Why are corporate governance codes useful? Presented by: Mervyn E. King S.C. GCGF – PEP MENA 14 March CAIRO
A company is sovereign Mervyn E. King S.C. EP
Mervyn E. King 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
Mervyn E. King 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
Mervyn E. King 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
Mervyn E. King 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
Mervyn E. King Incapacitated person Human being Best interests, care, skill, diligence Decent citizen thing to do Company an artificial citizen Incapacitated Director, heart, mind and soul
Mervyn E. King A changed corporate world 1855 Limited liability Wealthy families Latter half of 20 th century Shareowner revolution Exclusive / Inclusive Created and destroyed Scandals
Mervyn E. King 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?
Mervyn E. King The world is flat Capital a scarce resource Flows towards good governance Borderless world Need governance articulated
Mervyn E. King Assurances on information Inside and outside directors Asymmetrical knowledge Integrity of management Internal controls/audit External audit
Mervyn E. King Quality or quantity Intent of all codes/laws to improve quality Mindless compliance Checklist as an aid Improve processes
Mervyn E. King Useful to have a code When wrong business judgment call Cheaper capital Part of a flat world How to direct Legitimacy Assurances on information
Mervyn E. King 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 surgeon’s knife
Mervyn E. King First incision Good faith Care Skill Diligence
Mervyn E. King Second incision Fairness Accountability Responsibility Transparency
Mervyn E. King Inclusive approach Purpose Values Stakeholders Parcel and document delivery service Board accountable to company Responsibly and responsively to stakeholders
Mervyn E. King 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
Mervyn E. King 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
Mervyn E. King Usefulness of a qualitative application of a country specific code Downturn – support of stakeholders Quicker turnaround Sustainability – NFA’s Attract better employee Cheaper capital No scandal on wrong business judgment call Company’s reputation Special circumstances
The Corporate Citizen “The Corporate Citizen”
“The Corporate Citizen” Available from orwww.kalahari.net