The ele­phant in the board­room

Financial Mirror (Cyprus) - - FRONT PAGE -

But con­sider this: None of the risks high­lighted in the WEF re­port caused the re­cent spike in debt crises or the wave of scan­dals that en­gulfed – just in the last year – Volk­swa­gen, Toshiba, Valeant, and FIFA. Th­ese de­vel­op­ments (and many more) are rooted in a more pedes­trian – and peren­nial – prob­lem: the in­abil­ity or re­fusal to recog­nise the need for course cor­rec­tion (in­clud­ing new man­age­ment).

As anti-es­tab­lish­ment par­ties and can­di­dates gain ground with vot­ers through­out Europe and in the United States, political lead­ers who con­tinue to pur­sue a busi­ness-as-usual ap­proach could find them­selves look­ing for new jobs. And the same is true of busi­ness lead­ers: Ac­tivist in­vestors are fed up and de­ter­mined to force change, ei­ther with a hands-on ap­proach or by vot­ing with their feet and di­vest­ing from com­pa­nies that don’t meet their cri­te­ria.

As Bar­bara Novick, a vice chair of Black­Rock, noted on a panel on cor­po­rate gov­er­nance and ethics at this year’s Davos gath­er­ing, her firm looks care­fully at whether the boards of com­pa­nies in which Black­Rock in­vests in­clude peo­ple who are en­gaged and ask­ing hard ques­tions con­sis­tently through­out the year.

And yet the heads of some of the world’s largest com­pa­nies still seem to be in de­nial. I spent sev­eral hours last year with the chief ex­ec­u­tive and chair of a bank who thought it un­fair that in­vestors were plan­ning to vote against him hold­ing both posts. Though he agreed that hav­ing one per­son in both roles is, in prin­ci­ple, a bad idea, he in­sisted that he was the ex­cep­tion.

I had a sim­i­lar con­ver­sa­tion this year with some­one who noted that most of his com­pany’s board had served for up­wards of 20 years, and that his com­pany had just es­tab­lished an age limit of 80 for board mem­bers. More rapid turnover might work for other com­pa­nies, he con­ceded; but, again, his com­pany was some­how ex­cep­tional.

On the other hand, Hiroaki Nakanishi, CEO and Chair­man of Hi­tachi, spoke elo­quently to me about the im­por­tance of cor­po­rate gov­er­nance and the chang­ing de­mands that global com­pa­nies faced. He noted the im­por­tance of hav­ing nonJa­panese board mem­bers as Hi­tachi seeks to ex­pand fur­ther in­ter­na­tion­ally.

The prob­lem is that those now speak­ing up for long-term in­vest­ing, com­mit­ment to the com­mu­nity, and build­ing com­pa­nies that last are do­ing so over din­ner, be­hind closed doors, or un­der the pro­tec­tion of the Chatham House Rule (which re­quires that re­ported state­ments re­main unattributed to those who made them). In­deed, in the pro­gram for this year’s Davos meet­ing, the phrase “cor­po­rate gov­er­nance” ap­peared just once (for the panel with Novick that I was on). The same was true for “board” and “board­room,” while a search for “ethics” turned up ses­sions on medicine and biotech. “Gov­er­nance” was pri­mar­ily about political gov­er­nance, and “ste­ward­ship” re­ferred to the planet.

Many peo­ple are cyn­i­cal about Davos – and they aren’t com­pletely wrong. Years ago, it was be­cause the meet­ings were so openly se­cre­tive (much like the way peo­ple per­ceive board meet­ings). Nowa­days, the WEF we­b­casts many of its ses­sions, and the cyn­i­cism comes from the sense that what is be­ing dis­cussed is not what busi­ness and govern­ment lead­ers need to think about.

That’s not the WEF’s fault. Davos has ex­tra­or­di­nary con­ven­ing power and the abil­ity to bring im­por­tant is­sues to the fore, in­clud­ing LGBT is­sues this year. There is no rea­son it can­not also in­clude is­sues like the pay gap be­tween ex­ec­u­tives and la­bor, the im­pact of cor­po­rate de­ci­sions on com­mu­ni­ties and the en­vi­ron­ment, and the grow­ing loss of trust to­ward busi­ness and govern­ment. What it can’t do is force CEOs, board di­rec­tors, in­vestors, and pol­i­cy­mak­ers to speak about such is­sues openly and on the record.

It is easy for com­pa­nies to see far-off risks that they can­not con­trol. It is a lot harder, but a lot more im­por­tant, for them to ac­knowl­edge the risks stem­ming from how they op­er­ate. And it is harder still to per­suade those busi­ness lead­ers who do com­pre­hend such risks to talk about them on a pub­lic stage. That re­luc­tance to speak openly about how to re­struc­ture cor­po­rate gov­er­nance in a way that im­proves ste­ward­ship places all of us at risk.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.