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Corporate governance failures contributed to global crisis
​Malan, Daniel
8/31/2009
​Reflections on the recent International Corporate Governance Network conference held in Sydney
 
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Institutional investors from all over the world, representing funds under management of almost US$10 trillion, deliberated on the route map to reform and recovery (the conference theme) within the context of the global financial crisis. Conference delegates focused on basic questions of what good governance is and whether investors are reviewing what really counts, and discussion centered on ways of improving governance, incentivising the right boardroom behaviour, getting shareholders to act like owners and getting non-executive directors to be more effective in their stewardship role.

Sixty per cent of the more than four hundred delegates believed that more active and engaged shareholders will be the most effective way to improve governance, as opposed to more regulation, improved shareholder rights or improved independence on boards.

Twenty-eight per cent voted in favour of more diversity on boards as the best way to incentivise the right boardroom behaviour. Diversity in this context should be interpreted as diversity in terms of skills and expertise, and not necessarily the narrower South African interpretation of race and gender. 

On the issue of how to get shareholders to act like owners, more than fifty per cent of delegates were in favour of public disclosure of shareowners' engagement policies, resources and actions. 

Almost two thirds of delegates indicated that more emphasis on the right skills and experience (rather than independence) is the best way to empower non-executive directors to be more effective in their stewardship role. 

Former deputy president under the Bill Clinton Administration, Al Gore argued that the investor community should play a critical part in working towards a sustainable future. Rachel Kyte, vice-president of business advisory services at the International Finance Corporation said lessons from the global financial crisis included the need to balance regulation with innovation, acceptance that the interface between the public and the private sector has changed completely, the need to move away from short-term to long-term incentives and the understanding that long-term returns depend on sustainability performance, including an increased focus on social, labour, biodiversity and climate issues. In a statement on the financial crisis the ICGN acknowledges that corporate governance failures contributed to the crisis and should therefore be a part of the solution. While arguing for increased transparency and secure shareholder rights, the ICGN concludes that "shareholders must also recognise that they should use their share-ownership rights responsibly in the interest of creating long-term value for their beneficiaries. If they do not act responsibly their rights will be at risk and their case for strengthened rights will be undermined".

Daniel Malan is the KPMG Special Advisor on Ethics and Governance and Head of the Unit for Corporate Governance in Africa at the University of Stellenbosch Business School

 

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