissions.

Carbon output can also be reducedin other areas like transport. Carbonfuels have varying proportions ofcarbon and hydrogen in them. Thecarbon burns to carbon dioxide, whilstthe hydrogen burns to water, so differentcarbon to hydrogen proportions lead tovarying carbon emissions for the sameoutput in energy. Coal is the worstperformer, being made up almostentirely of carbon, and natural gas is thebest performer having 4 hydrogen atomsfor each carbon atom. Burning coalproduces 0.09 kilograms of carbondioxide for each Mega Joule of energy(Chart 3), whilst burning natural gasproduces slightly over half this amount.

Chart 3

A move towards gas and away fromcoal and oil would produce a significantreduction in carbon emissions. Such ashift would clearly involve someinvestment, but would not require theinvention of entirely new energytechnologies. Simply ensuring thatfuture power stations were gas ratherthan coal fired would halve the carbonemissions of the electricity generated.Similarly, a saving of up to 20% in

Source DTI

Chart 2

UK Total Energy Consumption 2001

34%

26%

9%

6%

10%

15%

TransportHeatingHot waterLightingInd ProcessesOther

Source: Building industry interview Chart 3

Renewable Energy Potential

0

10

20

30

40

50

60

70

80

Biomass Wind Solar Electric Solar Thermal

Ener

gy K

W p

er s

q M

eter


28

Chart 3

Carbon Emissions

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Coal Oil Gas

Kg

of C

O2

per M

J

Carbon Emissions

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Coal Oil Gas

Kg

of C

O2

per M

J

Source: The King Review Chart 4

carbon emissions could be achieved byconverting Petrol-engined cars to run onnatural gas, which can be done atrelatively little cost. Traditionallynatural gas was simply burnt by flaringat oil wells. Today most oil fields collectthe gas, but flaring is still carried out.Carbon pricing would make natural gasmore valuable than oil and hence ensurethat gas was used rather than beingwasted through flaring, carbon pricingwould also encourage the search forsources of natural gas. Electric cars are

also a good option; since the efficiencyof a power station is much higher thanan individual vehicle engine, there is areduction in carbon emissions whenfossil fuels are burnt in a power stationand the electricity is then used to powera vehicle (Chart 4).

Economy: Multilateral and Uni-lateral

International economic relations aremost affected by trade in goods and

services. The majority of the world’scountries are now members of the WTO,which is the forum for negotiatingmultilateral trade agreements. As is thecase for the environment, the bestapproach to world trade would be amultilateral removal of trade tariffs. TheWTO has been trying to secure a newtrade agreement, but this has stalled overdisagreements about the relativecontribution of developed anddeveloping countries. Once again thebest solution can become the enemy ofthe good solution, with manydeveloping countries doing nothingtowards trade liberalisation exceptwaiting for a WTO agreement.

As in the case of environmentalperformance; trade liberalisation iswidely seen as a zero sum game wherecountries which liberalise their tradingregimes become less competitive thanthose which do not. The consequenceof this thinking is that the majority ofWTO members seek to minimise theirown trade barrier reductions, whilstpersuading other countries to maximisetheir’s. A key reason for this is the beliefin “mercantilist” trade theory,mercantilists believe that trade is a win/lose transaction and that trade barriersare helpful for countries to win this tradecontest. This thinking is particularlyapplied to developing countries which,largely for historic reasons, tend to havehigh trade barriers. There is awidespread belief that keeping thosebarriers in place is good for developingcountry economies and this is exactlywhat developing country negotiators aretrying to achieve in the World TradeOrganisation’s Doha DevelopmentRound.

The logic behind mercantilism isthat it is better to be a seller than a buyerand therefore countries should restricttheir imports and promote their exports.Unfortunately this logic ismisconceived: if I go to a shop and buya litre of milk for £1, I do so becausethe milk is worth more to me than my£1 coin; the shop’s owners are happy tosell the milk to me for £1, because my£1 coin is worth more to them than their


29

litre of milk. It is obvious that neitherparty in the transaction has won or lost;the transaction occurs precisely becauseit is a win/win opportunity with bothparties benefiting, and there is no reasonwhy this should be any different whena transaction takes place across apolitical border.

The mechanism of mercantilism isthat a country restricts imports throughtariffs whilst continuing to export to othermarkets. In practice economic systemsadjust over time towards an equilibrium.In the case of a mercantilist country thistypically results in an increase in theexchange rate, which in turn increasesthe price of that country’s exports. In thelong run the trade barrier thereforereduces both imports and exports, whichis clearly counter-productive fordevelopment. Data confirm thisdiagnosis. There is empirical evidence tosuggest that countries with high importtariffs do indeed have overvaluedexchange rates and a simple graph of

average import tariff versusmanufacturing exports as a percentageof GDP (Chart 5) shows that exports doindeed suffer when import duties arehigh. The data in the graph is for 165countries; the higher the average tariff acountry has on its imports, the less wellit performs on exports, which clearly isn’tbeneficial for the economic developmentof that country.

It is also interesting to note that therecent success of China as an exporterhas been accompanied by very rapidreductions in China’s import tariffs tolevels much lower than those requiredby the WTO. Free trade is clearlybeneficial for developing countries, asChina has found out to its own benefit,other developing countries need to followChina’s example if they are not to be lefteven further behind economically.

The best outcome for trade is amultilateral reduction of trade barriers,but failing that countries should

unilaterally remove their own tradebarriers. Far from disadvantaging acountry economically, removal of tradebarriers can give a country a head startin developing an economy that isinternationally competitive. This isprecisely what happened to twodeveloping countries: Singapore andHong Kong, in the latter half of the 20thcentury and the same thing is nowhappening to China.

