Changing Corporate Behaviour Ombudsman Association Dr Jonathan Westrup May 11th 2016

FOCUS upon THREE KEY THEMES Regulation Governance “Creating Shared Value”

What corporate behaviour are we concerned about?

ENRON, RBS, LIBOR fixing, ANGLO IRISH BANK, VOLKSWAGEN ………….

But what about the behaviours that allow for this?

And the impact that these companies are having upon our lives?

The relationship between society and business is complex and there is risk of unintended consequences

REGULATION

BUT CERTAIN BEHAVIOURS CONTINUE

Regulation has a vital role in ensuring appropriate corporate behaviour but has distinct limits

Governance? “the system by which organisations are directed and controlled”

Challenge: Modern Corporation Separate ownership and control Management is separated from ownership and corporate control falls into the hands of managers (Berle & Means 1931)

CADBURY 1992 GREENBURY 1995 HAMPEL 1998 HIGGS 2003 WALKER 2009 CORPORATE GOVERNANCE emerges CADBURY 1992 GREENBURY 1995 HAMPEL 1998 HIGGS 2003 WALKER 2009 DAVIES 2011

Corporate Governance Code “Comply or Explain”

Who are the OWNERS?

What are they looking for? SUPERIOR INVESTMENT RETURNS HIGHLY COMPETITIVE MARKET RETIREMENT/SAVINGS FUND

Government Pension Fund Global “We have six strategic focus areas for our ownership activities:  Equal treatment of shareholders Shareholder influence and board accountability Well-functioning, legitimate and efficient markets Children’s rights Climate change risk management Water management” Government Pension Fund Global $850 bn. in assets

Council of Ethics Determines which companies are excluded from the Fund: Human rights: Environmental record; Unacceptable greenhouse gas emissions: Produce tobacco 52 companies that have thermal coal as part of their activities excluded as of 1st of February 2016.

EXECUTIVE PAY Martin Winterkorn € 5.9m performance related pay in 2015 UK: CEO pay is now 183 times median salaries. 1965 20 times (Economic Policy Institute)

“Say on Pay” Culture Project Stewardship Code Where next? Stewardship Code make shareholders be active and engage in corporate governance “Say on Pay” Culture Project

Culture and behaviours

To SHAREHOLDERS according to Maximizing Shareholding Value GOVERNANCE MODELS “Does a business have responsibilities?” Milton Friedman To SHAREHOLDERS according to Maximizing Shareholding Value STEWARDSHIP Similar but different emphasis STAKEHOLDER YES! To a wide range of different actors

“Create Shared Value” Porter and Kramer (2011) “Companies: outdated approach to value creation” “optimizing short term financial performance and ignoring broader influences” “Reconceive products and markets Redefine productivity in the value chain Enable local cluster development

“Is our product good for our customers? “It is not philanthropy but self interested behaviour to create economic value by creating societal value.”

Examples Energy use and Logistics Resource Use Procurement Distribution Employee productivity Location

POLITICS

HOLLOWING OUT OF WORK (GRATTON 2014)

CORPORATE BEHAVIOUR?

Tectonic plates beginning to shift? Regulation can only ever be a partial solution Corporate governance is evolving Culture of responsibility is required Shared value offers an opportunity

THANK YOU @jgwestrup jonathan@acorngovernance.ie