Corporate Governance

Ethics and

The Role of CG Officer

Corporate Governance

Ethics Ethics

andand

The Role of CG OfficerThe Role of CG Officer

2

Reputation

Good reputation takes years to build. Shades of reputation:

Products Management Profits Social posture

It takes just one incidence to destroy the reputation of a company.

3

Reputational Risk What can bring a company into

disrepute? What is the price of disrepute? Is it worth losing/keeping reputation? What if there is no direct potential of

losing reputation? Defending and Sustaining Reputation:

Sustaining reputation is painstaking Defending reputation may often be self-

defeating.

4

Ethics

What is right? How to enforce what is right:

Law Regulations Codes Standards Generally Accepted Practices

5

Code of Ethics

Avoiding conflict of interest Use / abuse of position, power or

property Confidentiality Fair dealing with all Protection of company property Compliance with laws, rules Encouraging reporting of illegal or

unethical behavior.

6

Corporate Social Responsibility

Minimize damage to environment Liberal employment policy Investment in local communities Conducting business ethically Respect for human rights Fairness to all

7

CSR and Reputation Risk

Financial Implications: Impact on market performance Failure to get good employees Cost of deflecting negative publicity Lower earnings / share price

8

Shades of CSR

Official posture and reality Spending more on publicizing CSR

than actually doing it. Lip service / Strings attached

Welfare IPPR Report says most CSR is lip

service / ulterior motive based.

9

CSR – Who is watching what?

Institutional investors PIRC provide web based data on

how companies are acting on CSR, ethics, environment, etc.

Regulators / Kings Report in SA Disclosure Requirements

10

Formulating CSR Policy

Set a Code of Ethics outlining CSR Values to be upheld

Establish current position on CSR values

Discuss with relevant stakeholders Employees Pressure groups Clients

Set up a system

11

CSR Policy

Devise CSR Policy Prescribe systems Establish responsibility for each

party Set realistic strategies and targets Keep all concerned informed Monitor achievements

12

Bench Marking in CSR

You do as much as others are doing. Can any one set “minimums”? Who ensures compliance? How to monitor compliance?

13

Sustainability Report

Report on social, ethical, health and environmental policies.

More focused on environment (i.e. sustainability of the society) than any thing else.

Not a report on company’s sustainability (financial or otherwise).

Not yet mandatory in Pakistan.

14

The Triple Bottom Line

Prescribed by Global Reporting Initiative:

Financial Performance Impact on environment and natural

resources Social benefits and costs

15

General Motors Model

Economic Indicators Environmental Indicators Social Indicators

16

Economic Indicators

Revenue Earning Dividend per share Sales Volume Market Share

17

Environmental Indicators

Global energy use Global carbon dioxide emissions Global non-recycled waste Global waste consumption Company sites certified to ISO

14001 standards

Social Indicators Social Indicators

Community donations and sponsorshipsCommunity donations and sponsorships Employees (number)Employees (number) Diversity: %of workers femaleDiversity: %of workers female Diversity: %of workers minority groupsDiversity: %of workers minority groups Number of discrimination charges Number of discrimination charges

brought against the companybrought against the company Employee satisfactionEmployee satisfaction InjuriesInjuries

18

19

Public Sector

Commonwealth Association for Corporate Governance (CACG) Guidelines:

Major or significant companies are government owned.

Directors are political nominees, not independent.

Severe shortage of able directors.

20

Whistleblowers

Who is a whistleblower? Connection of WB with CG Honest and Malicious whistleblowers Internal & External Whistleblowing Area of concern:

Employees (can) have access to all data Whistleblowers are punished, not

rewarded Disregard as gripe

21

WB – Best Practice

Recognize the importance. Set a procedure / prescribe channels

Involve non-executives; avoid executives Confidentiality

Legal Protection to whistleblowers UK’s Public Interest Disclosure Act 1998 Gagging clause in employment agreement

22

Disclosure

Internal and External Disclosures Good faith No personal gain Reasonableness

Violation of law, rules of the company, injustice, financial malpractice, risk to public

Internal before external Laws have so far not been effective

23

Recommended Guide on WB

Documented procedure Named office to handle WB Examples of what is or is not

misconduct Consequences of false or malicious

allegations spelt out External route also indicated Investigation procedure

24

CG Officer

Who: CEO Chairman, Board CFO COO CS Specially assigned officer