Corporate Governance and Sustainable Corporate Social Responsibility

1. Corporate Governance and Sustainable Corporate Social Responsibility Presented to CAF Southern Africa Conference 18 September2008 Prof Mervyn E King SC

2. The company A juristic person Persons appointed to direct or manage its business As integral to society as the family Pool of human and capital resources Link for stakeholders 100 largest economies

3. Changed corporate world New constitution of commerce Analysts and consultants After quality of product Trust in the company By the stakeholder How do directors achieve that?

4. What is good governance? Principles Practices Quality or quantity Explain or else? Incapacitated person Good faith, care, skill and diligence

5. Quality is the correct measure Cannot be achieved by compliance Intellectual honesty Immutable Company inanimate, immortal, incapacitated Good governance starts and ends in the boardroom and senior managers� offices It does not start or end in a statute

6. The corporate governance equation Two circles inside a large circle First inside circle: Governance principles and best practices Second inside circle: Enterprise and business judgment calls

7. The corporate governance equation (cont)

8. What is good governance? Not a mindless compliance Accountability � principal and agent Responsibility � decent citizen Transparency � withering effect Foundation, intellectual honesty

9. Strategy Gubernare � to steer Comes from the Greek word �strategos� Means general The art of the general A continuous process when thinking about the future Strategy involves risky decisions

10. The content of strategy Strategy provides a framework for action The objectives, clear, measurable, affordable and attainable Ambitious to motivate but reasonable to be achievable

11. Ordinary and extraordinary Good strategy � enable ordinary people to achieve extraordinary things Bad strategy - extraordinary people will only achieve ordinary things Facing in the same direction Define purpose, values and stakeholders Define the legitimate expectations of your stakeholders Short- and long-term

12. Sustainability �Sustainable development� The Brundtland Report of 1987 : �Development that meets the needs of the present without compromising the ability of future generations to meet their own needs� Compromise long-term prospects For short-term benefit Counterproductive

13. Reality of sustainability issues Key sustainability issues Growing public attention Example: Climate change WEF � converted CEO�s �An Inconvenient Truth�

14. Why are SI�s reported and managed Competitors are doing it Strategically managing reputation and brand Stakeholders want it Improved risk management The G3 guidelines � Number One

15. Sustainability issues - disputes Resolution ADR in contracts Cross border Management tool

16. Sustainability issues � economic (GRI) Economic impact Positive and negative Local community National community Global community

17. Sustainability issues � environmental (GRI) Company�s impact on : Ecosystems Land, air and water People, planet and profit Inextricably intertwined

18. Labour � social (GRI) Labour/management relations Occupational health and safety Training and education Diversity and equal opportunity Working conditions

19. Human rights � social (GRI) Investment and supplier contracts Non-discrimination Freedom of association Child labour Indigenous rights Product responsibility Marketing and communications

20. Market capitalisation Not equal to book value � estimate or assessment Future earnings Brand and goodwill Reputation of management and board Quality of governance Sustainability Strategic direction Non-financial aspects

21. Market cap Backward looking information Forward looking information Make it more informed Of risk factors The management of them Sustainability issues The management of them

22. Measuring company�s economic value Values are in a process of constant change. In general, values depend much less on tangible and easily quantifiable goods. That is more and more also ture for the business world. A short analysis of the market c�ptialization of Coca Cola gives us a clear picture. Only 16% of the total market cap are book value � so tangibles. Even 2/3 of the value of Cola are defined by the brand. A brand is something very intangable as it represents reputation, credibility and quality to mention some characteristics of a brand. Why are so many consumers prepared to pay a much higher price for a Coca-Cola than for a non-branded Cola. Coke might be a very specific case, as it is one of the strongest brands in the world with a total brand value estimated to approx. 70 bn U$. The rest is just the know how to mix a soft-drink using sugar and a black powder. Several years ago, the book value was used as the measure of reference. In the 90ies a dramatic changed happened. Today, Chash-Flows that will be generated in the future are the measure of reference. That implies that suddenly new criteria come into account: instead of investements that were made in the past and that were represented in depreciation cost, the quality of a strategy is important, the innovativeness and the quality of management are now important. It is about how managers manage the new challenges and it is about the manager�s integrity and credibility. Values are in a process of constant change. In general, values depend much less on tangible and easily quantifiable goods. That is more and more also ture for the business world. A short analysis of the market c�ptialization of Coca Cola gives us a clear picture. Only 16% of the total market cap are book value � so tangibles. Even 2/3 of the value of Cola are defined by the brand. A brand is something very intangable as it represents reputation, credibility and quality to mention some characteristics of a brand. Why are so many consumers prepared to pay a much higher price for a Coca-Cola than for a non-branded Cola. Coke might be a very specific case, as it is one of the strongest brands in the world with a total brand value estimated to approx. 70 bn U$. The rest is just the know how to mix a soft-drink using sugar and a black powder. Several years ago, the book value was used as the measure of reference. In the 90ies a dramatic changed happened. Today, Chash-Flows that will be generated in the future are the measure of reference. That implies that suddenly new criteria come into account: instead of investements that were made in the past and that were represented in depreciation cost, the quality of a strategy is important, the innovativeness and the quality of management are now important. It is about how managers manage the new challenges and it is about the manager�s integrity and credibility.

23. Intangible assets Reputation Brand Quality of management and board Sustainability issues Procter & Gamble Coca Cola British Petroleum

25. Intangible and market cap Tangibles Top of iceberg Report on SI�s Better risk management Better governance More informed estimates

26. Decent corporate citizen Ownership creates responsibility Entity should be and be seen to be a decent citizen The non-financial aspects of governance The triple bottom-line Social, economic and environmental Needs of the present Without compromising the ability of future generations to meet their own needs

27. How report economic performance? Financial information alone? Accounting �broken�? How has the company positively and negatively affected a community�s economic life through its operations? How will the company endeavour to enhance the positive aspects and eradicate or ameliorate the negative aspects in the year ahead?

28. Good governance Steering long term Ordinary and extraordinary Transient caretakers Trust and confidence of stakeholders Best interests of company Intellectual honesty

29. Conclusion Governance, strategy and sustainability Inseparable Imperative for good governance And to enable more informed estimates Build the trust and confidence of stakeholders Raise new capital more cheaply Sustainable business

30. A journey Cadbury, etc and the Combined Code of the UK King I, II and III Every day you may make progress. Every step may be fruitful. Yet there will stretch out before you an ever-lengthening, ever-ascending, ever-improving path. You know you will never get to the end of the journey. But this, so far from discouraging, only adds to the joy and glory of the climb.� Sir Winston Churchill

31. Thank You Prof Mervyn E King SC