Conclusions

There is much that can be done toreduce CO2 emissions, withoutimplementing perfect multilateralagreements or moving to new, entirelycarbon free, technologies. The best wayto make progress on greenhouse gasemissions would be to use a tax onemissions, thus using the market to findthe most effective means of reducingthem. Whilst such a tax would be bestapplied globally, it could also beintroduced by individual countrieswithout necessarily compromisingcompetitiveness. The main emphasis todate on reducing carbon emissions hasbeen on finding alternatives to carbonfuels and many of the alternatives seemexpensive or out of reach. In realitythere is also much that can be done atrelatively little cost in terms of reductionof waste and substitution within currentcarbon fuels and current technology.The perception that a choice has to bemade between the economy and theenvironment is wrong; countries whichmove first will have a competitiveadvantage in the future.

The situation faced by countries oninternational trade negotiations issimilar, unilateral tariff barrierreductions would be beneficial, with orwithout a multilateral agreement.

All Countries

-50%

0%

50%

100%

150%

200%

0 5 10 15 20 25 30 35 40

Av Tariff %

Man

ufac

turin

g Ex

port

s %

GD

P

Source: UNDP and UNCTAD Chart 5

Sources

King Review The King Review: Low Carbon Cars www.hm-treasury.gov.uk/kingStern Review The Stern Review: The Economics of Climate Change www. hm-treasury.gov.uk/sternUNDP Manufacturing export data from Human Development ReportUNCTAD Tariff data from TRAINS databaseDTI Energy Consumption in the UKHM Govt A Guide for Businesses, Reducing the energy usage and carbon emissions.

*Matthew Cadbury spent twelve years working on business development in the confectionery industry. This included setting up businesses in Polandand Mexico and managing a £100m business in India. During this time he had direct experience of the limiting effect of trade barriers on businessgrowth. He was Managing Director of Cadbury India, before returning back to England.


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Goldman, Fidelity facing probe in US

The New York attorney general’s office it is investigatingwhether Fidelity Investments was given incentives byGoldman Sachs Group. to sell auction-rate securities toinvestors.

Investigators are examining if Fidelity pitched auction-rate securities that were underwritten by Goldman Sachsbecause it received other services from the investment bank.A spokesman for New York Attorney General Andrew Cuomoconfirmed the probe was under way but declined to providefurther details.

The attorney general is leading an investigation into howmajor Wall Street investment banks and smaller financialcompanies sold auction-rate securities to customers. Thesecurities were marketed as being as safe as cash until themarket froze up amid the credit crisis, causing investors tolose money.

Fidelity said about 600 to 700 accounts out of some 8million customers held auction-rate securities. Ann Crowley,a spokeswoman for the company, said there was ̀ `no financialincentive for Fidelity to promote auction-rate securities asopposed to other short-term investments.’’ A spokesman forGoldman Sachs declined to comment.

Cuomo, leading the investigation on behalf of state andfederal authorities, has gotten investment banks to agree tobuy back more than $50 billion worth of auction-rate securitiesfrom eight global banks. Goldman Sachs agreed to buy backabout $1.5 billion in securities still held by private clients thatwere purchased through the firm before Feb. 11. It also agreedto pay a $22.5 million fine.

Auction-rate securities resemble corporate debt, but theinterest rates on the investments are reset at regular auctions,some as frequently as once a week. The market for thesecurities collapsed in February amid the downturn in thebroader credit markets.

Regulators have been investigating the collapse todetermine who was responsible and whether banks knowinglymisrepresented the safety of the securities when selling themto investors.

News & Views

FRC updates guidance to directors on 'going con-cern'

UK Companies urged caution on the Financial ReportingCouncil the UK accounting watchdog after its proposals thatdirectors should lay out clearly any significant doubts overwhether the business was a going concern.

The Financial Reporting Council is consulting on whetherit should update its guidance to company directors over theirresponsibilities regarding "going concern" - the judgmentthat says a business is viable for at least 12 months from theday the accounts are signed off.

Directors at present can reach three conclusions on agoing concern. The FRC has proposed adding a fourth thatwould require them to disclose if they had "identified materialuncertainties that may cast significant doubt about the abilityof the company to continue as a going concern".

There are fears more extensive disclosures could unsettleinvestors. "We're wary about rushing on such a key area,"said John Pierce, chief executive of the Quoted CompaniesAlliance. "It's an absolutely timely review to do, but marketsare twitchy enough at the moment that phraseology andwording in these things is crucial.

"We are studying it to determine whether it means achange in substance or in form. If substance, then it couldhave all sorts of unintended consequences and perhapsprecipitate the demise of a business that, without veiledwarnings, could pull through," he added.

The FRC has said it does not consider the changes a newdeparture and that they largely represented updates toaccounting rules made since the guidance was first drawn upin 1994.

Some experts have, however, questioned the need for afourth category in the updated guidance. "They could justuse the new tougher language and replace the middle one -its not clear why a fourth one is needed," said Steve Priddy ofthe Association of Chartered Certified Accountants.

The FRC's consultation is open until November.


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Over 37m poor in US; 46m without health insur-ance

More than 37m Americans live in poverty and nearly 46mhave no health insurance, an official report showed,spotlighting two key issues in the race for the presidency.

Some 37.3m people lived in poverty in the United Statesin 2007, an increase from the 36.5m people in 2006, the USCensus Bureau's annual report on income, poverty and healthinsurance coverage showed.

The poverty threshold for 2007 was set at $21,000 for afamily of four, regardless of whether they lived in a smaller UScity such as Milwaukee or a large city like Los Angeles, wherethe cost of living was significantly higher.

"The number of people without health insurance coveragedecreased to 45.7m people in 2007" from 47m in 2006, saidDavid Johnson, head of the housing and household economicstatistics division of the Census Bureau. But while the reportshowed slightly more Americans had health coverage than in2006, the changes were too little to cheer about, said PaulFronstin, a senior research associate at the Employee BenefitsResearch Institute.

