The new gov­er­nance agenda

Finweek English Edition - - JSE -

WHAT ARE the trends and im­per­a­tives im­pact­ing on cor­po­rate gov­er­nance? What can be learnt from the global fi­nan­cial cri­sis? How should reg­u­la­tions adapt to an in­creas­ingly in­te­grated and dig­i­tal world?

These and a plethora of re­lated is­sues were tack­led at a re­cent GIBS Fo­rum dur­ing which South Africa’s Pro­fes­sor Mervyn King and Bar­clays plc Chair­man Mar­cus Agius looked at both the macro-and mi­croe­co­nomic im­pli­ca­tions of cor­po­rate gov­er­nance in a fi­nan­cial and busi­ness world turned on its head by the fail­ure of ex­ist­ing stan­dards and struc­tures to cope with the ef­fects of the so-called Great Re­ces­sion.

While King’s ad­dress fo­cused heav­ily on the fu­ture driv­ers of gov­er­nance, Agius billed his in­sights as a glimpse into what it was like “on the in­side” as the bank­ing cri­sis tight­ened its grip on in­sti­tu­tions around the world. While South African bankers might have con­grat­u­lated them­selves on be­ing rel­a­tively “in­su­lated” from the global fall­out, Agius stressed that the in­ter­con­nect­ed­ness of the world econ­omy and the global bank­ing sys­tem was not up for de­bate. “You can’t go back to old meth­ods. The abil­ity of the global econ­omy to work glob­ally is what leads to wealth cre­ation. The bank­ing sys­tem has evolved to meet the needs of the cus­tomer.”

Specif­i­cally ad­dress­ing the South African sit­u­a­tion, Agius said: “South Africa was in­su­lated be­cause it didn’t spe­cialise in cer­tain bank­ing lines, so to look like Absa we’d have to turn the clock back­wards. We do be­lieve the broader model serves clients bet­ter.”

Which­ever way you look at it, mod­ern­day cor­po­ra­tions can­not re­gard them­selves as sep­a­rate from global events. “We live in an in­ter­con­nected, elec­tronic world,” said King. “ The im­pact of cor­po­ra­tions on so­ci­ety is enor­mous.” But, on the flip side of the coin, King said “too much reg­u­la­tion leads to con­for­mance and your ultimate re­spon­si­bil­ity (as a com­pany) is per­for­mance”.

This sen­si­tive bal­anc­ing act makes it im­per­a­tive that com­pa­nies be­come in­creas­ingly mind­ful of the Earth’s fi­nite nat­u­ral re­sources and the grow­ing im­por­tance of en­vi­ron­men­tal fac­tors too. Reel­ing off the is­sues of fu­ture food short­ages, hous­ing deficits and potable wa­ter scarci­ties, King said sus­tain­abil­ity, re­spon­si­bil­ity and in­te­grated re­port­ing were not ne­go­tiable in a world where in­vestors “need to make in­formed de­ci­sions about com­pa­nies in the new world”.

There was a new agenda on the ta­ble for gov­er­nance, said King. “In 10 to 20 years’ time the econ­omy will look much dif­fer­ent. We have the de­vel­oped world strug­gling and the de­vel­op­ing world grow­ing faster … economies are split­ting and then you have all of the po­lit­i­cal tur­moil in the Mid­dle East.” But ad­dress­ing these is­sues with over­reg­u­la­tion is not the an­swer and, speak­ing specif­i­cally in terms of bank­ing, King said: “ The harder it be­comes for banks in terms of reg­u­la­tion, the worse ser­vice we’ll get as cus­tomers.”

For ob­vi­ous rea­sons, Agius ap­plauded these com­ments. How­ever he was quick to stress that while Bar­clays was now car­ry­ing twice the cap­i­tal and was “fi­nan­cially much sounder”, there was a need to get reg­u­la­tions in place. “Never again must any gov­ern­ment find it nec­es­sary to put money into a bank­ing sys­tem to keep it buoyed.” Of course, said Agius, the na­ture of bank­ing im­plied risk but the sys­tems and pro­cesses in place to as­sess those risks was crit­i­cal. Speak­ing di­rectly about what went wrong in the lead-up to the cri­sis, Agius said: “Risk wasn’t prop­erly han­dled. You have to know, un­der­stand and

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