Corporate governance: A need for fresh perspectives

Over the past six years, Business in the Community’s CR Index has tracked attention by boards to sustainability and corporate responsibility. However, while progress is being made in getting discussions of issues such as climate change and ethical sourcing on to the agenda, BITC and others argue that it is also important to distribute responsibility for these issues across the board rather than relying on one or two individuals.

Executive discussions might even bring in external partners. “It takes enlightened leaderships and part of that is talking to a very broad range of people who monitor what’s happening in an external operating environment,” says Sophia Tickell, executive director of SustainAbility, the consultancy. “Companies need to bring in perspectives that are not necessarily all from inside, where they tend to be focused on the daily running of the business.”

At the same time, for many companies, sustainability is becoming part of daily business – whether that is cutting their energy bills or shoring up ethical sourcing guidelines – and therefore has a variety of implications for the management teams.

“As with any part of the responsible business agenda, we have to be able to explain this in terms of what it means for different business functions,” says David Grayson, head of Cranfield School of Management’s Doughty Centre for Corporate Responsibility. “So for a financial director, this is going to have some different dimensions from a logistics director or marketing director.”

And as companies start to see corporate responsibility not only as a case of simply introducing community investment programmes but also as part of how they operate their supply chains or manage their energy efficiency, a wider group of executives are participating in senior-level discussions.

“There is evidence that sustainability issues are being incorporated into strategy, research and development and other functions that already have strong board representation,” says Ms Tickell.

Nevertheless, for many companies, it remains important to have dedicated corporate responsibility teams with senior officers that report to the board. In a report conducted by Ipsos MORI released in October 2008, BITC found that the percentage of companies with corporate responsibility committees reporting to the board rose from 13 per cent in 2002 to 60 per cent in 2007.

The CR Index also reveals a connection between better performance and the number of individuals on the board with responsibility. For this reason perhaps, recent years have seen the emergence at large companies such as Google, AT&T and SAP of a new C-level position – the CSO or corporate sustainability officer.

Moreover, what is discussed at board meetings is changing. BITC found that in the past year, nine out of 10 companies participating in the CR Index had board-level discussions of sufficient depth to merit inclusion in the minutes, and the number of board members with responsibility for specific aspects of corporate responsibility has increased.

This activity is likely to intensify. “One of the consequences of the crises – financial, economic and in the long-term more severe sustainability crises in terms of water and climate change – is that these demand an improvement in governance,” says Prof Grayson.

Board-level engagement in corporate responsibility allows companies to manage these issues more strategically and to set standards and values and measure performance against targets. It also helps companies to look outward as well as inward, providing impetus for efforts to improve regulation in their sector.

And having an individual on the board with an overview of sustainability strategy can help advance sustainability strategies. An enlightened corporate responsibility officer can, for example, play an important convening role, bringing issues to the attention of the board and explaining their significance to the business.

“That person can play a very key role in enhancing the agenda and helping the board to understand it,” says Ms Tickell. “Because there’s no guarantee that the average board member is necessarily on top of these issues, they need someone to explain them and justify why they’re being addressed in this particular way.”

Companies also need to prevent corporate responsibility from becoming locked into an executive suite silo. “If that’s the case, everything tends to get diluted,” says Ms Tickell. “And it’s not looked at as a genuine threat and opportunity for the business.”

The opportunities look promising at a time when profit margins are under pressure. In its research with Ipsos MORI, BITC revealed that companies consistently participating in the CR Index outperformed their FTSE 350 peers on total shareholder return between 2002 and 2007 by between 3.2 per cent and 7.7 per cent a year.

However, to reap these business benefits, companies need to ensure employees throughout the organisation are aware of the need to improve performance in areas such as ethical sourcing and carbon reduction, says Prof Grayson.

“Leadership from the top is essential,” he says. “You need the top-down messages – but you also need an empowered workforce from which innovation and ideas can bubble up. It’s not a case of ‘either, or’, the genius is getting both.”
source: http://www.ft.com/cms/s/b992d6d4-548d-11de-a58d-00144feabdc0.html

Sustaining Investor Confidence: CD seminar on corporate governance

As the opening session on a series of discussions on corporate governance, it was only appropriate that it that focus on the most effective framework needed for organisational decision making. KMPG CEO Russell Parera said that what was needed was a culture that encouraged debate and dissent, something one doesn’t always see on Indian boards as people tend to belong to the same inner circle.

