THE BENEFITS OF IMPROVED CORPORATE

GOVERNANCE

PRESENTED PRESENTED BY BY

MERVYN E KING S.C.MERVYN E KING S.C.

Structure of TalkStructure of Talk

Improved= good

What is good corporate governance?

What does practising CG guidelines achieve?

What are the benefits of doing so?

Corporate GovernanceCorporate GovernanceHow 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 - A director’s duties - responsibilitiesresponsibilities

Good faith

Care

Skill

Diligence

Incapacitated personIncapacitated person

Human beingBest interests, care, skill, diligenceDecent citizen thing to doCompany an artificial citizenIncapacitatedDirector, heart, mind and soul.

Corporate GovernanceCorporate Governance about process about process

Process to discharge and be seen to be discharging those responsibilities

Outsiders

Information needed to invest, supply etc

Quality of information.

CodesCodes

Cadbury, Greenberg, HampelHiggs, Smith, King, Bosch, DeySarbanes/Oxley ActNYSE and Nasdaq listing requirementsOECD principlesCommonwealth principlesGRI, SRII, GRIWinter in the EUMauritius, Kenya, Malaysia, Hong KongASX and NZSX

Can Code avoid failure?Can Code avoid failure?

Governance about processEnterprise – strategicRisk for reward – failure Good governance and failureAcceptableBad governance – failure - scandalNot acceptable.

BusinessBusiness

An ethical enterpriseUncertain future eventsComply or explainComply or elseRules vs principlesKing vs Sabannes Oxley.

ComplianceCompliance

MindlessCompliance officerApply mindNot suitable for businessExplainMarket ultimate compliance officier.

EnronEnron

Had the trappings of good governance

Quantitatively compliedNon executivesGood board attendanceCommittees of boardYet dysfunctional.

Enron – Why?Enron – Why?

Self interestGreedDishonest – 900 SPE’sAppears to prop up share priceCodes will not helpFailure to discharge good faith, care,

skill and diligence.

Critical issues in EnronCritical issues in Enron

Lack of quality governanceFailure of performance and

conformanceScandalConfusion director/manager role.

Qualitative GovernanceQualitative Governance

Not a recording machinePast prejudicesPresent needsConscious that one must practise

qualitative and not quantitative aloneIntellectual honesty.

How to Practise How to Practise Qualitative GovernanceQualitative Governance

Exercise of intellectual honestyDirectors can learnDirectors must practiseEight questionsAll on one foundation.

Question One Question One

Is there any conflict?Duty of good faith.

Question Two Question Two

Do I have all the facts to enable me to make a decision?

Duty of careDuty of skillDuty of diligence.

Question Three Question Three

Is this a rational business decision based on all the facts?

Duty of careDuty of skillDuty of diligence.

Question Four Question Four

Is the decision in the best interests of the company?

Duty of good faithDuty of careDuty of skill.

Question Five Question Five

Is the communication to stakeholders transparent?

Duty of good faithDuty of careDuty of skillSunlight best disinfectantElectric light best policemanWithering effect on misconduct.

Question Six Question Six

Is the company acting in a socially responsible manner?

Duty of careDuty of SkillDuty of diligence.

Question Seven Question Seven

Am I acting as a good steward of the company’s assets?

Duty of careDuty of skillDuty of diligence.

Question Eight 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 Benefits of qualitative governancegovernance

Downturn – support of stakeholdersQuicker turnaroundSustainability – NFA’sAttract better employeeCheaper capitalNo scandal on wrong business

judgment callCompany’s reputation.

Quality is the measureQuality is the measure

Intellectual honesty ImmutableCompany, inanimate and immortalIH starts and ends in boardroom.

ConclusionConclusion

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 destinationBut the benefits are enormous.