On 3 March I attended the International Corporate Governance Network mid year meeting. It was titled ‘What does the future hold for active shareowners?’
Three things stuck in my mind from the conference. In a key note presentation, Steven Wallman, a Former SEC Commissioner, said that what we have been calling good governance is not good governance. We need to think again about what good governance looks like. His remark put down a challenge. He gave the example of how it was believed that one could align the interests of executives and shareholders through performance related pay. Enron of course showed the fallacy of that belief.
In a break out session, a Dutch investor said that ‘we (meaning investors) could have done more’ and that we have an opportunity in the next two months to do something. I asked him later what he meant by that and he told me he was referring to the AGM season and the opportunity for shareholders to do something at AGMs. I guess he meant some sort of coordinated action by shareholders.
Towards the end of the day there was a vote on the question, ‘should the shareholder value model be reformulated as the corporate responsibility model?’. 55% said yes, 36% said no, with the rest unsure. My interpretation of the vote is that there is a significant desire to learn from what has happened and find a better model.
There is plenty of information to help us learn. The OECD published ‘The Corporate Governance Lessons from the Financial Crisis’, the IMF published ‘Initial Lessons of the Crisis’ and three supplementary reports and the Financial Times has launched a new series on ‘The future of capitalism’. In the UK, Sir James Sassoon has published a preliminary report into an independent review, commissioned by the Conservative Shadow Chancellor, into the UK’s Tripartite system of financial regulation and Lord Adair Turner, Chairman of the Financial Services Authority delivered a speech 'The Financial Crisis and the Future of Financial Regulation'.
There now seems to an emerging consensus about what happened and why and many of the comments now being published echo what ACCA said last Autumn in its discussion paper ‘Corporate Governance and the Credit Crunch’.
Whereas we are beginning to get a new world view of what happened and what was wrong with the systems we had, few of us have a clear idea of what a better system should look like or what we need to get one. What, for example, would the corporate responsibility model, suggested by the ICGN question, look like?
It is time we start addressing this question or rather the related questions: what does good governance look like, what sort of regulatory reform should we have, does our financial reporting model need to change, to what extent and how should the interests of society be taken into account by companies? Perhaps the most important questions are ‘how can good governance help lead to sustainable prosperity and a sustainable planet?’ and ‘how can the regulatory systems support this?’
So there is a desire amongst investors and others to take positive action but still not much sign of clear leadership on the direction to take. ACCA will work hard to stimulate and contribute to debate on these matters. It is important that we build on the emerging shared understanding of what went wrong to a shared view of where want to go and how to get there.
Paul Moxey
What's new on the Global Economy site this week?
ACCA is continuing to develop its Global Economy micro site. Recent posts include many additional sources of reference such as ACCA’s policy paper on Fair Value, Supplementary evidence provided by ACCA for the Treasury Select Committee Inquiry into the Banking Crisis and material relevant to SMEs. New external resources include the new FSA draft Code of Practice on remuneration policies and a provocative article by Tim Leech and related debate on 'Could internal audit have prevented the global economic crisis?’ To join the debate, visit ACCA Discuss.
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