Following up on that, Zia Mody, managing partner, AZB Partners added that if a person was on the board of a company as an independent director, he or she was expected to ask awkward questions, which rarely was the case. “However, that in itself cannot help prevent a fraud as directors could be given wrong information,” she added. Of course, it takes a lot more than just having standards in place. It’s also about how these are implemented. It would, for instance, be almost pointless to have a whistleblower policy in place, and link it directly with the CFO. The panel agreed that it was best to give authority to an independent director or board member when it came to matters of compliance and governance.

Lakshminarayana KR, chief strategy officer, Wipro added that a lot also depended on how much time the board members had, to devote to each company on whose board they served, and the amount of access provided by the company to the mid and lower level of employees so that directors could truly get a sense of what was happening. Joseph Massey, MD & CEO of the Multi Commodity Exchange had a relevant point to make. “Corporate governance has to be treated as a normal part of life when running a company-it’s just one more add-on.

The focus should be on running the business, corporate governance just gets inculcated,” he said. While shareholder activism in India has still to take off, this is partly also because companies are shielded from the reputational risk that class action lawsuits bring with them. Parera mentioned that as companies would increasingly grow aware of this, shareholder activism too would rise in a healthy way. As the session ended, all the panellists agreed that there was no such thing as too much disclosure and while no one wanted more regulation in the wake of the Satyam scandal, what was needed was better implementation of existing regulations.

Issues in the implementation of the Corporate Governance Code

The moderator - Ganesh Ramamurthy, director, governance risk and compliance services, KPMG India, set the ball for the second session rolling, by establishing that while the corporate governance norms in India are at par with the best in the world, ensuring that these norms are always implemented is where the trouble comes in. Commenting on the difficulty of implementing these norms, Stephen Matthias, partner, Kochhar & Co said that it was important to have all the corporate governance codes together to ensure better implementation rather than have the implementation governed by multiple bodies.

source:http://economictimes.indiatimes.com/Features/Corporate-Dossier/Seminar-on-Corporate-Governance-/articleshow/4591408.cms

Independent director, anyone?

Corporate governance has been the buzzword ever since the Satyam fraud came to light in January. Companies, consultants and regulators have waxed eloquent about this concept, but now they face a serious issue: Independent directors are leaving in droves. So what is to be done?

Directorsdatabase.com, a joint venture of Prime Database and Bombay Stock Exchange, reports that 265 independent directors have quit 211 company boards since January. This mass exodus has spooked the market regulator, the Securities and Exchange Board of India (Sebi), which has now sought counsel from one of its advisory panels.
This is a thorny issue, one compounded by last month’s controversy surrounding investment banker Nimesh Kampani. Andhra Pradesh authorities have charged Kampani for the failure of Nagarjuna Finance, a company on whose board he served as an independent director, to pay back depositors. In most business circles, this charge is now being seen as a travesty. True or false, the charge has rejuvenated the question about independent directors, although from a different angle.
Satyam showed independent directors, who knew nothing or did nothing about the company’s fraud, in negative light, and provoked a media and public backlash against such directors. The scandal prompted an important question for regulators: Are the rules and regulations governing directors too lax? Kampani’s story prompts the opposite question: Are some rules too harsh?

Regulators will have to think through these questions. While independent directors can’t be held liable for matters that don’t reach the company’s board, holding them accountable for issues under the board’s purview is fair game. A recent Prime Database report noted that 75% of independent directors are the promoters’ relatives or friends.

This makes mockery of Sebi’s 2005 Clause 49 that underscored corporate governance, and later mandated that independent directors comprise as much as 50% of a board.
But this doesn’t mean such directors are useless. The Satyam scandal may have exposed flaws, but its recovery has shown that decent hands at its helm, à la Kiran Karnik and Deepak Parekh, can make a real difference.

source:http://www.livemint.com/2009/05/27213010/Independent-director-anyone.html?h=B