Achieving Good Corporate Governance: Practical Steps and Challenges

1. Best Practices in achieving Good Corporate Governance - a Practitioner’s Perspective“We have no lessons to give, only experience to share”June 2005

2. Establishing Ethical Standards – CLP’s Experience • No company is free from the shadow of individual misdeeds • The foundation is a corporate culture of honesty and integrity. In CLP’s case this stems from - a clear and longstanding decision by the Board and Management to adopt and promote good ethical behaviour; - the obligations that come from being a public utility with responsibilities to the communities we serve and the public scrutiny this involves; and - an awareness that the long-term interests of the Company are best served by maintaining a strong commitment to honest and open business practices. • This must be backed up by corporate governance mechanisms to measure and enforce compliance with ethical standards, including the necessary checks and balances

3. Promoting Ethical Standards – Practical Steps in Corporate Governance • Limited management influence at the Board • Strong independent non-executive directors • Structure of executive remuneration • Effective Audit Committee • Strong Internal Audit function • Company Management Authority Manual (CMAM) • Value Framework • Code of Corporate Governance • Code of Conduct (and enforcement mechanisms); and • Disclosure

4. Vision Mission Strategy Values Commitments Policies and Codes Practical Steps - a Value Framework What do we want to be? What benefits will we bring to our stakeholders? How will we achieve this? What guides the pursuit of our strategy? What must we do to uphold our values? What must we do to meet our commitments?

5. Practical Steps - a Corporate Governance Framework The CLP Corporate Governance Framework identifies the key participants involved in ensuring the application of good governance practices and polices and the relationships between those participants The CLP Code on Corporate Governance uses this corporate governance framework to provide structure to our explanations of the practices and procedures which we aim to follow to ensure that our standards meet our stakeholders’ expectations We do not believe in a “one size fits all approach” to corporate governance

6. Practical Steps - a Code of Conduct A Code of Conduct does make a difference : - key tool in setting the standards to which a company operates - clarifies and defines the required norms of corporate behaviour - sets the tone for the conduct of a business - binds all directors, management and employees equally - creates a higher standard than legal compliance - tailored for specific business characteristics (heightens relevance) - tells all stakeholders of a company’s required standards (publish the Code) - benchmark for disciplinary measures

7. Practical Steps – Increased Disclosure • This promotes • quality and reliability of information • use of objective industry standards for measurement and reporting • benchmarking • informed internal and external monitoring • stakeholder engagement and feedback • continuing improvement (stakeholders will not be satisfied with the status quo) But • there are barriers to specific financial forecasting and target-setting • some aspects of performance are hard to measure and benchmarks may be inappropriate

8. Ethical Standards and Corporate Governance – Practical Challenges Ahead • Increasing disclosure of non-financial matters • Recognising and engaging a wider range of stakeholder interests • Development of standard metrics for non-financial performance • Stricter internal and external verification of non-financial disclosure • Demands for multi-dimensional excellence in corporate performance (financial, social, environmental etc.) • Intolerance of failure, shortcomings or setbacks • Wider skill-sets required from Boards and Management • Over-regulation – the assumption that compliance and “box-ticking” equals ethical values and good corporate governance