CIMA Canada 14 April 2010 Recent Trends and Challenges in Corporate Governance
CIMA CANADA 21 MAY 2009 Agenda for tonight What just happened? What is Governance – Do we Really Know What is Good Governance? Some successes and failures Sustainability – Do we Care? What’s coming short term A longer term perspective What next
CIMA CANADA 21 MAY 2009 What Just Happened Large Scale Government Intervention Government ownership and Loans New Union/Management dynamics Rights of bondholders and shareholders Destruction of Asset values Unemployment Rates High Social Costs are high Big time Change in psychology Bad governance the cause? Boiling Frog effect? Everybody did their job but the ship sank!!
CIMA CANADA 21 MAY 2009 What is Governance? A definition Sum of the parts? Kinetic force/ Dynamic Governance How to get your arms around this Models of Governance Some views The “bubble” effect
CIMA CANADA 21 MAY 2009 Understanding Governance Governance is what Governments do! Corporate governance is what Corps do! Activity of governing- Dynamic Exercise of power and policy Dynamic pursuit of Success Lots of moving parts
CIMA CANADA 21 MAY 2009 Corporate governance Set of Processes : Customs, policies, Laws and Institutions Affecting the Way People : Direct, administer or control a Corporation Lots of Players : Shareholders, Board and Management, markets Lots of Stakeholders: Government, Regulators, employees, suppliers, customers, society. Look at Annual Reports : Good Luck
CIMA CANADA 21 MAY 2009 Governance Its not just about any single or group of factors. Is all of these things and the sum of the parts and something more Like the three blind men and the elephant differing and partial views exist It has to be dynamic and alive. How to get your arms around this?
CIMA CANADA 21 MAY 2009 Governance Models : A Macro View Totalitarian: Big Blue, 100% subsidiaries Dictatorial: Precision organizations Constitutional Monarchy: Conglomerates Democratic Approach : Most common Anarchy : Too big to govern? Capitalism or Something Else : Thought provoking
CIMA CANADA 21 MAY 2009 Good Governance Proof is in the pudding!!! Pick your model or set of models. Well thought through Tried and tested Weather the storms Oversight and integrity of Information Watch out for the iceberg : rear view mirror is not best way to drive Honesty : Driving while Impaired with Foggy windshield Ultimately about people and attitude
CIMA CANADA 21 MAY 2009 Success and Failures Still around: AKA Life Expectancy Healthy Best in Class Brand value Knowing why you are there!!! Examples of both ; Lets discuss a few Sustainability : the New Mantra
CIMA CANADA 21 MAY 2009 Status of Governance today What has improved and why? What is still Broken? What’s everybody talking about? What’s next!!
CIMA CANADA 21 MAY 2009 What’s improved and Why Enron, Enron and Enron More active boards Chairman and CEO Audit Committee skills Legislation SOX, IFRS, Basel accords CEO Focus: Executions and Analysts
CIMA CANADA 21 MAY 2009 What’s Broken? Shareholder’s have no say Democratic process and owner’s rights Too many board members and same faces Rating Agencies Accountability and culpability No pain for failure; Compensation Everybody knows and nobody knows The elite bubble at the top – I’m ok Jack
CIMA CANADA 21 MAY 2009 What’s Getting Fixed- Somewhat Government initiatives: More government Financial reform : Too Big to Fail Capital Reform: New rules, Levitt’s rule? Government oversight SEC, Fed et al Canada we are ok !!!
CIMA CANADA 21 MAY 2009 External Factors Government Deficits Higher Taxes Higher interest Rates Pressure on growth and Valuations Continued severe market reactions Do more with Less Innovation and China Investor Trauma and jitters
CIMA CANADA 21 MAY 2009 What’s Next in Governance Short term: –More Active Shareholders – Say on Pay –More Board Scrutiny – CEO Changes and Higher CEO Pay –Management attention to Government and customers –Better Management of Class action Issues –Change to Management Union Dynamics –Continued Pension and Benefit reform
CIMA CANADA 21 MAY 2009 What’s Next Longer Term: –Smaller Boards –Professional Board Members –More Raider Agitation a la Icahn –Faster government intervention –Smaller entities and more direct control a la China –More Tax and Regulatory Arbitrage
CIMA CANADA 21 MAY 2009 What Will likely not Happen Shareholders Revolution Really independent competent directors Elections do not make a democracy Mass executions without parachutes Changes to the current System in any material way: The Fix is still In!!! So lets do IFRS!!! More SOX please!!!
CIMA CANADA 21 MAY 2009 What are we to do? Its time to have an explicit governance strategy- Models, people, process, tactics. What the organization stands for and what is not on – Address the culture Comprehensive performance goals Clear rewards and consequences Risk and capital management priorities Stress test sustainability remember last year Periodically break the “bubble’ at the top Don’t ignore socio-political realities
CIMA CANADA 21 MAY 2009 Final Note Ahead is a period of muddling through Likely not a boom or a bust Too many vested parties in current methods of governance No medicine for Analysts and rating agencies or external agencies So don’t trust and always verify!!! Just be careful-this story is not over Good luck!!!