Governance Jos Luhukay, PhD National Committee on Governance National Information & Communications Technology Council 17 January 2007 Balancing Economic Integrity & Social Governance: A Corporate View

1  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

2  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

3 The Company Value Iceberg Market Capitalization Intangibles (Intellectual Capital, other Nonfinancials, Stakeholder Relationships, etc) Tangibles (a.o Financial Capital, Balance Sheet)

4 The Company Value Iceberg (1991) 17% 83% Market Capitalization Intangibles / Nonfinancials Tangibles / Financials Arthur D. Little, The Business Case for Corporate Citizenship, 2002)

5 The Company Value Iceberg (1998) 71% 29% Market Capitalization Intangibles / Nonfinancials / Stakeholder Relationships Tangibles / Financials Arthur D. Little, The Business Case for Corporate Citizenship, 2002)

6 The Business Case Market Capitalization Intangibles / Nonfinancials Tangibles / Financials Regulators Customers The Media Suppliers Unions Community NGOs Investors Employees Biosphere Competitors Developers

7  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

8 A (Simplified) Business Model Customers Provides Benefits (Goods and Services) Provides Funds Leaders Provides Plans Auditors Feedback on Costs Feedback on Benefits Feedback on Value Owners Regulator/ Government Provides Influence Provides Influence Community Interest Provides Influence Provides Influence Provides Resources Provides Wealth Suppliers/ Unions Provides Purchased Goods and Services Provides Influence CORPORATION

9 A Tsunami of Business Risks Market Forces (10) Business Risks (5) Mega-Issues (5)Demanding Stakeholders (5) Climate ChangeAwakened Customers Market Risk Balance Sheet Risk Operating Risks Capital Cost Risks Sustainability Risks + Difficult access to capital Pollution & HealthActivist Shareholders Globalization Backlash Civil Society / NGOs Energy CrunchGovernment Regulators Erosion of TrustFinancial Sectors

10 Negative Impact of the Market Forces 10 Market Forces 5 Mega-Issues5 Demanding Stakeholders Climate ChangeGreen Consumers Pollution & HealthActivist Shareholders Globalization BacklashCivil Society / NGOs Energy Crunch Government Regulators Erosion of TrustFinancial Sectors Sea Change Of Rising Expectations

11 … and a Sea of Opportunities 10 Market Forces 5 Mega-Issues5 Demanding Stakeholders Climate ChangeGreen Consumers Pollution & HealthActivist Shareholders Globalization BacklashCivil Society / NGOs Energy Crunch Government Regulators Erosion of TrustFinancial Sectors Innovation Productivity Growth Brand Image Competitive Advantage $aving$ Revenue

12  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

13 Corporate Priorities Productivity Brand Image Profit Growth Attracting & Retaining Top Talent Managing Risks Innovation Speed to Market Leadership Market Share Staff Motivation Share Price Competitive Advantage Governance Expense Savings New Markets Complying with New Regulations Attracting & Retaining Customers Responding to Emerging Market Forces Revenue

14  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

15 5 Stages in Corporate Maturity 5. Purpose / Passion Integrated Strategy 3. Beyond Compliance 2. Compliance 1. Pre-Compliance Regulatory Threat PR Crisis Passionate Founder / CEO Regulatory Pressure / Enforcement P r o a c t I v e Reactive Business Opportunities – “Carrots” Risk Management – “Sticks”

16 Extreme Mental Models Extreme Business View Extreme Integrated View Environment ECONOMY Society ENVIRONMENT Society Economy

17 Potential Benefits 1.Reduced electricity, fuel, and waste costs 2.Reduced recruiting costs 3.Reduced attrition costs 4.Increased employee productivity 5.Increased revenue / market share 6.Reduced risk, easier financing Usual focus

18  The Corporate Value Iceberg  Balancing Risk-Taking and Revenue Generation  Corporate Priority Setting  Balancing Business Pursuits and Social Governance  Conclusion Topics

19 Implementing the Concept 1. Show senior leadership  Include sustainable development in vision, mission & strategies  Avoid “green-washing”, “me too” hype  Visibly support sustainable development: speeches, questions, actions 2. Educate the whole company  Visibly sponsor and support the sessions 3. Establish a “Corporate Governance Committee” as part of the Board of Commissioners  Led by a senior commissioner  Reinforces that it is business strategy vs. compliance or philanthropy issue

20 Quasi Single-Board Structure Executive Management Corporate Governance Committee Risk Mitigation Committee Audit Committee Commissioners

Governance Thank You Balancing Economic Integrity & Social Governance: A Corporate View