The new governance agenda
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