Why are corporate governance codes useful?

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Why are corporate governance codes useful?

• Presented by
• Mervyn E. King S.C.
• GCGF PEP MENA
• 14 March 2006 - CAIRO

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A company is sovereign
E
P

• Mervyn E. King S.C.

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Governance about processes

• Processes to discharge and for directors to be
  seen to be discharging their responsibilities
• Outsiders looking in
• Tick box quantitative
• Hindsight qualitative
• Norms

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The directing functions of any entity (1)

• Determine purpose, values and stakeholders
• The Strategy
• Exercize leadership
• Procedures to protect assets
• Monitor management implementation
• Comply with laws and regulations

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The directing functions of any entity (2)

• Technology and systems adequate
• Identify key risk areas
• Identify key performance indicators
• Succession
• Evaluate performance
• Transparent communication
• Conformance and performance

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The context of operations

• The board collective reflective
• The directors individual responsibility
• Management implementation
• Internal Stakeholders Employees etc.
• External Stakeholders Trade Union etc.
• Communities
• The licence to operate

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Incapacitated person

• Human being
• Best interests, care, skill, diligence
• Decent citizen thing to do
• Company an artificial citizen
• Incapacitated
• Director, heart, mind and soul

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A changed corporate world

• 1855 Limited liability
• Wealthy families
• Latter half of 20th century
• Shareowner revolution
• Exclusive / Inclusive
• Created and destroyed
• Scandals

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Crisis of confidence

• Enron
• You were a shareholder
• Legitimacy of business
• Is corporation the correct vehicle for business?
• Is the nation state the correct vehicle for a
  country?

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The world is flat

• Capital a scarce resource
• Flows towards good governance
• Borderless world
• Need governance articulated

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Assurances on information

• Inside and outside directors
• Asymmetrical knowledge
• Integrity of management
• Internal controls/audit
• External audit

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Quality or quantity

• Intent of all codes/laws to improve quality
• Mindless compliance
• Checklist as an aid
• Improve processes

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Useful to have a code

• When wrong business judgment call
• Cheaper capital
• Part of a flat world
• How to direct
• Legitimacy
• Assurances on information

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But what is good governance?

• Not a recording machine
• Past prejudices
• Present needs
• Conscious that one must practise qualitative and
  not quantitative alone
• Intellectual honesty the foundation
• A surgeons knife

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First incision

• Good faith
• Care
• Skill
• Diligence

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Second incision

• Fairness
• Accountability
• Responsibility
• Transparency

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Inclusive approach

• Purpose
• Values
• Stakeholders
• Parcel and document delivery service
• Board accountable to company
• Responsibly and responsively to stakeholders

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Decent corporate citizen

• Ownership creates responsibility
• Company should be and be seen to be a decent
• citizen
• The non-financial aspects of governance
• The triple bottom line
• Social, economic and environmental
• Needs of the present
• Without compromising the ability of future
• generations to meet their own needs

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Quality is the correct measure

• Cannot be achieved by mindless compliance
• Intellectual honesty
• Immutable
• Company inanimate, immortal, incapacitated
• Good governance starts and ends in the boardroom
  and senior executives offices

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Usefulness of a qualitative application of a
country specific code

• Downturn support of stakeholders
• Quicker turnaround
• Sustainability NFAs
• Attract better employee
• Cheaper capital
• No scandal on wrong business judgment call
• Companys reputation
• Special circumstances

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The Corporate Citizen
22
The Corporate Citizen

• Available from www.kalahari.net or
• www.exclusivebooks.co.za