1. Governance Systems; Towards an integrated approach
Professor Peter Little
Executive Dean
Faculty of Business
Queensland University of Technology
Special Counsel
McCullough Robertson, Lawyers

2. What might some famous people think of Good Governance

3. The recalcitrant director's view of corporate governance
“I can't understand it.  I can't even understand the people who can understand it”
  - Queen Juliana ( ), of the Netherlands

4. Message to the overzealous manager
“Society has always seemed to demand a little more from human beings than it will get in practice”
- George Orwell, A Collection of Essays

5. Who to target when changing culture
“Reasonable people adapt themselves to the world.  Unreasonable people attempt to adapt the world to themselves.  All progress, therefore, depends on unreasonable people”
- George Bernard Shaw

6. The philosophical approach to good governance
“Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws"
- Plato ( B.C.)

7. The truth about corporate governance
“All truth passes through three stages.
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being self-evident”
- Arthur Schopenhauer ( )

8. Key Issues
Good corporate Governance and compliance systems are often conceptualised negatively
“Restricting behaviour to meet legal and ethical standards”
Less attention is paid to positive benefits
Creating value
Developing better culture
Prolonging the life of the organisation
Maintaining organisational reputation
Avoiding or reducing the negative effects of litigation and regulatory intervention

9. The demand for good governance and systems will intensify not diminish
Regulation / over regulation
Demands for accountability from communities, governments, stakeholders and victims

10. Background Important Developments 1992 – Cadbury Report (UK)
1999 – OECD Principles of Corporate Governance
2002 – Sarbanes-Oxley Act (United States)
2002 – ASX Corporate Governance Council – “Principles of Good Corporate Governance and Best Practice Recommendations” (Australia)
2003 – CLERP (Australia)
2003 – The Combined Code on Corporate Governance (UK) (Based on the Higgs Review)
2003 – Standards Australia suite of 5 Standards

11. Background
The principles of good governance apply to all organisations
Private sector
Public sector
Not-for-profit sector
Universities
Even Regulators – increasing pressure…

12. Does Good Governance and Compliance Cost?
Good compliance and governance systems cost
Now part of cost of doing business
Initial costs more intense
Ongoing costs reduced when embedded into day-to-day systems and activities
Not a choice between making profits and box ticking

13. Creating Value Good governance can increase firm value
McKinsey Quarterly studies (2000, 2002)
KPMG study (2003)
Harvard study (2003)

14. Performance
Good governance may improve profitability and overall performance
Harvard study (2003)

15. Benefits of Managing Critical Risks
Organisations that have governance systems adequately prepared for crises:
Suffer significantly fewer crises
Perform better financially
Have higher return on assets
2003 Study – Harvard Business Review

16. Insurance Benefits
A good governance system and risk management may assist to obtain fair price insurance
Alternatively insurance may be declined without appropriate governance

17. Staying in Business Risk of business failure
Increasingly responsive stakeholder environment
Eg. HIH, One.Tel, Arthur Andersen, NSW Grains Board

18. Improving Work Environment
Attracting and retaining quality staff
Employee wellness and job satisfaction
The absence of a culture of compliance exposes employees to the threat of workplace, safety or product failures
Calamities (eg. NASA)

19. Value of a Culture of Compliance and Good Governance
NSW Grains Board investigation identified five specific integrity risks:
Leadership allowed a culture of fear and intimidation to operate within the organisation
Leadership failed to fulfil responsibilities in fraud prevention
The organisational culture which developed as a result of the actions of the leadership valued commercial imperatives over public duty interests, outcomes over process, expediency over accountability and autocratic direction over participatory decision making
Failure of a number of staff to provide strong ethical leadership
Poorly implemented and ineffective operational procedures

20. Value of a Culture of Compliance and Good Governance
NASA – Columbia Accident Investigation Board
‘In the aftermath of the Challenger accident…contradictory forces prompted a resistance to externally imposed changes and an attempt to maintain the internal belief that NASA was still a “perfect place”…managers strove to maintain their view of the organisation, they lost their ability to accept criticism, leading them to reject the recommendations of many boards and blue-ribbon panels…External criticism and doubt, rather than spurring NASA to change for the better, instead reinforced the will to “impose the party line vision on the environment, not to reconsider it”...This in turn lead to “flawed decision making, self deception, introversion…the board views this cultural resistance as a fundamental impediment to NASA’s effective organisational performance’.
Source: Columbia Accident Investigation Board Report Volume 1, August 2003 [102]

21. Other Value Reducing Corporate Liability
Leniency of Regulators and Court
Avoiding Personal Liability

22. Building a Good Governance System
Standards Australia 5 new governance standards
Holistic approach to good governance
AS8000 Good Governance Principles
AS8001 Fraud and Corruption Control
AS8002 Organizational Codes of Conduct
AS8003 Corporate Social Responsibility
AS8004 Whistleblower Protection Programs for Entities

23. Building a Good Governance System
Elements
Structural
Operational
Maintenance

24. Building a Good Governance System
Structural Elements
Commitment to effective governance from people at all levels
Clearly documented governance policy
Board should accept responsibility for overall governance
Philosophy and strategy of continuous improvement

25. Building a Good Governance System
Operational Elements
Identification of governance issues and operating procedures
Integration of requirements of laws and codes of best practice into day-to-day operations
Systems to detect, record and deal with governance breaches
Record keeping
Identification and rectification of recurring governance breaches
Reporting governance failures to those with sufficient authority to correct them

26. Building a Good Governance System
Maintenance Elements
Initial and ongoing education and training for board members and senior management
System should be visible and communicated through out the organisation
Ongoing monitoring and review of system
Our assessments show that this area is the weakest

27. Role of Leadership
Leadership and commitment are the key elements in the development of a successful governance system

28. Why Integrate Governance Systems?
Many standards promoting quality, good governance, compliance, risk management etc follow similar ideology and methodology
An integrated or holistic approach should be more effective
Allows more co-ordinated training, monitoring and reporting

29. Why Integrate Governance Systems?
Allows better management of complexity
Should give directors greater assurance that governance, compliance and ethical obligations, like core-business, are being properly managed
Should promote a better culture through consistency and transparency

30. Groucho's view of corporate values
“Those are my principles.  If you don't like them I have others”