THE BENEFITS OF IMPROVED CORPORATE GOVERNANCE PRESENTED BY MERVYN E KING S.C.

Structure of Talk  Improved=good  What is good corporate governance?  What does practising CG guidelines achieve?  What are the benefits of doing so?

Corporate Governance  How is a company directed and controlled – standard definition.  Company directed by its directors  Controlled by its shareholders  How do directors direct?  How is the business of a company controlled?

A director’s duties - responsibilities  Good faith  Care  Skill  Diligence

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

Corporate Governance about process  Process to discharge and be seen to be discharging those responsibilities  Outsiders  Information needed to invest, supply etc  Quality of information.

Codes  Cadbury, Greenberg, Hampel  Higgs, Smith, King, Bosch, Dey  Sarbanes/Oxley Act  NYSE and Nasdaq listing requirements  OECD principles  Commonwealth principles  GRI, SRII, GRI  Winter in the EU  Mauritius, Kenya, Malaysia, Hong Kong  ASX and NZSX

Can Code avoid failure?  Governance about process  Enterprise – strategic  Risk for reward – failure  Good governance and failure  Acceptable  Bad governance – failure - scandal  Not acceptable.

Business  An ethical enterprise  Uncertain future events  Comply or explain  Comply or else  Rules vs principles  King vs Sabannes Oxley.

Compliance  Mindless  Compliance officer  Apply mind  Not suitable for business  Explain  Market ultimate compliance officier.

Enron  Had the trappings of good governance  Quantitatively complied  Non executives  Good board attendance  Committees of board  Yet dysfunctional.

Enron – Why?  Self interest  Greed  Dishonest – 900 SPE’s  Appears to prop up share price  Codes will not help  Failure to discharge good faith, care, skill and diligence.

Critical issues in Enron  Lack of quality governance  Failure of performance and conformance  Scandal  Confusion director/manager role.

Qualitative Governance  Not a recording machine  Past prejudices  Present needs  Conscious that one must practise qualitative and not quantitative alone  Intellectual honesty.

How to Practise Qualitative Governance  Exercise of intellectual honesty  Directors can learn  Directors must practise  Eight questions  All on one foundation.

Question One  Is there any conflict?  Duty of good faith.

Question Two  Do I have all the facts to enable me to make a decision?  Duty of care  Duty of skill  Duty of diligence.

Question Three  Is this a rational business decision based on all the facts?  Duty of care  Duty of skill  Duty of diligence.

Question Four  Is the decision in the best interests of the company?  Duty of good faith  Duty of care  Duty of skill.

Question Five  Is the communication to stakeholders transparent?  Duty of good faith  Duty of care  Duty of skill  Sunlight best disinfectant  Electric light best policeman  Withering effect on misconduct.

Question Six  Is the company acting in a socially responsible manner?  Duty of care  Duty of Skill  Duty of diligence.

Question Seven  Am I acting as a good steward of the company’s assets?  Duty of care  Duty of skill  Duty of diligence.

Question Eight  Would the board be embarrassed if its decision and the process employed in arriving at its decision appeared on the front page of a national newspaper?  Duty of care.

Benefits of qualitative governance  Downturn – support of stakeholders  Quicker turnaround  Sustainability – NFA’s  Attract better employee  Cheaper capital  No scandal on wrong business judgment call  Company’s reputation.

Quality is the measure  Intellectual honesty  Immutable  Company, inanimate and immortal  IH starts and ends in boardroom.

Conclusion  Profit with intellectual honesty is the essence of good governance  Good governance can be practised by being aware of the four common law duties and by constantly asking oneself the eight questions.  A journey not a destination  But the benefits are enormous.