"Generally, what the report shows is that there has beensome change but it's pretty minor," said Fronstin, of theWashington-based think-tank.

"This isn't progress. The changes are insignificant andwe would need to see this happen for 10 years to say therehas been progress," he said.

According to a report published earlier this year by theAnnie E Casey Foundation, which advocates for publicpolicies and reforms to alleviate poverty, both the Democraticand Republican parties have made the "fight against povertya priority in their campaigns."

Indian cabinet approves new Companies Bill

A liberal regulatory set-up for corporates is on the anvilwith the Cabinet approving the introduction of a newCompanies Bill that will replace the present archaic andvoluminous Companies Act of 1956. The Companies Bill 2008also paves the way for the formation of a one-person company(OPC) that would help start-up entrepreneurs operate as acompany without facing the liabilities attached to a solepartnership firm.

Corporate affairs minister Prem Chand Gupta saidcompanies should expect a liberal and less cumbersomeregime in India as the proposed Bill suggests cutting downmany provisions that are not relevant in today's economic

environment. "Against the 800-odd provisions in the existingact, the proposed law aims at pruning this to almost half,"Gupta said, adding that the aim was to bring in "self regulation,but with accountability".

Gupta had initiated the process to revamp the existingCompanies Act in 2004 and the government had formed acommittee, headed by JJ Irani, to help draft the new law forwhich it also held consultations with industry bodies as wellas professional organisations like ICAI and ICSI.

The Companies Bill 2008 would be tabled in the comingsession of Parliament, Gupta said, adding that it containedvarious provisions aimed at bringing in a flurry of changesfor the corporate sector. The Bill aims at cutting down manyof the approvals companies need to take from the governmentat present. These include on matters like remuneration ofdirectors, related party transactions, attachement of balancesheet of subsidiary companies etc.

"In another crucial recommendation, we have done awaywith promoters buying shares at a discount," the ministersaid. Also, it lays down higher and stringent penalties forcorporate offences, many commensurate with the nature ofdefault and its effect on ordinary shareholders.

The proposed Bill also states that 33% of directors on acompany's broad should be independent, which appearsrelaxed compared to the 50% norm stipulated by marketregulator Sebi. Gupta said sectoral regulators were free toprescribe higher limits if they deemed fit. "So unlistedcompanies can have one-third independent directors whilefor listed companies, it has to be 50%, as prescribed by Sebi'sClause 49," he said.

US prime mortgage defaults worsen faster thansubprime

Delinquency rates on many better quality U.S. mortgageslast month outpaced those on the subprime loans that helpedspark the U.S. housing crisis, Standard & Poor's recent reportsshowed.

Total delinquencies on prime "jumbo" loans and "Alt-A"loans made in 2007 rose at a 7.3 percent and 9.12 percent rate,respectively, from June, the rating company said. These loansrequire less proof of repayment but were made to borrowerswith credit scores above subprime. For subprime loans, therate of delinquency rose 7.0 percent rate last month.

Overall, delinquencies on 2007 prime jumbo loans rose to3.22 percent in July, while Alt-A loan delinquencies increasedto 14.56 percent, S&P said. Defaults on subprime loans fromlast year hit 31.25 percent. The housing slump, now in itsthird year, has surprised many mortgage companies, such as


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Freddie Mac, as its effects erode more creditworthy loans.Potential downgrades to such loans, including top-rated ones,have put mortgage bond markets further on edge in recentweeks as they await rating company reviews, investors said.

S&P in late July increased its loss assumptions on manytypes of mortgages, including doubling the projections forthe Alt-A sector. The company aims to complete reviews usingits new assumptions "within a few weeks, as opposed to afew months," said Robert Pollsen, an analyst at S&P in NewYork.

Delinquencies on loans made in 2006 exceed those of 2007,probably because of the longer period from origination. "Themore recent vintages are suffering more performance relatedissues sooner, and to a greater degree," Pollsen said.

In a positive note for prime jumbo loans, seriousdelinquencies -- including loans more than 90 days past due,foreclosures and bank-owned real estate -- increased at aslower rate in July, Pollsen said.

New York may sue Merrill over ARS

New York state has recently threatened to sue MerrillLynch & Co over auction-rate securities (ARS) as part of itsindustry wide probe of banks accused of misleading investorsabout the debt’s risks.

Attorney general Andrew Cuomo, who has reachedsettlements with five major banks to buy back more than $30billion of the securities and pay fines of $360 million, said ona conference call with reporters that his office is “preparingto commence legal action” against Merrill. Merrill said it wassurprised by Cuomo’s announcement.

“We have been discussing this issue with New York andother regulators since we announced last week our plan topurchase our retail clients’ ARS and we thought we weremaking progress,” Merrill said “We anticipated further talks.”

Merrill had offered to buy back as much as $12 billion ofthe debt but has not settled with regulators. In a letter toMerrill, Cuomo’s office described the buyback plan as“woefully inadequate” and short of the investor safeguardscontained in settlements reached with Citigroup Inc, Swissbank UBS AG, Morgan Stanley, JPMorgan Chase & Co andWachovia Corp.

“We are still open to trying to resolve our investigation ina settled fashion,” said the letter, signed by David Markowitz,chief of the Investor Protection Bureau, an arm of the attorneygeneral’s office. It gave Merrill five business days to explainwhy the attorney general should not sue. Regulators saybanks misled investors into believing that auction-rate

securities, which have interest rates that reset in periodicauctions, was the equivalent of cash. Much of the $330 billionauction-rate securities market has been frozen since February,when brokerages abandoned their traditional role as buyersof last resort.

Cuomo told reporters that his terms for settlement were“fairly clear and established because we’ve done them with anumber of institutions”. Cuomo also told the reporters thathis office was investigating investment bank Goldman SachsGroup Inc and a host of other financial institutions.

