Nigel Payne

1
Harnessing Corporate Governance, Risk Management
Strategy to ensure Business Success avoid
Personal Liability

• Nigel Payne
• 3 August 2005

2
Is there a Crisis in Corporate Governance?

• Corporate Scandals Where was the Board?
• Increased litigation against Directors
• Executive Greed
• Passive Institutional Investors
• Over Regulation
• Audit Failures
• Fewer directors willing to serve
• A repeat of the scandals of 1990s, 2002, etc?

3
The Proposed Solutions

• More Regulation
• Increase the Responsibilities of Directors
• Oblige Trustees to Vote
• Rotation of Auditors
• Or make the system work as it is designed to

4
What are we Missing?

• The importance of corporate governance lies in
  its contribution both to business prosperity and
  to accountability.
• Hampel Committee 1998

5
What are we Missing?

• The Board must ensure an appropriate balance
  between performance and conformance/compliance.
• King 2 (Paraphrased)

6
Risk for Reward

• Enterprise is the undertaking of risk for reward.
• Corporate governance is a strategic response to
  risk.
• King 2

7
Directors Duties

• Run the company based on the mandate from
  Shareholders
• Primary Duty is to the Company
• Effective balance between Performance (Strategy
  Risk) and Conformance/Compliance
• Appoint effective management delegate to them
• Monitor to facilitate corrective action

8

• Howard v Herringel another (1991) Judge
  Goldstone
• In my opinion it is unhelpful and even
  misleading to classify company directors as
  executive or non-executive for purposes of
  ascertaining their duties to the company or when
  any specific action is required of them. No such
  distinction is to be found in any statute. At
  common law, once a person accepts an appointment
  as a director he becomes a fiduciary in relation
  to the company and is obliged to display the
  utmost good faith towards the company and in his
  dealings on its behalf.

9
Conformance Issues

• Is Authority being used as mandated?
• Are we compliant with key legislation?
• Is the Information complete, accurate, relevant,
  timeous?
• Do we have the right Value System?
• Will bad news flow?
• Are the Internal Controls Effective?

10
What about Performance?

• Do we have an appropriate Strategy?
• Is the strategy being implemented effectively?
• Do we have a reasonable balance between risk
  reward?
• Are our early-warning systems effective?

11
COMPLIANCE
BOARD
VALUES
STRATEGY
RISK MANAGEMENT
Monitoring Reporting
Performance Management
Internal Control
MANAGEMENT
12
Limiting Directors Liability

• Reasonable Director test strategy, risk
  management, monitoring, major legal issues
• Business Judgement Rule
• informed decision based on facts
• decision is rational
• no self interest

13
Limiting Directors Liability

• Insurance for Directors at company expense
  doesnt cover criminal your reputation
• Independent Professional Advice
• Access to an experienced Company Secretary
• Ongoing Director Education
• Effective Audit Committee
• Right of company to indemnify its Directors?

14
Barriers to Good Governance

• Poor ethics re Conflicting Interests
• Lack of leadership
• No measurable strategic objectives
• Inadequate risk management
• Form over Substance
• Insufficient time by non-executives
• Performance v Conformance

15

• We aint where we oughta be, we aint where we
  gonna be, but brother, we aint where we were
• Martin Luther King

16

• ?