7th International Conference on Corporate Governance
11-12 May 2006, Nuffield Hall, London NW1
Madhav Mehra
President, World Council for Corporate Governance
Corporate governance is at a crossroads today. There are pulls and pressures from different directions. On the one hand legislations such as Sarbanes Oxley are taking the micky out of the business. On the other hand self-regulation has not worked. Most investors agree with the views of Elliot Spitzer, US’s crusader against corporate fraudsters, that honour code among CEOs has not worked. Boards have not done their duty of oversight and self regulation has been a failure. So what is the choice before us? Hence the theme for the 7th International Conference for Corporate Governance Making Corporate Governance Work Through STARR – Selection, Training, Appraisal, Remuneration and Retirement of Directors – the five key areas to improve corporate governance.
We need to look at the selection processes. How do we recruit directors? What are our criteria? Do we realise the importance of diversity? Have we broadened our gene pool? Of course the key is training. Corporations are getting exposed to a multitude of complex range of problems. Legal and corporate frameworks are changing every day. Companies operating internationally are exposed to global problems – human rights abuse, poverty, AIDS, climate change. There is a huge revolution brewing. The revolution is about ethics and CSR. Both require moral courage. How do you acquire moral courage? How do we install the software of moral courage? Training is the only way to help us install this software and make it work.
Yet, directors are getting little training to handle these new challenges. Surveys have indicated that 62% of Non-Executive Independent directors of listed companies have received no training for their roles. Indeed directors sneer at the very suggestion of training. Training providers have confided that they have to call director training programmes as director development. If they termed it as training none would join.
We should have a system of effectiveness of our selection and training processes. We, therefore, need to develop appraisal systems to monitor effectiveness of the board – the CEO, directors and the chairman.
The purpose of focusing on STARR – Selection, Training, Appraisal, Remuneration & Retirement of Directors in this conference is to bring home the point that companies that destroyed shareholder values had all boxes ticked. They had a full complement of independent directors. But these directors did not ask the right questions at the right time. Asking questions is also a skill. One needs training for that. More importantly, the significant issue is not whether you have an independent director but whether the director is of an independent mind.
The issue of role and effectiveness of non-executive directors was first taken up by Derek Higgs in the report he submitted to DTI in January 2003. He talked about four attributes of Non-executive directors: integrity and high ethical standards; sound judgement; the ability and willingness to challenge and probe; and strong interpersonal skills. You cannot create an independent director simply by issuing a decree. This is a matter for developing, transmitting and internalising the training software that will help him/her exercise an independent mind.
Derek Higgs also made recommendation about remuneration. This reads:
“The remuneration of non-executive director should be sufficient to attract and fairly compensate high quality individuals and the level of remuneration appropriate for any particular non-executive director’s role should reflect the likely workload, scale and complexity of the business and the responsibility involved”.
This has led to a lot of confusion and non-executive directors today are drawing almost as much salary as the executive directors thus defeating the whole purpose of appointing outside directors. The remuneration has far more repercussions. It is creating a great divide in the corporations. Never before in corporate history has the differential between the highest and the lowest paid person been higher.
Retirement is equally an important issue. Unless you retire directors you cannot induct young blood which is so necessary to revitalise corporations.
This volume contains papers contributed by distinguished corporate governance experts for the 7th International Conference in Corporate Governance. I am grateful to these authors for their brilliant contributions. The focus is on issues how boards can improve the quality of corporate governance by improving policies of selection, training, appraisal, recruitment and retirement. The contributors discuss both the compliance and competitive issues. There is a preponderance of emphasis on competitive issues such as CSR, sustainability and triple bottom line because it is these areas that will help the boards to use corporate governance as an instrument for creation of sustainable wealth that could create happiness for all. I hope you enjoy reading these contributions as much as I did as triggers for self-improvement. Enjoy the conference.
Madhav Mehra
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