US minorities in majority by 2042

White people of European descent will no longer make upa majority of the US population by the year 2042 - eight yearssooner than previous estimates. The big change is amongHispanics and Asians whose share of the population is set todouble to 30% and 9%.

The population is also ageing: by 2050 one in five residentswill be aged 65 or over, up from one in nine today. The USCensus Bureau's latest projections are based on birth, deathand current immigration rates.

The projections show that the US population is expectedto rise from 305 million people to 439 million by 2050, but it willbe a population that looks quite different both in age, raceand ethnicity. According to the census bureau's statistics,people who regard themselves as Hispanic, African-American,Asian, American Indian, Native Hawaiian and Pacific Islanderwill become the majority by 2042. Officials had previouslyprojected that this change would happen in 2050. The newprojections suggestion that by 2050, minorities will accountfor 54% of the population and non-Hispanic whites 46%,down from their current 66% share.

Immigration and higher birth rates among US minorities,especially Hispanics, are accelerating the demographicchanges. Hispanics will see their population nearly triple from47 million to 133 million, causing their share of the populationto increase from 15% to 30%. Asians will also see a bigincrease, with their numbers growing from 16 million to 41million. Single-race Asians will account for 8% of thepopulation and 9% including those of mixed race. The blackpopulation, including those of mixed race, will show a slightincrease from 14% to 15% of the total.

UBS execs knew of risk of U.S. rule breaches

Senior executives at Swiss bank UBS (UBSN.VX: Quote,Profile, Research, Stock Buzz) were aware in 2006 of awhistleblower's complaints into cross-border services


33

provided to U.S. clients, long before a U.S. probe began, aletter from the bank's chairman shows.

A UBS spokesman confirmed a report in the Financial Timeson Wednesday that Peter Kurer, UBS chairman and then thebank's general counsel, had written to the whistleblower inMay 2006 to thank him for raising attention to the issue.

"The letter confirmed that an investigation into thecomplaints had been completed, the results would be reviewedand recommendations formulated," the spokesman said.

The whistleblower was Bradley Birkenfeld, a former UBSbanker at the centre of U.S. inquiries into whether the bankhelped wealthy American clients evade taxes by moving theirmoney to European tax havens.

Kurer wrote to Birkenfeld after he complained about workingpractices in the U.S. cross-border business.

"Management was copied on this letter to furtherdemonstrate the seriousness with which the complaints werebeing treated," the spokesman said.

The FT said the letter was copied to Marcel Rohner, thenhead of private banking and now group chief executive, as wellas Lawrence Weinbach, a UBS director who sits on the board'saudit committee. UBS declined to comment on those names.

In May, the U.S. Department of Justice and the Securitiesand Exchange Commission revealed they were investigatingUBS's conduct in relation to cross-border services providedby UBS advisers to U.S. clients from 2000 to 2007.

UBS shares were down 4.3 percent at 21.64 francs comparedto a 3 percent weaker European banking index Traders saidUBS, like other European banking stocks was tracking lossesby their U.S. peers overnight on rekindled worries over creditlosses, rather than reacting to the letter.

The stock lost 2.4 percent after UBS, Europe's biggestcasualty of the credit crunch, announced rich clients continuedto withdraw money in the second quarter and said it will separateits investment bank from wealth management.

The letter was now in the hands of the U.S. Department ofJustice, the FT said. UBS declined to comment on that.Birkenfeld, who admitted this year to helping a billionaire U.S.businessman evade millions in tax while at UBS, has been co-operating with the authorities, the paper added.

New yahoo election tally lets out big protest vote

Yahoo Inc recently released a recount of the vote for itsboard that sharply altered the results, revealing a strongprotest vote against five of nine directors including CEO JerryYang.

The Internet company said revised vote tallies showed33.7 percent of votes withheld for Yang, the company's co-founder, with 66.3 percent in favor of him remaining on itsboard.

Yang has been under pressure for months over failedattempts by Microsoft Corp to buy the company and overquestions about his leadership, but the shareholder vote hadsuggested the tide was turning in his favor. The initial tallyshowed 85 percent of votes going to Yang. The stunningnew twist in the saga of Yahoo came after one its largest andmost critical shareholders, Capital Research Global Investors,called on for a probe of the recent shareholder vote afterfinding discrepancies in the results.

Yahoo said it had been informed by Corporate ElectionServices, the company's inspector of elections, thatBroadridge Financial Solutions, a proxy voting intermediaryfor major investors, had made significant errors in reportingvotes at its annual shareholder meeting.

Three other directors, including Yahoo Chairman RoyBostock, also had strong protest votes, with nearly 40 percentof votes withheld for Bostock, 38 percent withheld for directorRon Burkle and 32 percent withheld for Arthur Kern. Thethree are members of the company's compensation committeeand have borne the brunt of criticism for the company refusingto do more to link executive pay to performance as corporategovernance critics have demanded.

A fifth board member, Gary Wilson, the former chairmanof Northwest Airlines, had 28 percent of votes on his reelectionwithheld. The remaining four board members -- VyomeshJoshi, Eric Hippeau, Robert Kotick and Mary Wilderotter -- allreceived strong endorsements, with each winning more than90 percent of votes in favor of their reelection. Ahead of theAugust 1 meeting, Kotick said he planned to resign shortlyafter the meeting as part of a settlement deal with proxychallenger Carl Icahn in which Icahn and two members of aslate proposed by the billionaire investor would join anexpanded board of 11 members instead of the previous nine.

Gordon Crawford, whose Capital Research GlobalInvestors owned 6.2 percent of Yahoo as of early June, saidin May he was "extremely angry" at Yang over the breakdownof talks with Microsoft. Critics of corporate voting technologyhave called for a system overhaul, said the counting processwas complicated and lacking in transparency.

