Corporate Governance Ethics and The Role of CG Officer Corporate Governance Ethicsand The Role of CG Officer

2 Reputation Good reputation takes years to build. Shades of reputation: Products Management Profits Social posture It takes just one incidence to destroy the reputation of a company.

3 Reputational Risk What can bring a company into disrepute? What is the price of disrepute? Is it worth losing/keeping reputation? What if there is no direct potential of losing reputation? Defending and Sustaining Reputation: Sustaining reputation is painstaking Defending reputation may often be self- defeating.

4 Ethics What is right? How to enforce what is right: Law Regulations Codes Standards Generally Accepted Practices

5 Code of Ethics Avoiding conflict of interest Use / abuse of position, power or property Confidentiality Fair dealing with all Protection of company property Compliance with laws, rules Encouraging reporting of illegal or unethical behavior.

6 Corporate Social Responsibility Minimize damage to environment Liberal employment policy Investment in local communities Conducting business ethically Respect for human rights Fairness to all

7 CSR and Reputation Risk Financial Implications: Impact on market performance Failure to get good employees Cost of deflecting negative publicity Lower earnings / share price

8 Shades of CSR Official posture and reality Spending more on publicizing CSR than actually doing it. Lip service / Strings attached Welfare IPPR Report says most CSR is lip service / ulterior motive based.

9 CSR – Who is watching what? Institutional investors PIRC provide web based data on how companies are acting on CSR, ethics, environment, etc. Regulators / Kings Report in SA Disclosure Requirements

10 Formulating CSR Policy Set a Code of Ethics outlining CSR Values to be upheld Establish current position on CSR values Discuss with relevant stakeholders Employees Pressure groups Clients Set up a system

11 CSR Policy Devise CSR Policy Prescribe systems Establish responsibility for each party Set realistic strategies and targets Keep all concerned informed Monitor achievements

12 Bench Marking in CSR You do as much as others are doing. Can any one set “minimums”? Who ensures compliance? How to monitor compliance?

13 Sustainability Report Report on social, ethical, health and environmental policies. More focused on environment (i.e. sustainability of the society) than any thing else. Not a report on company’s sustainability (financial or otherwise). Not yet mandatory in Pakistan.

14 The Triple Bottom Line Prescribed by Global Reporting Initiative: Financial Performance Impact on environment and natural resources Social benefits and costs

15 General Motors Model Economic Indicators Environmental Indicators Social Indicators

16 Economic Indicators Revenue Earning Dividend per share Sales Volume Market Share

17 Environmental Indicators Global energy use Global carbon dioxide emissions Global non-recycled waste Global waste consumption Company sites certified to ISO standards

Social Indicators Community donations and sponsorships Community donations and sponsorships Employees (number) Employees (number) Diversity: %of workers female Diversity: %of workers female Diversity: %of workers minority groups Diversity: %of workers minority groups Number of discrimination charges brought against the company Number of discrimination charges brought against the company Employee satisfaction Employee satisfaction Injuries Injuries 18

19 Public Sector Commonwealth Association for Corporate Governance (CACG) Guidelines: Major or significant companies are government owned. Directors are political nominees, not independent. Severe shortage of able directors.

20 Whistleblowers Who is a whistleblower? Connection of WB with CG Honest and Malicious whistleblowers Internal & External Whistleblowing Area of concern: Employees (can) have access to all data Whistleblowers are punished, not rewarded Disregard as gripe

21 WB – Best Practice Recognize the importance. Set a procedure / prescribe channels Involve non-executives; avoid executives Confidentiality Legal Protection to whistleblowers UK’s Public Interest Disclosure Act 1998 Gagging clause in employment agreement

22 Disclosure Internal and External Disclosures Good faith No personal gain Reasonableness Violation of law, rules of the company, injustice, financial malpractice, risk to public Internal before external Laws have so far not been effective

23 Recommended Guide on WB Documented procedure Named office to handle WB Examples of what is or is not misconduct Consequences of false or malicious allegations spelt out External route also indicated Investigation procedure

24 CG Officer Who: CEO Chairman, Board CFO COO CS Specially assigned officer