Care About Governance
Issues of corporate governance have been prominent for responsible investors for a long time. In recent times the importance of governance has become recognised more widely because the shortcomings of lack of corporate governance have been highlighted.
Effective corporate governance requires the board to challenge the potential for corporate management to manage with primary regard to their self-interest. It does this by focusing on matters such as managerial remuneration and benefits, professional status and career opportunities. Rather than acting as a quiet, passive body, primarily responsible to the management, the board needs to address the concern that the board is a captive of the management it is meant to oversee.
The Board is the Starting Point for Social Responsibility
The board of directors is often the starting point for corporate social responsibility. Given the board’s responsibility for basic strategy and policy, many social actions require board approval. It is therefore important that the board has a thorough understanding of social and environmental matters to complement its historical focus on financial matters.
Within the context of governance, caring can be seen as concern for the extent to which businesses adopt governance practices such as:
- Observing and Fostering High Ethical Standards
- Developing and Building Relationships with Shareholders
- Respecting the Interests of Stakeholders
- Disseminating Comprehensive and Clear Financial, Environmental, Social and Governance Information
- Providing Access to Company Directors and Senior Managers
In his capacity as a Member of the then Securities Commission (now Financial Markets Authority), Rodger played an active role in the development of the guide Corporate Governance Principles for New Zealand. The first of these principles is ‘Ethical Standards’ and states that ‘Directors should observe and foster high ethical standards’. The guidelines for this principle include adopting a written code of ethics, measures for dealing with breaches of the code, employee training and a system to implement and review the code of ethics, and that publication of the code and annual reports should include information about steps taken to implement the code and monitor compliance.