In a statement, Broadridge acknowledged the error, butsaid it was an isolated incident and that it did not change theoutcome of the election of the company's directors.

"Upon review, it was determined that there was atruncation error in the final printout sent to the tabulator,"said Chuck Callan, Broadridge's senior vice president ofregulatory affairs. "


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JPMorgan, Morgan Stanley settle securities probe

JPMorgan Chase & Co. and Morgan Stanley became thelatest banks to reach settlements with New York AttorneyGeneral Andrew Cuomo and other regulators as part of ainvestigation into the collapse of the auction-rate securitiesmarket.

The pair of banks will repurchase a combined $7 billion inthe troubled securities at face value from investors. MorganStanley agreed to pay a fine of $35 million, while JPMorganwill pay a fine of $25 million.

JPMorgan and Morgan Stanley are the third and fourth toreach settlements, following deals by UBS AG and CitigroupInc. Regulators continue to investigate other banks as well.

In addition, Wachovia Corp. was in a final round of talkswith Cuomo and was expected to announce a settlement soon,according to a person close to the talks who spoke oncondition of anonymity because the agreement had not yetbeen finalized. The Charlotte, N.C.-based bank was close toagreeing that it will buy back $8 billion of auction-rate securitiesby the end of the year, the person said.

"We are doing an industrywide investigation," Cuomosaid during a news conference, adding that his office continuesto discuss settlements with additional banks that sold thesecurities. Cuomo's office, the Securities and ExchangeCommission and other state regulators reached settlementsthat required Swiss bank UBS to repurchase $18.6 billion inthe securities, while Citigroup agreed to buy back $7 billionof the securities. UBS will also pay a fine of $150 million, whileCitigroup will pay a $100 million fine.

The $330 billion auction-rate securities market involvedinvestors buying and selling instruments that resembledcorporate debt, except the interest rates were reset at regularauctions, some as frequently as once a week. A number ofcompanies and retail clients invested in the securities becausethey could treat their holdings almost like cash.

The bond-like investments were widely held by manyinstitutional and individual investors and were seen as highlyliquid, money market-like investments.

US closes 9th bank this year

Bank regulators closed Columbian Bank and TrustCompany, the ninth US bank to fail this year as the weakeningeconomy and falling home prices take their toll on financialinstitutions. Customers can access their money by check,teller machine or debit card, the Federal Deposit InsuranceCorp (FDIC) said.

Citizens Bank and Trust has agreed to assume the failedbank’s insured deposits. Columbian Bank and Trust’sbranches will reopen as branches of Citizens Bank and Trust,which is based in Chillicothe, Missouri.

The FDIC said Columbian Bank and Trust of Topeka,Kansas, had $752 million in assets, $622 million in deposits,and nine branches. The failure is expected to cost the FDICdeposit insurance fund an estimated $60 million. The FDICoversees an industry-funded reserve used to insure up to$100,000 per account and $250,000 per individual retirementaccount at insured banks. The biggest bank failure this yearwas IndyMac, seized by regulators on July 11. IndyMac had$32 billion in assets and $19 billion in deposits as of March. Itwas the third-largest bank insolvency in US history.Columbian Bank is the first bank to fail in Kansas sinceMidland Bank of Kansas in Mission, Kansas, on April 2, 1993,the FDIC said.

Indian hacker behind largest cyber heist?

An unknown Indian hacker is being charged with thegreatest cyber-heist in history for allegedly helping a criminalgang steal identities of an estimated eight million people in ahacking raid that could ultimately net more than 2.8 billionpounds in illegal funds.

An investigation by Scotland's Sunday Herald newspaperhas discovered that a previously unknown Indian hackersuccessfully breached the IT defences of UK's Best WesternHotel group's online booking system and sold details of howto access it through an underground network operated bythe Russian mafia.

There are no details yet on how the hacker was identifiedto be an Indian and if a probe is on to identify the person. It isalso not known if the hotel chain has alerted the police aboutthe heist. The attack scooped up the personal details of everysingle customer that has booked into one of Best Western's1312 continental hotels since 2007. Amounting to a completeidentity-theft kit, the stolen data includes a range of privateinformation including home addresses, telephone numbers,credit card details and place of employment.

"They've pulled off a masterstroke here," said securityexpert Jacques Erasmus, an ex-hacker who now works for thecomputer security firm Prevx. "There are plenty of hackedcompany databases for sale online but the sheer volume andquality of the information that's been stolen in the BestWestern raid makes this particularly rare. The Russian gangswho specialise in this kind of work will have been exploitingthe information from the moment it became available. In thewrong hands, there's enough data there to spark a majorEuropean crime wave."


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Mobiles play banker for rural India and Bangla-desh

Masses in under-banked regions may now be able toperform banking transactions using their mobile. Obopay, apayment services provider and Grameen Solutions, a GrameenBank subsidiary, have entered into a tie-up to provide mobile-banking services to the poor in India and Bangladesh.However, these services will have to wait for the ReserveBank of India’s (RBI) guidelines which are expected anytimenow.

This may include services such as cross-border fundtransfers, payments, savings and credit accounts. However,it can be operationalised only after the central bank releasesfinal guidelines on mobile banking. By December 2008, thetwo entities are planning to launch fund transfers betweenIndia and the US.

RBI has asked banks to put their plans to launch mobile-banking services on hold till these guidelines are released.Obopay plans to enter into a partnership with three banksand a few micro-finance institutions based in India, such asSKS Microfinance and Ujivan. The company is also lookingat utilising the business correspondent model to expand.

Speaking on the sidelines of a conference, Obopayexecutive director Aditya Menon said, “We are in talks withfour banks and a few MFIs in India.

