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Winning Against the Odds

Winning Against the Odds. Ranjith Fernando 19 October, 2012. THE RELEVANCE OF GOVERNANCE. WINNING AT THREE LEVELS. COUNTRY, CORPORATE, & CITIZEN. HOW RELEVANT IS GOVERNANCE AT THESE THREE LEVELS CAN RIGHT GOVERNANCE PRACTICES HELP US WIN. WHAT IS GOVERNANCE ?. GOVERNANCE IS THE.

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Winning Against the Odds

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  1. Winning Against the Odds Ranjith Fernando 19 October, 2012

  2. THE RELEVANCE OF GOVERNANCE

  3. WINNING AT THREE LEVELS.COUNTRY, CORPORATE, & CITIZEN HOW RELEVANT IS GOVERNANCE AT THESE THREE LEVELS CAN RIGHT GOVERNANCE PRACTICES HELP US WIN

  4. WHAT IS GOVERNANCE ?

  5. GOVERNANCE IS THE SYSTEM BY WHICH COMPANIES ARE DIRECTED AND CONTROLLED CADBURYCOMMITTEE

  6. CORPORATE GOVERNANCE ESTABLISHES CLEAR STRUCTURES REGARDINGACCOUNTABILITY, RESPONSIBILITY, AND TRANSPARENCY, AT THE HEAD OF THE COMPANY, AND DEFINES THE ROLE OF THE BOARDS AND THE MANAGEMENT ULRICH STEGER AND WOLFGANG AMAAN

  7. OECD DEFINITION THE SYSTEM BY WHICH BUSINESS CORPORATIONS ARE DIRECTED & CONTROLLED. SPECIFIES THE DISTRIBUTION OF RIGHTS AND RESPONSIBILITIES AMONG DIFFRERENT PARTICIPANTS IN THE CORPORATION SUCH AS THE BOARD, MANAGERS, SHAREHOLDERS AND OTHER STAKEHOLDERS, AND SPELLS OUT THE RULES AND PROCEDURES FOR MAKING DECISIONS ON CORPORATE AFFAIRS BY DOING THIS, IT ALSO PROVIDES THE STRUCTURE THROUGH WHICH THE COMPANY OBJECTIVES ARE SET AND THE MEANS OF ATTAINING THOSE OBJECTIVES AND MONITORING PERFORMANCE

  8. THE WORDS “CORPORATE GOVERNANCE “ENTERED THE LEXICON OF BUSINESS ONLY IN THE MID 1980s HOWEVER THE PROBLEMS TO WHICH IT EMERGED AS A RESPONSE, GOES FAR BACK INTO THE 1840s. AFTER THE EVOLUTION OF THE LARGE CORPORATES.

  9. RATIONALE FOR GOVERNANCEARISES FROM THE NATURE OF THE RELATIONSHIP THE NEO CLASSICAL PRINCIPAL / AGENT THEORY OR THE MEANS-BERLE DILEMMA

  10. THE TYPICAL AGENCY PROBLEMWHEN MANAGEMENT IS SEPERATED FROM OWNERSHIP-INFORMATION DISSYMMETRYHOW CAN THE OWNER ENSURE THAT THE MANAGER OR THE AGENT ACTS IN THE INTERESTS OF THE OWNERS? TO MAXIMISE SHAREHOLDER VALUE

  11. CONCERNS AND RESPONSES ACCOUNTABILITY TRANSPARENCY DEFINITION OF ROLES CONCENTRATION OF POWER - SEPERATION OF POWERS, CHECKS AND BALANCES BIAS AND SUBJECTIVITY - TRANSPARENCY, CONFLICT EQUITY & FAIRPLAY OF INTEREST, RELATED PARTY..

  12. FIRST SIGNIFICANT DEVELOPMENTTHE CADBURY REPORT IN 1992MADE MANDATORY FOR LISTED COMPANIES IN 1993. THEREAFTER MANY OTHER REPORTS HAMPEL, GREENBURY, THE COMBINED CODE ETC .MORE REGULATIONS SARBANES-OXLEY ACT (2002)

  13. THE NATURE OF THE RESPONSE SHUTTING THE DOOR AFTER THE HORSE HAS BOLTED REACTION TO FRAUDS, CORPORATE FAILURES, MARKET FAILURES,BURSTING OF BUBBLES.

