Governance as Part of Managerial Leadership EXLD 540 © 2010, Jens Mueller

Case Study 1 – Corporate Governance in Singapore Page 201 NTUC Fair Price Cooperative

Governance as Part of Managerial Leadership Cambodia Mekong University © 2013, Jens Mueller

Friedman – The Duty The individual must serve a more general social interest–whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not. Unfortunately, unanimity is not always feasible. © 2009 Jens Mueller m@usainfo.net

Mueller – The Commitment Main driver for joining a board in NZ is “wanting to do good” Most independent directors have poor governance skills but good executive knowledge Independent directors serve with more than a legal obligation – they want to make a difference

Hints for your group work: Assess an organization within your group: Stakeholder focused? Clear separation of duties? Strong governance in theory and practice? Engagement and participation of all in corporate governance? Whistleblower pathways? Effective board based on quality input by independent contributors?

Board Purpose “The definition of a board is an organized group of people with the authority collectively to control and foster an institution that is usually administered by a qualified executive and staff.” Cyril O. Houle Governing Boards: A Publication of the National Center for Nonprofit Boards

Board Functions

Legal Duties Public accountability Filing and reporting duties No harm to creditors No violations by company management Possibly duties against the shareholder interests Personal unlimited liabilities

Governance and Conflicts Conflicts prior to joining the board Conflicts emerging while on the board Understanding fiduciary duties Perceptions of conflicts Creating and maintaining a standard of conflict-free governance

Ethical Board Guidance Conflicts prior to joining the board Conflicts emerging while on the board Understanding fiduciary duties Perceptions of conflicts Creating and maintaining a standard of conflict-free governance

Auditing and Financial Planning Being able to understand financial statement If you understand ratios, you are fine What information should the Board receive? How is that information prepared? What are the warning signals? Are there regulatory delays?

Documentation and Operation of Board meetings The role of chairs and directors When and how often and how does the board meet? Agenda and Minutes The cloak-and-dagger meetings outside of the scheduled meetings

Leadership Do board members have to be old? Board members from outside the industry Directors who complement skills rather than overlap skills The board as a group of respected friends

Separation of Governance and Management The creeping involvement of directors in operational decision-making How should executives participate in/for board meetings? What if the board members have ‘been there, done that’ and know the operational side well?

Board Compensation Low pay for directors Alignment of benefits from the top down Where are the non-cash benefits? What is a director worth?

Board Review Regular self-evaluations with or without an external facilitator Opportunities for directors to comment on each others’ performance and contribution Board reporting to shareholders and stakeholders about its own development and upskilling

Board Recruitment It’s who we know It’s who can predict It’s who fits in It’s who says yes a lot It’s who is close It’s who looks good It’s who impresses others

“Pick a Leader” Candidate 1 Associates with crooked politicians Consults with astrologers Two mistresses Chain smokes Drinks up to 10 Martinis per day

“Pick a Leader” Candidate 2 Ejected from office twice Sleeps until noon Smoked Opium in college Drinks large quantities of whiskey every evening

“Pick a Leader” Candidate 3 Decorated war hero Vegetarian Non smoker Drinks an occasional beer No extra-marital affairs

Where is Diversity Needed? The recognition that diversity among directors is important, varies significantly throughout New Zealand. The largest number of firms which valued diversity highly came from diversity in Christchurch and Dunedin, In contrast Auckland and Hamilton trailed the rest of New Zealand. Gender and Professional skills are less important than Track Record, Work Experience, Global Experience and Age

Governance Failures How do failures make themselves known? Can directors be ignorant of issues? What structures are needed to flow information freely to the Board? How are failures communicated effectively?

Boards in Small/Family-Controlled Firms

Boards in Non-Profits

Boards in Non-Profits Highly committed ideologists Very knowledgeable about the purpose and vision Large and welcoming Well networked and easily accessible Often deeply involved in the operation

Boards in Non-Profits, ctd. Third Sector Uniqueness Lack of transferable managerial skill Lack of scalable knowledge Mistrust towards any non-sector entity/person Oblique disclosure Competitive with all other non-profits Rarely well managed and transparent Poor accountability standards

Are NPOs automatically more ethical/socially responsible? Fund raising Staff/volunteer recruitment Reporting to funders Accountability to stakeholders Internal performance assessment © 2009 Jens Mueller m@usainfo.net

“But Dad: Everyone’s Doing It” Rationalizing unethical behavior Pressure to go along with peers “The way we do things around here” Solution: If there are rules, they apply to all, and they are enforced at peril of pain If there no rules, new ones are made through consultation

Ethics as an Organizational Culture Cookie Cutter templates do not work Strong cultures can handle hard choices Leaders create culture

From Mind to Gut Get the facts Tightly define the issue Who are the affected stakeholders What are the obligations/duties What are the consequences How do your character/integrity relate What are the action choices Check your Gut