The aim is to use the mobile device for facilitatingpayments, but this can be done only though regular bankingchannels. This will help lower cost of transactions for MFIswhich face huge operational expenses, as they largely offerdoorstep services.”

According to statistics compiled by Obopay, only 34% ofthe Indian population currently has an access to bankingservices. India is seen having the second-largest number ofunbanked households at 13.5 million, and among those whohave an account, nearly 40% do not even access the accountonce a month.

Obopay CEO Carol Realini said, “Both Obopay andGrameen Solutions are run on a for-profit model. However,the idea here is to provide services, which are affordable andconvenient for end-users. Also, MFIs offering services atcustomers’ doorstep could be risky. Hence, it serves better tomake it automated.

We are targeting a one billion customer base by 2018.”The idea is to roll out two platforms — one in India and theother in Bangladesh. Obopay would bring in the technicalexpertise by providing the last-mile connectivity whileGrameen Solutions would provide the know-how from themicro-credit angle.

The cashless way to cash in on MFs

Many companies have perfected the art of making a fastbuck from mutual funds (MFs) without investing a penny.They do this by playing around with the cut-off timings setby fund houses for accepting cheques from investors. Thisis how it works: companies and some high net worth investorsgive cheques to buy units of liquid-plus MF schemes justbefore the weekend, when there’s no money in their currentaccounts.

They enjoy free returns for two days, fund their accountson Monday morning, stay invested for a few more days andthen switch to a new scheme to play the game all over again.For mutual funds, it’s like offering the net asset value (NAV)of the scheme to the investor without receiving any money.It’s akin to a bank paying interest on a non-existent deposit.Fund houses know the game, but are unwilling to spoil theirrelationship with big investors.

Google, Yahoo partially disclose ad pact

Google Inc (GOOG.O) and Yahoo Inc (YHOO.O) releasedexcerpts of a pact covering their search advertising partnershipthat keeps secret financial terms and the extent of other tiesbetween the two.

In a filing with the U.S. Securities and ExchangeCommission, the companies take the unusual step ofdisclosing the contract governing the partnership, but leaveout any financial terms, such as the revenue split on theirdeal.

Companies in the Internet industry typically jealouslyguard the terms of such contracts to protect their ability tonegotiate pricing at variable terms with other customers.

Critics say the deal threatens competition for advertisingthat runs alongside Web searches. Congressional leadershave conducted hearings to investigate what impact thepartnership could have on the Internet market. The agreementcovers the United States and Canada, but not otherinternational markets.

Financial reforms to focus on i-banks

The global financial crisis may have sparked calls formarkets and governments to be more tightly regulated, but ayear after the credit crunch hit reforms are still a long way off,analysts said. The reforms would largely target investmentbanks, which are accused of indiscriminately approving riskyloans, then buying or selling financial products linked to theseloans, leading to the US subprime market collapse.


36

Credit rating agencies have also been criticised forcontributing to world financial turmoil by not sounding thealarm. In April, finance ministers of the G7 nations approveda series of recommendations from the Financial StabilityForum (FSF) to improve the practices of banks and financialmarkets. But the recommendations, which aim to improvegood practice and transparency without restricting behaviour,have yet to be executed. In July, the European Commissionalso put forward similar measures to supervise credit ratingagencies.

"Governments needed to show that they were doingsomething," said Andrew Haynes, who teaches internationalbanking law at Wolverhampton University in central England,in an interview with AFP. Another ambitious plan, proposedin March by the US Treasury Secretary, Henry Paulson, tooverhaul the US regulatory system and strengthen the USFederal Reserve's monitoring role has also stalled. "Nothingwill happen until the presidential election", said PatriciaMcCoy, a professor of law, banking and securities regulationat the Connecticut University. When George W. Bush'ssuccessor was elected, McCoy said she expected "a big, bigfight" because "the agencies and investment banks are goingto resist" any significant regulation.

But there are other complications. Despite announcingoperational changes to boost transparency and the spread ofinformation, the three main credit rating agencies, Standardand Poor's, Moody's and Fitch, will still be paid by thecompanies they rate. A further weak set of proposals putforward in June by the US Securities and ExchangeCommission, the official regulator for the agencies, is alsomaking little impact. At the same time, investment banks andcredit rating agencies have little to fear from the creation of anew international Committee on Banking Supervisionsuggested by G7 members which would group regulators fromdifferent countries.

European fraud sinks SOCGen's India Project

One of the largest global securities frauds in recent timesthat cost French banking major Societe Generale (SocGen) $7billion early this year has now come to haunt its India plans.

The government has rejected SocGen’s proposed 35:65joint venture with India’s largest bank, the State Bank of India(SBI), for custodial and depository services, after the ReserveBank of India (RBI) raised concerns about the securities scamin Europe. The central bank also highlighted that SocGenwas found violating trading norms in Zurich.

SBI had, in June, signed a joint venture agreement withSociete Generale Securities Services (SGSS), a division of theSocGen Group, to offer custodial and depository services inIndia. According to this agreement, the SBI was to appoint

the CEO and SocGen the deputy CEO. The SBI was supposedto invest Rs 52 crore while SocGen was to bring in FDI worth28 crore.

Raising objections, the RBI said the government needs totake into account regulatory and supervisory concerns arisingout of the international developments while clearing theproposed JV. The regulator specifically referred to twoinstances. It pointed out that a Zurich-based exchange, SWK,had imposed a fine on SocGen for violating trading rules byallowing authorised traders to make transactions under otherpeople’s name, besides allowing an unauthorised trader totrade on the exchange.

BNP, Indian executive in dock for data theft

Thomas Weisel Partners LLC, a US-based investmentbanking outfit, has sued French banking giant BNP Paribasand one of its Indian employee in a California court allegingdata theft from its Indian subsidiary.