  14. FACTORS THAT INFLUENCE THE FORM OFTHE CORPORATE GOVERNANCE REGIME PERSONALITIES BUSINESS MODEL AND INDUSTRY CONTEXT OWNERSHIP LEGAL AND POLITICAL ENVIRONMENT

  15. TYPES OF CORPORATE GOVERNANCE SYSTEMS MARKET DRIVEN SHAREHOLDER DRIVEN SMALL FIRMS LARGE COMPANIES FAST MOVING INDUSTRIES CAPITAL INTENSIVE CEO DOMINATED CHECKS & BALANCES DEPENDENT DIRECTORS ORGANIZATION DRIVEN SOCIAL SYSTEM DRIVEN PROTECTED BUREAUCRACIES FAMILY FIRMS KNOWLEDGE BASED FIRMS STATE INDUSTRIES CONSENSUS ORIENTED OWNER DOMINATED STAKEHOLDER BUY IN

  16. IS GOVERNANCE RELEVANTFOR WINNING AT THE : COUNTRY LEVEL ? THE COMPANY LEVEL ? CITIZEN LEVEL ?

  17. WHAT DOES WINNING AT THE COUNTRY LEVELMEAN?

  18. POLITICAL, SOCIAL & ECONOMIC STABILITY POSITIVE OUTLOOK- CONFIDENCE OF THE FUTURE PEACE, LAW AND ORDER ECONOMIC GROWTH EQUITABLE DISTRIBUTION OF WEALTH FREEDOM OF EXPRESSION/ BELIEF ETC. QUALITY OF LIFE RULE OF THE LAW

  19. CAN A COUNTRY ACHIEVE THE ABOVEDISREGARDING GOVERNANCE ?

  20. IS GOVERNANCE RELEVANT/IMPORTANT IN WINNING AT THE COUNTRY LEVEL? DO WE HAVE A TYPICAL AGENCY PROBLEM? OWNER DISTINCT FROM MANAGER ? HOW CAN WE ENSURE THAT MANAGER ACTS IN THE INTERESTS OF THE OWNERS ? TO MAXIMIZE SHAREHOLDER VALUE

  21. A SIMILARPRINCIPAL/AGENT PROBLEM ?SEPERATION OF OWNERSHIP & MANAGEMENT ?

  22. ACCOUNTABILITYTRANSPARENCYCONCENTRATION OF POWERGOVERNANCE BASED RESPONSETHE SEPERATION OF POWERSCHECKS AND BALANCESPERIODIC ELECTIONS

  23. THE SEPERATION OF POWERSMONTESQUIEU’S DOCTRINE (THE SPIRIT OF THE LAWS 1748) “WHEN THE EXECUTIVE AND LEGISLATIVE POWERS ARE UNITED IN THE SAME PERSON, OR IN THE SAME BODY…. THERE CAN BE NO FREEDOM; BECAUSE APPREHENSIONS MAY ARISE LEST THE SAME MONARCH OR SENATE SHOULD ENACT TYRANNICAL LAWS TO EXECUTE THEM IN A TYRANNICAL MANNER”

  24. “THE ACCUMULATION OF ALL POWERS, LEGISLATIVE, EXECUTIVE AND JUDICIAL, IN THE SAME HANDS, WHETHER OF ONE, A FEW OR MANY AND WHETHER HEREDITARY, SELF-APPOINTED OR ELECTED, MAY JUSTLY BE PRONOUNCED, THE VERY DEFINITION OF TYRANNY.”(James Madison- THE FEDERALIST PAPERS)

  25. TRANSPARENCY COMPETITIVE BIDDING EQUAL OPPORTUNITY EXECUTIVE APPOINTMENTS - MERITOCRACY NEPOTISM

  26. GOVERNANCE AT THE COUNTRY LEVELOTHER CRITERIA • RULE OF THE LAW • FREEDOM OF SPEECH • FREE & FAIR ELECTIONS. • FISCAL DISCIPLINE • FREEDOM OF WORSHIP • INVESTMENT CLIMATE • LAW & ORDER

  27. IS GOVERNANCE RELEVANT FOR WINNING AT THE CORPORATE LEVEL?

  28. WHAT IS WINNING AT THE CORPORATE LEVEL ? ATTAINING CORPORATE GOALS AND OBJECTIVES. INCREASING SHAREHOLDER VALUE SUSTAINABILITY

  29. IS THERE A PRINCIPAL/AGENT RELATIONSHIP? IF THE ANSWER IS “YES” THE PITFALLS ARE PRESENT AND THUS THE RELEVANCE OF GOVERNANCE

  30. NO STATISTICALLY SIGNIFICANT CORRELATION BETWEEN CG AND FINANCIAL PERFORMANCE BUT GOVERNANCE IS THE KEY TO THE EFFECTIVENESS OF ALL OTHER FACTORS.

