Magazine article Journal of Banking and Financial Services

CORPORATE GOVERNANCE-Conformance or Performance

Magazine article Journal of Banking and Financial Services

CORPORATE GOVERNANCE-Conformance or Performance

Article excerpt

Business progress has always been about taking risk, and you can never make big moves forward and eliminate risk by an excessive reliance on governance and due process, argues leading businessman Stan Wallis.

In recent times I have once again decided to minimise my time at the speaker's rostrum and only "stick my head up" for worthy occasions and worthwhile topics. Tonight is such an occasion.

I have been fortunate - or unfortunate, depending on your point of view - to have had various board involvements for all but the first five years of my 40 years of corporate life ...

I have therefore experienced at very close quarters the workings of all manner of companies and of all manner of directors and have observed the ongoing debate about the role of board and corporate governance with great interest. While much progress has been made there is, in my opinion, widespread misconceptions about the role of boards and about the current corporate governance debate in this country.

In summary I propose tonight to talk about:

* the role of the board, and in particular how an ever-changing environment is placing demands on boards and directors to review their structure and operation.

* corporate governance, and where the formal processes of corporate governance have a place, and highlight why corporate governance in itself can never be an overall panacea or a clear path to enhancement of shareholder value.

* the real drivers of corporate governance - however illusive they may be - and how we need to revise our board structures, practices and membership, and if necessary roll back some of the cornerstones of the current corporate governance debate.

And finally I want to say a few words:

* about the modern corporate and its place in society today. What are our responsibilities beyond those to our shareholders, particularly as financial or shareholder capital is replaced by intellectual capital as the main driver of performance in the new economy? What are the implications of shareholder

activism for public companies as issues such as the environment, remuneration and genetically modified foods, community responsibility and so on, are pursued relentlessly and in some cases very effectively?

I also need at the outset to give some attribution to my remarks tonight. About 12 months ago, on behalf of my colleagues at Coles Myer, I retained Colin Carter, a senior vice president of The Boston Consulting Group in Melbourne, to assist in a review of the performance of the Coles Myer board.

While the review was a rewarding exercise in itself, Colin and I spent a lot of time discussing the conformance versus the performance issue in relation to boards and I acknowledge freely that as a result of Colin's review I have moved much closer to the view that we need a fresh approach to how we think about boards and the real drivers of board performance, rather than the emphasis that we see today which is on the formalised edicts of the corporate governance debate.

Corporate Governance Today

We all agree about the role of a board: to agree strategy, to monitor performance, to approve major investments, to ensure major risks are managed, to appoint the CEO and approve succession plans and top management compensation, to ensure compliance on all fronts and to establish ethical standards for the company's operations and people.

We probably all agree about the main tenets of corporate governance: there must be protection for all shareholders, including minorities; management must be held accountable to shareholders; there must be transparency and free disclosure; and above all we must have an active independent board that oversees management.

The focus on contemporary corporate governance has grown in the last 10-15 years for a variety of reasons. As major corporations expanded in the 1970s and 1980s on a global basis, there was a growing separation of ownership and control. …

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