Thomas Wiesel alleges that the sudden departure of thehead of research of its India unit at the end of 2007, who leftwith his entire team, forced the company to shut down itsresearch unit in Mumbai which led to a loss of millions ofdollars. The head of research also had access to confidentialclient information, says Thomas Wiesel. While all thishappened in Mumbai, Thomas Wiesel wants a California courtto hear the case, claiming that the Indian legal system is weakin protecting intellectual property. BNP Paribas, for its part,wants the case to be heard in India.

BNP Paribas recently argued before the US court that itwanted the case to be resolved in line with Indian laws, asboth companies in question are based in Mumbai andintellectual property rights are very strong in the country. Alawyer familiar with the case told ET that Thomas Weisel hasdisputed this, saying the Indian legal system takes muchlonger to resolve disputes related to intellectual propertyrights.

Consequently, it would be better if the American courtshear this case, the US investment bank has argued. KKVenugopal is the advisor to BNP Paribas. The genesis of thedispute can be traced to end-2007 when Thomas Weisel fileda suit in the US Court of the Northern District of California.

According to the suit, Praveen Chakravarty, currentlychief perating officer of BNP Paribas Securities Asia, joinedthe French banking giant from Thomas Weisel’s Indiansubsidiary in December 2007. Chakravarty, who was head ofresearch at Thomas Weisel, took the entire research team atthe investment banking outfit to BNP Paribas, which led tothe closure of the Mumbai unit. Within days, Thomas Weiselmoved the American court.


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When contacted, the BNP Paribas India spokespersondiverted queries to its Hong Kong office and said thatChakravarty will not speak on this issue. A telephone queryand an e-mail to BNP Paribas in France did not elicit anyresponse.

The San Francisco-based firm said Mr Chakravarty, thenbased in the US, had joined in 2003 and he had signed aconfidentiality agreement on client information, marketingstrategies and terms of employment in the US, a lawyer closethe development said. In 2005, Mr Chakravarty was sent toIndia to set up the research unit. In November 2007, 17employees, including 10 analysts of Thomas Weisel, quit thecompany and joined BNP Paribas.

Within days, BNP Paribas announced the setting up of itsIndia-based research team led by Chakravarty. Stung by thismass exodus which led to the closure of its India researchunit, Thomas Weisel sought punitive damages and safe returnof its trade secrets from both Chakravarty and BNP Paribas.

In the suit, Thomas Weisel said Chakravarty sharedconfidential information, including current and projected profitand loss statements, research reports, coverage decisions,contact information for covered companies, employee trainingmaterial besides customer information with BNP Paribas. Asimilar research unit would have taken BNP Paribas millionsof dollars to set up. The American company then made eightclaims against Chakrabarty and six claims against BNP Paribas.Currently, the legal proceedings are centred on which countryis the appropriate forum to hear the case.

Net traffic begins to bypass US

The era of the American Internet is ending

Invented by American computer scientists during the1970s, the Internet has been embraced around the globe.During the network’s first three decades, most Internet trafficflowed through the United States. In many cases, data sentbetween two locations within a given country also passedthrough the United States.

Engineers who help run the Internet said that it wouldhave been impossible for the United States to maintain itshegemony over the long run because of the very nature ofthe Internet; it has no central point of control.

And now, the balance of power is shifting. Data isincreasingly flowing around the United States, which mayhave intelligence — and conceivably military —consequences.

American intelligence officials have warned about thisshift. “Because of the nature of global telecommunications,

we are playing with a tremendous home-field advantage,and we need to exploit that edge,” Michael V. Hayden, thedirector of the Central Intelligence Agency, testified beforethe Senate Judiciary Committee in 2006. “We also need toprotect that edge, and we need to protect those who provideit to us.”

Indeed, Internet industry executives and governmentofficials have acknowledged that Internet traffic passingthrough the switching equipment of companies based in theUnited States has proved a distinct advantage for Americanintelligence agencies. In December 2005, The New York Timesreported that the National Security Agency had established aprogram with the cooperation of American telecommunicationsfirms that included the interception of foreign Internetcommunications.

Some Internet technologists and privacy advocates saythose actions and other government policies may be hasteningthe shift in Canadian and European traffic away from theUnited States.

“Since passage of the Patriot Act, many companies basedoutside of the United States have been reluctant to storeclient information in the U.S.,” said Marc Rotenberg, executivedirector of the Electronic Privacy Information Center inWashington. “There is an ongoing concern that U.S.intelligence agencies will gather this information without legalprocess. There is particular sensitivity about access tofinancial information as well as communications and Internettraffic that goes through U.S. switches.”

Climate fight hit by economy

The fight against global warming is in danger of beingdowngraded on more urgent fears over energy security,heightened by a Russian war with Georgia, and a globaleconomic slowdown.

Added to the mix - politicians are faced with a risingclamour of complaints from voters over record fuel bills, andracing gas and oil prices have sparked new interest in high-carbon coal as well as cleaner alternatives.

"A few years ago it was all about climate change. Nowenergy security has come up too. The problems arise whenthe two come into conflict," said Michael Grubb, chiefeconomist at the Carbon Trust think-tank. Energy securitycan clash with the fight against climate change. In particular,the cheapest, energy source is coal, which also emits themost greenhouse gases when burned to generate electricity.

The sight two weeks ago of Russian tanks rolling intoGeorgia, a key energy transit route to Western Europe, has


38

raised anxieties about Europe’s dependence on Russia for aquarter of its natural gas and thrown a spotlight on alternativeslike coal, wind and nuclear.

Poland said last week that the Russia-Georgia dispute hadmade gas a less attractive source of electricity. That shift hasalarmed environmentalists who have also accused Eulawmakers of weakening emissions curbs from cars andplanes.

