Comparing public and private sector governance

1. Comparing public and private sector governance Lynn Ralph Managing Director, Cameron Ralph Pty Ltd 24 September 2003

2. Riddle:What do ‘good governance’ and ‘justice’ have in common?

3. The advertised topics • dispelling the myth • in common / poles apart • political dimension • lessons learnt from collapses • stakeholder expectations • Uhrig Report

4. The “Governance Challenge”

5. .

6. 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

7. Similarities or Differences? “Viewed at a high level, corporate governance is all about accountability and stewardship” -Report of Royal Commission into HIH

8. Similarities & Differences ??? • Principles of Public Sector Governance • Accountability • Transparency • Integrity • Stewardship • Leadership • Efficiency

9. 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

10. 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

12. CEO Board Other Regulators APRA, ACCC, ATO etc etc etc ASIC Public Stakeholders ASX Shareholders Auditor

13. 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

14. What makes a good board? • Cadbury • Openness, accountability, integrity • Cameron Ralph • All of the above plus: • Consistently high quality decision making

15. Critical Components

17. The right amount, about the right things Agenda setting, problem scoping, decision criteria, alternatives, risk analysis Overseeing implementation; assessment of board and senior management

18. 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’….

19. Uhrig Review of Governance of Statutory Authorities • Report into HIH comments on APRA structure • The governance of regulators • “Who watches the watchers?”

20. Riddle:What do ‘good governance’ and ‘justice’ have in common?

21. 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!

22. Thank you! www.cameronralph.com.au