Corporate Governance ... Lisbon Stirs the Debate
Sir Adrian Cadbury, chairman of the UK Committee on the Financial Aspects of Corporate Governance (popularly known as the Cadbury Report) and currently chancellor of Aston University, Birmingham and Antonio Borges, a former deputy governor of the Bank of Portugal and former INSEAD dean who is managing director of Goldman Sachs International and chairman of the European Corporate Governance Institute, were the keynote speakers at the second EBF LIVE 'Roundtable' event held in Lisbon on November 22nd, 2002.
The debate--in front of an elite group of senior Portuguese chairmen and chief executives, policymakers and business advisers--was opened by Joao Belchior Nunes, Country Senior Partner for PricewaterhouseCoopers. It was moderated by Tim Dickson, executive editor of EBF. The following is an edited summary of proceedings.
Joao Belchior Nunes
* It is fundamental that companies' accounts must present a fair view of their financial position. In PricewaterhouseCoopers it is even felt that the information given to the shareholders should be expanded to cover aspects of the industries where the companies operate and also some further data on some specific subjects of the companies, such as companies' strategy, R & D activity, human capital policies, training programmes, products.
* The greater the quantity and quality of data disclosed to shareholders, the more the latter will benefit. However, it is not obvious that investors use the financial information to support their investment decisions. Otherwise, the capital markets would never reach unrealistic values from time to time. The crash had to occur--although the Enron and WorldCom cases helped it to happen.
* Why the Enron and WorldCom's cases? The supply chain of companies' financial information is supported in three pillars: Boards of Directors and Corporate Governance in general: Auditors; and Investment banks and their analysis. These three pillars need to be founded on the solid integrity of the related players.
* The role of auditors is critical. Without the auditors and defined accounting principles (not yet duly harmonised worldwide), the business world would be an extremely dense jungle. Auditors made the mistake of allowing the market to treat their services as a commodity. This is not acceptable as there is no reason for it. Pressure on fees implies pressure on time chargeable and, although this may not be the reason for the large audit failure, no doubt that may sometimes affect the quality.
* It should be stressed that auditors do not necessarily have responsibility for the cases of wrong presentations of financial statements disclosed to the public by the media. The management of the companies may make transactions that auditors are unable to know about.
PwC is strongly committed to strengthening public trust and recommends the existence of audit committees with members independent of the Directors.
Sir Adrian Cadbury
* There is a general, worldwide lack of confidence in systems of corporate governance, and not just in the US. In seeking to restore public and investor trust we need to look at the structure of the board: is it safe and sound, or does it need to be reformed? Confidence will only be restored if we raise corporate standards and improve the quality, competence and integrity of board members.
* The chairman's role is to ensure that the board concentrates on: defining the company's purpose; setting a strategy; establishing the company's policies, appointing the CEO, monitoring and assessing the executive team; and monitoring its own performance.
* The Board needs to distinguish clearly between direction and control (its job) and day-to-day management (the responsibility of the executives). Without this the danger is lack of accountability.
* The board should have a mix of executive and non-executive directors, the aim being to combine the depth of knowledge of both. …