The trick is to balance the three issues of climate change,energy security and fuel poverty, said Welsh MEP ElunedMorgan, who is guiding legislation to liberalise EU powermarkets through the European Parliament.

California moves on bill to curb sprawl, emissions

California, known for its far-ranging suburbs and jam-packed traffic, is close to adopting a law intended to slow theincrease in emissions of heat-trapping gases by encouraginghousing close to job sites, rail lines and bus stops to shortenthe time people spend in their cars.

The measure, which the State Assembly passed and awaitsfinal approval by the Senate, would be the nation’s mostcomprehensive effort to reduce sprawl. It would loosely tietens of billions of dollars in state and federal transportationsubsidies to cities’ and counties’ compliance with efforts toslow the inexorable increase in driving. The goal is toencourage housing near current development and to reducecommutes to work.

Gov. Arnold Schwarzenegger, a Republican, has not saidwhether he will sign the bill.

The number of miles driven in California has increased ata rate 50 percent faster than the rate of population growth forthe past two decades. Passenger vehicles, which produceabout 30 percent of the state’s heat-trapping gases, are thesingle greatest source of such emissions.

The fragile coalition behind the measure includes somelongtime antagonists, in particular homebuilders and leadingenvironmental groups in California. Both called the measurehistoric. The bill yokes three regulatory and permit processes.One focuses on regional planning: how land use should besplit among industry, agriculture, homes, open space andcommercial centers. Another governs where roads and bridgesare built. A third sets out housing needs and responsibilities— for instance, how much affordable housing a communitymust allow.

Once state approval is granted, or an alternative plansubmitted, billions of dollars in state and federal transportationsubsidies can be awarded.

Instittue of Directors, India marches in its 20th year

August has been one of the busiest months. IOD launchedanother initiative- International Academy of Law (IAL), withlegal luminaries, government officials, regulators and businessleaders such as Justice P N Bhagwati, (Chairman), Justice R CLahoti (Co-chairman), Justice Ruma Pal, Mr Fali Nariman,Abhishek Singhvi, Mr K K Venugopal, Mr Vinod Dhall ActingChairman Competition Commission, Mr M Damodaran formerchairman SEBI and Mr Yogi Deveshwar as founding members.Dr Madhav Mehra , as usual was the facilitator as presidentof of the academy. IAL has already commenced its work fromIOD Convention Centre in Gurgaon and will be holding thefirst International Convention on Cyber Security on 29-30November 2008 in New Delhi.

This was followed by the 19th Annual Day celebrationson 2 August 2008 with the theme of ‘Making Capital MarketsWork through Corporate Governance’. The theme addresswas given by Dr Madhav Mehra and the keynote address byShri M Damodaran, former chairman SEBI. HE Dr A R Kidwai,Hon’ble Governor of Haryana was the chief guest and handedover the IOD Distinguished Fellowship Awards to some ofIndia’s most eminent persons. Malvinder Mohan Singh, CEO& MD of Ranbaxy Labs Ltd received the Golden PeacockBusinesses Leadership Award.

The next event was the launch of Chennai chapter of IODon 09 August 2008 by Justice M N Venkatachalliah, NationalChairman of IOD and former Chief Justice of India. The eventwas attended by over 200 business leaders of Chennai. DrMadhav Mehra, founder President IOD and Dr SudarshanMaini, Chairman, Maini Group, Bangalore and Chairman IODSouth India Chapter also graced the occasion. The GoldenPeacock Lifetime Achievement Award for EnvironmentalManagement was presented to Dr MS Swaminathan.

Leadership Development is an ongoing process in IOD.Masterclasses for Directors were held simultaneously duringthis month in Mumbai, Delhi, Bangalore and Chennai. DrMehra must have had the most excruciating time because hehad to shuttle back to back from addressing one event to theother during the whole month. One of his crowningachievements and also the one he found most satisfying wasthe chairing the African Directors Forum at Johannesburg inSouth Africa on 14 and 15 August 2008.

It’s next major event is the 9th International Conferenceon Corporate Governance along with the World Council forCorporate Governance, UK on 18-19 September 2008. Theevent would also include presentation of Golden PeacockAwards on Training, Innovation and Corporate Governance,along with Global Awards on Corporate Governance andCSR Reporting by Dr Ola Ullsten, former Prime Minister ofSweden.

Presentation ofGolden Peacock Award for

Cyber Security

Last Datefor Paper / Award

final entries22nd October

2008

LEGISLATION, MONITORING ANDENFORCEMENT OF CYBER LAWS

29 - 30 November 2008New Delhi, India

INTERNATIONAL CONFERENCEON CYBER SECURITY

WORLD COUNCILFOR CORPORATEGOVERNANCE

www.iodonline.comwww.wcfcg.net

The International Academy of Law is a Registered Society registered in the NCT of Delhi, India

Organised by

Supported by

PIAS

®

Centre For CorporateGovernance

INTERNATIONALACADEMYOF LAW

INTERNATIONALACADEMY OF LAW


IOD CONVENTION 2009Quality and Excellance in the Economy of Surprise

19th World Congress on Total Quality16-18 January 2009, Mumbai, India

www.qualitymillennium.com

® IOD is an apex association of directors with its Trade Mark registered in India

Supported by

CALL FORPAPERS

Abstracts by10 October 2008


Centre For CorporateGovernance

®

REGISTRATION ADDRESS :WCTQ Secretariat (India), Institute of DirectorsM-64, Greater Kailash - II, New Delhi - 110 048 Ph. 011-41636294, 41638715Fax : 011-29217475/41636292 Email : [email protected]

WCTQ Secretariat (London), World Council for Corporate GovernanceLONDON: 1 Northumberland Avenue Trafalgar Square, London WC2N 5 BWPh: 44 204 727 8001/207 872 5784 Fax: 44 207 723 6072Email: [email protected]; [email protected]

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