2007 Kuala Lumpur Rotary Institute CORPORATE GOVERNANCE by Tan Sri Ramon Navaratnam 2007 Kuala Lumpur Rotary Institute CORPORATE GOVERNANCE by Tan Sri Ramon Navaratnam President of Transparency International Malaysia On 1st December 2007 at Shangrila Hotel, KL

Introduction “Governance of corporations is now as important in the world economy as the government of countries” James Wolfensohn, former president of World Bank

Definitions Good Governance Good Governance – ( UN Economic and Social Commission for Asia and the Pacific ) –the process of decision-making and the process by which decisions are implemented (or not implemented).

Corporate Governance (Definition) Traditional definition of CG : a set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. Traditional definition of CG : a set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. It includes relationship among the stakeholders and the goals of the corporation The term CG nowadays means –the processes by which all companies are directed and controlled

Importance of good CG Economic efficiency – CG system must aim to optimise economic results with strong emphasis on shareholders’ welfare and stakeholders’ views Establishing good CG is essential to sustaining long term development and growth Good CG systems will allow organisations to realise their maximum productivity, minimise corruption and abuse of power and provide a system of managerial accountability.

Key questions in Good Corporate Governance i. Who has the key information at their disposal ii. Who makes the decision iii. Who has the power to influence iv. How are decisions taken v. Who benefits from them vi. Who loses as a result vii. Who renders an account

Tools in combating corruption in private sector Proper accounting standards Creating a system of fair, honest, transparent market-based principles of business practices Improve quality of information and increase the speed of distribution of information to public A functioning democratic system to check the excesses of the private sector

Why Good Corporate Governance? Phenomenal collapse of Enron and World.com; the Asian financial crisis of 1997 (lack of corporate CG mechanisms in this country highlighted the weaknesses of the institutions in the economies) To monitor whether outcomes tally with plans To motivate organizations to be more fully informed and align individual behaviour with overall participants To deter through legislative policy fraudulent activities and create transparency policies

Elements of good CG principles Honesty Honesty Trust & Integrity Openness Performance orientation Responsibility and Accountability Mutual Respect Commitment to the Organization

Aims of Good Governance Promote culture of zero corruption Curb corruption through national and international coalitions Enhance accountability in the administration of private sector procurement Strengthen private sector support for anti- corruption programs Create awareness on the costs of corruption Committed to the achievement of a socially just and equitable society within a sustainable, plural democracy that is free of corruption

Costs of Bad CG Financial –High cost of purchases/investments –Low revenue (licences, permits, concessions, etc) –Burdensome financial obligations for purchases/ investments not needed/economically justified –Burdensome and unjustified remedial/maintenance costs Economic –Operational, maintenance and debt servicing liability for purchases/investments/costs that do not contribute/promote the economy –Resources squandered –Good investment opportunities forgone –Harm to external development assistance

Costs of Bad Governance (Cont) Damage to competition / honest competitors –Damages competition that could provide quality and best value for money –Damages honest competitors who rely on quality and competitive prices Damage to ordinary citizens –Poor are often the ultimate victims –Resources squandered/wasted - not available for required social investments and spending –High prices –Low quality –Low public sector wages

Costs of Bad Governance (Cont) Environmental / Health –Environmental/health risks or damage, liabilities, adverse environmental impact from unnecessary/ non-compliance with standards or shoddy work or materials Erosion of Personal Values and Trust in Government –Personal standards of integrity are eroded –Quality and value for money are not valued –Perception that government is not to be trusted –Perception that corruption is not wrong

Prevention of Corruption –Clear and transparent Process Rules Committee decides major decisions Functions to be separated –Clear Behavioral Rules Codes of Conduct Guidelines for gifts, entertainment Avoid nepotism and cronyism Training Penalties / sanctions Whistle-blower protection

Conclusions Good CG helps attract foreign investment vital to the growth of private sector as well as public sector by reinforcing values of Rule of Law, transparency and fairness, improves domestic investment and stop capital flight and gives Malaysia better prospects of SUSTAINED Socio Economic Growth Equity and a Better Quality of Life!

Contact Information Transparency International Malaysia