Who am I? Domination by Managing Director Board’s failure to direct and control management Board accepted poor and voluminous reports Internal audit not well directed by Audit Comm Chairman’s failure to lead No monitoring of board’s performance Inadequate information, systems, and procedures; Board over-relied on mgmt and auditors
Similarities or Differences? “Viewed at a high level, corporate governance is all about accountability and stewardship” -Report of Royal Commission into HIH
Similarities & Differences ??? Principles of Public Sector Governance –Accountability –Transparency –Integrity –Stewardship –Leadership –Efficiency
ASX Principles Solid foundation for mgmt & oversight Structure board to add value Promote ethical decision making Safeguard integrity of financial reports Make timely disclosure Respect rights of shareholders Recognise & manage risks Encourage enhanced performance Remunerate fairly Recognise legitimate interests of stakeholders
Similarities or Differences? Unique context –Profit Driven vs Mission Driven –Market position / dominance –Regulatory (tax, police, ASIC, etc) – see Uhrig Laws applicable –Legal foundation upon which directors may act Full disclosure vs transparency & FOI Range of stakeholders
Board CEO Stakeholders Public Shareholders Other Regulators APRA, ACCC, ATO etc etc etc ASX ASIC Auditor
Similarities or Differences? Degree of control over board selection: –diversity, political appointments, turnover –Confusion about who the director represents: the govt, the org, the constituency they represent Degree of board control over management –Ministerial appointment of CEO Effective management control –due to high board turnover or poor board skill mix Significant stakeholder (political dimension) –Major shareholder vs Minister/Parliament
What makes a good board? Cadbury –Openness, accountability, integrity Cameron Ralph –All of the above plus: –Consistently high quality decision making
The right amount, about the right things Agenda setting, problem scoping, decision criteria, alternatives, risk analysis Overseeing implementation; assessment of board and senior management
What goes wrong ? Sidney Finkelstein “Why smart executives fail’ “Denial” the most common reason –simply not accepting that reality has changed –How you respond to reality when it doesn’t match your expectations (escalation ) –How you process information when it doesn’t match your expectations (love is blind;) –Not addressing the ‘dangerous’ CEO problem –We get on ‘so well’….
Uhrig Review of Governance of Statutory Authorities Report into HIH comments on APRA structure The governance of regulators “Who watches the watchers?”
Riddle: What do ‘good governance’ and ‘justice’ have in common?
So why is ‘good governance’ as rare as justice? Directors are human and not ‘all knowing/all seeing’ Owners often don’t behave rationally Time frames are increasingly short Multiple layers of conflicting goals –balancing all players ‘interests’ is probably impossible – meaning solutions are probably flawed!