Magazine article Canadian Speeches , Vol. 17, No. 1
Trust, transparency, and integrity are the cornerstones of good governance. For Canadian companies to gain investor's trust worldwide they must make CEO'S accountable for their companies' actions; begin to vigorously enforce tough penalties for breaches of law; disclose of insider trading faster. The Canadian laws concerning governance must be compatible with other countries to ensure outside investment. Speech to the 2003 Corporate Governance Conference, Toronto, January 30, 2003.
The new expectations of corporate governance sweeping across the world are based on a simple reality--you can run, but you cannot hide. Inquisitive eyes and ears of governments and regulators, analysts and money managers, customers and NGOs, journalists and whistleblowers are everywhere. Communication is instant. Analysis follows quickly. And the market's judgment can be swift and brutal.
In short, anything a company does anywhere in the world can affect its reputation everywhere in the world. Reputation has become the cornerstone of both investor confidence and public trust. What happens to a company's reputation therefore has an increasingly direct impact on its relationships with everyone from governments and regulators to customers, employees and investors.
The growing demand for transparency is reinforcing the role of the market as the primary driver of good corporate governance. Failure to follow acceptable standards of governance can hurt both a company's business and its share price. By the same token, good governance practices are seen as reducing risk and enhancing performance, and therefore constitute an increasingly important competitive advantage.
The impact of governance on competitiveness can be seen on both individual companies and entire countries. For instance, as Ron Fanner of McKinsey & Company noted yesterday, international surveys of institutional investors show clearly that money managers are willing to pay significant premiums for the shares of companies with good governance practices, especially when they operate in countries where the legal framework and norms of practice are weak.
Major investors are also passing judgment on entire markets. Last year, the California Public Employees Retirement System (CalPERS) brought in a new review process to select emerging economies for its stock market investments. Its criteria include key corporate governance measures such as stock market regulation and transparency. As a result of the new system, three markets where CalPERS had investments--Indonesia, Malaysia and Thailand--were blacklisted. The Asia Times recently estimated that the withdrawal from their markets of this one major investor took a total of U.S. $120 million out of the three countries.
This reality, the importance of good governance to companies and countries alike, is what persuaded the members of the Canadian Council of Chief Executives to launch our Corporate Governance Initiative last summer.
Not everyone saw our willingness to take a leadership role as appropriate. Shortly after we launched our initiative, for instance, we received a letter from the Ontario Teachers Pension Plan Board, one of Canada's strongest advocates of improving governance. While welcoming our interest in governance issues, it suggested that we had misunderstood the role of chief executives. Governance, we were told, is the responsibility of shareholders, working through boards of directors and within government regulations: "It is neither the responsibility nor the prerogative of management to set the standards for corporate governance."
Certainly we agree that shareholders, and the boards of directors they elect, have the right to decide how they want their companies to be run. But I reminded our friends at Teachers that the chief executive officer plays a critical role in managing not only a company's operations, but also its reputation. …