Sixty percent of the more than 400 delegates attending the recent conference of the International Corporate Governance Network in Australia believed that more active and engaged shareholders would be the most effective way to improve a company’s governance.
This was over and above more regulation, improved shareholder rights or improved independence of boards.
The delegates were institutional investors from around the world, representing funds under management of about US$10-trillion. They deliberated on a map to reform and to recover (the conference theme) within the context of the global financial crisis.
Conference delegates focused on basic questions of what good governance is and whether investors are reviewing what really counts.
The discussion centred on ways to improve governance: by incentivising the right boardroom behaviour, getting shareholders to act like owners and getting non-executive directors to be more effective in their stewardship role.
Twenty-eight percent voted in favour of more diversity on boards as the best way to incentivise the right boardroom behaviour.
Diversity in this context should be interpreted as a diversity of skills and expertise and not necessarily the narrower South African interpretation of race and gender.
The former deputy president during Bill Clinton’s administration, Al Gore, argued that the investor community should play a critical part in working towards a sustainable future.
Rachel Kyte, vice-president of business advisory services at the International Finance Corporation, said lessons from the global financial crisis included the need to balance regulation with innovation.
There was recognition that the interface between the public and the private sector has changed completely and there was a need to move away from short-term to long-term incentives.
Another lesson was the understanding that long-term returns depend on performance in a sustainable manner, including an increased focus on social, labour, biodiversity and climate issues.
The financial crisis has called for an acknowledgement of how corporate governance failures contributed to the crisis and these should therefore be a part of the solution.
Although arguing for increased transparency and secure shareholder rights, the network concluded that ‘shareholders must also recognise that they should use their share-ownership rights responsibly in the interest of creating long-term value for their beneficiaries. If they do not act responsibly their rights will be at risk and their case for strengthened rights will be undermined.â€
Daniel Malan is the KPMG special adviser on ethics and governance and head of the unit for corporate governance in Africa at the University of Stellenbosch Business School