  31. FACTORS THAT IMPACT ON CORPORATE PERFORMANCETHE DESIGN OF THE STRUCTURE.THE SEPERATION OF POWERS.DEFINING THE ROLES.COMPOSITION OF THE BOARD.INDEPENDENT DIRECTORS.THE CHECKS AND BALANCES.

  32. THE COMMITTEE STRUCTURES.CHAIRMAN AND CEO. ACCOUNTABILITY TRANSPARENCY

  33. LESSONS FROM PAST CORPORATE FAILURES • FOCUS ON LEGAL STRUCTURES AND OUTWARD FORM INSUFFICIENT. • DIFFICULTY IN LEGISLATING FOR BEHAVIOURAL ASPECTS. • GOVERNANCE CODES • INTERVENTION OF A REGULATOR • JUDGEMENTAL ASPECTS Eg. FIT & PROPER

  34. FORM, STRUCTURE & PROCEDURE CAN BE LEGISLATED UPON BUT BEHAVIOURAL ASPECTS, MORALITY IS DIFFICULT TO LEGISLATE UPON FLEXIBILITY OF A CODE

  35. THE KEY IS NOT STRUCTURAL BUT SOCIAL

  36. Inadequacy of conventional wisdomJeffry Sannenfeld, Harvard Business School

  37. ENRONBoard included Stanford Dean, Former CEO of an Insurance company and an International Bank, Hedge Fund Manager, Prominent Asian Financier and a competent Economist

  38. EXEMPLARY BOARDS ARE ROBUSTANDEFFECTIVESOCIAL SYSTEMS

  39. A VIRTUOUSCYCLE OFRESPECTTRUSTANDCANDOR

  40. SPIRITEDGIVE AND TAKEA CHEMISTRY THATCANNOT BEQUANTIFIEDEG: UPS

  41. THE ROLE OF THE REGULATOR

  42. THE REGULATOR MUST A PERSON WITH AN IMPECCABLECHARACTER

  43. THE PROCESS FOR SELECTING A REGULATOR

  44. WINNING AT THE COMPANY LEVEL CORPORATE GOVERNANCE REGIME IS CRITICAL

  45. HOW IMPORTANT IS CORPORATE GOVERNANCEFORCITIZENSTO WIN

  46. WHAT DOES WINNING MEAN FOR A CITIZEN ? HOPE AND FAITH IN THE FUTURE. A VISION HE/SHE BELIEVES IN. EQUAL OPPORTUNITY. RULE OF THE LAW. ABUNDANCE OF OPPORTUNITY. EQUITABLE DISTRIBUTION OF WEALTH.

  47. HOW CAN CITIZENS COLLECTIVELY WIN IN A SUSTAINABLE MANNER ? ONLY IF THE COUNTRY WINS ONLY IF THE COMPANY WINS

  48. TURBULENT TIMES DEMAND SACRIFICE, COMMITMENT, HARD WORK COUNTRIES THAT HAVE FACED HARD TIMES AND WON, HAVE HAD LEADERS WHO HAVE DEMANDED GREAT SACRIFICE FROM ITS PEOPLE AND OBTAINED IT. THEY COULD DO SO ONLY IF THEY THEMSELVES PRACTISED GOOD GOVERNANCE

  49. IN A WORLD THAT HAS INCREASINGLY BECOME INTERDEPENDANT IN A WORLD WHERE MARKETS HAVE BECOME BORDERLESS IN A WORLD WHERE CONCEPTS SUCH AS FAIRPLAY, JUSTICE, ACCOUNTABILITY, TRANSPARENCY ARE JUDGED, NOT BY OUR OWN STANDARDS BUT BY INTERNATIONAL STANDARDS

  50. NO COUNTRY CANWIN IN ISOLATION. IT IS THE GOVERNANCE REGIME THAT GIVES A COUNTRY INTERNATIONAL LEGITIMACY.

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