16th IBGC Congress Sao Paolo New Corporate Governance by Professor Martin Hilb President of the Swiss Institute of Directors and the International Center for Corporate Governance November 16th, 2015
CG Practice Swiss Board School (in cooperation with IMP-HSG) International Board Academy University Board Education (at HSG) CG Education Board Networks Board Consulting Female Board Pool (in cooperation with IMP-HSG) CG Research Board Research (in cooperation with EIASM & FIM-HSG) Board Publications (in cooperation with Haupt) Board Guidelines www.icfcg.org 2
Direction Development Levels of Boards The «Entrepreneurial» Board 3 4 The «Directing and Controlling» Board The «Prestigious» Board 1 2 The «Controlling» Board Controlling 3
Corporate Governance Problem Areas Lack of adaption to a particular situation Lack of strategic direction on the board level Lack of professionalism regarding the selection, review, remuneration and succession planning of the Board of Directors and the Top Management Team Lack of strategic monitoring and risk management on the board level 4
Reversed KISS-Principles S ituational S trategic I ntegrated K eep it controlled 5
New Corporate Governance Book published in: - Sao Paolo in Portuguese - Buenos Aires in Spanish - New York in English - Berlin in German - Lausanne in French - Beijing in Chinese - Saigon in Vietnam - Tokyo in Japanese 6
Keep it S ituational Listed companies Best Practice for: Non-listed companies Big companies Public companies Bank governance Governance in Canada Small companies Family companies Hospital governance Governance in Germany But often Corporate governance system = National governance system 7
Keep it S trategic (1) Exemplary BoD Team (4) Holistic Vision (2) Effective Structure (3) Innovative Culture of Trust 8
(1) Board Composition 9
«How can a team of committed Board members with individual IQs above 120 have a collective IQ of 60?» (Peter Senge) 10
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Board Function Chairperson Vice Chair Independent of the Board of the Board Member A Independent Member B Independent Member C Corporate Secretary Board Know How Board- Team- Roles Coach Developer Controller Creative Designer Constructive Critic Organizer Auditing X International Markets (Europe/Asia/ Americas) X HRM X Consumer Business X Risk Management X Compliance X 12
(2) Board Structure Small enterprises: 3 members Medium enterprises: 5 members Large enterprises: 7 members With only two Committees: Integrated Audit and Risk Management Committee Integrated HRM Committee 13
(3) Board Culture COOL HEAD, WARM HEART Cooperation Rules WE NEED (1) to freely express our own views, (2) to learn from conflicts, (3) to trust our management and to be diplomatic. and to be able to forget. and to keep an eye on what is happening. WORKING HANDS 14
Competition Board Sucess Measures (How do we create an enduring differentiation between our company and our most important competitors?) Board Coopetition Board Cooperation Principles (How do we get along with one another?) Cooperation 15
Shareholder Orientation (4) Board Vision Shareholder Value Approach Top Executives Shareholders Customers Intrapreneurs Public Shared Value Approach Shareholders Customers Employees Stakeholder Value Approach Employees (incl. Executives) Customers Society Shareholders Stakeholder Orientation 16
«The prime role of the board of directors of this company is to help create simultaneous value for its customers shareholders employees, and society. The board expects that the company should rank in the top quartile of peer companies in total shareholder returns (including the cost of capital) and in voluntary loyalty of customers, employees and society as measured over one and three years.» 17
Board Cockpit* (for Board Meetings) Board Cockpit Dimensions Board Sign Trend Analysis comparing with previous terms (%) Comparison with key competitors (%) Actions + = - Financial Board Cockpit Liquidity Profitability HR Board Cockpit Productivity Voluntary Loyalty Market Board Cockpit Market Positioning Innovation Level Environmental Board Cockpit Company Reputation Eco-Efficiency * The Board Cockpit Dimensions have to be chosen by each company individually. Furthermore, comparisons with competitors should only be made if useful and possible. = Negative = Neutral = Positive 2009 by Martin Hilb, St. Gallen/Switzerland 18
Roles of Board of Directors and Executive Board PHASE Value Creation Strategy Development Strategy Ratification Strategy Implementation Strategy Implementation LEVEL Monitoring Board of Directors Top Management Team 19
- We are striving for reasonable profitability, which will enable us to independently achieve quality growth - We measure our quality and success on the reaction of our partners Partners Example of a Corporate Vision of an International Law Firm - We are striving for a performance-driven and innovative culture of trust. The responsibilities of our associates should be purposeful, satisfying and allow scope for initiative - We measure our quality and success on the reaction of our associates Associates In Search of Excellence by Adding Simultaneous Value for Our Clients Public - We want to run and operate a highly reputed law firm rendering first class professional legal advice to domestic and international clients at competitive rates, providing value for money and securing a reasonable income for ourselves - We measure our quality and success on the reaction of our clients - We measure our quality and success on the reaction of the public - We want to be recognized as one of the leading international law firms in the commercial business world 20
«Vision without action is a dream, but action without vision is a waste of time.» (Nelson Mandela) 21
Keep it Integrated (1) Board selection Board team (4) Board development Board vision Board structure Board culture (2) Board feedback (3) Board remuneration 22
(1) Board Selection Key Dimensions Board Interviewers Chairman CEO Member Time 09.15-10.15 10.15-11.00 13.45-14.45 Personality Integrity Professional Expertise Independence Breath of Mind Stress Tolerance Experience of CFO with Success Record Management Experience in China Risk Management Expertise Team Assessment Fluent in English and Chinese Social Skills Team Role: Controller Constructive Openess Listening skills Optimistic Realism Leadership Skills Planning skills Organizational skills Motivation skills Controlling skills
(2) Board Feedback Performance of the Board Team Performance of the CEO Performance of the Company 24
(3) Board Remuneration Internal Equity (1) (2) External Equity (3) Company Performance Equity 25
(4) Board Development Internal Board Workshops External Board Seminars Board-Network Meetings Yearly Board-Meeting regarding Succession Planning 26
Keep it controlled External Audit Financial Reporting Measuring Effectiveness Communication The Board s Controlling Functions Risk Management Internal Control Legal & Ethical Compliance Internal Audit 27
illegal Legal Compliance legal Compliance Management illegitimate Ethical Compliance legitimate 28
Importance low medium high Risk Matrix HR Risk Reputation Risk Market Risk Product Risk Liquidity Risk low medium Probability high 29
Board Audits Board review by the media and the public Board review by researchers Board review by shareholders Board review by top management Self-review by board members 30
Corporate Governance Survey Self-Evaluation by Board of Directors Team ongoing 31
Corporate Governance Survey from a Management, Shareholder and Board Perspective: Importance Shareholders Board Management 32
Satisfaction Shareholders Board Management 33
Areas for Development Shareholders Board Management 34
Action Plan WHAT? WHO? WHEN? (1) Create an effective system of controls for managing major risks and identifying critical issues and trends by introducing an Integrated Audit & Risk Management Committee (2) Create an Integrated Board Management Committee including targeted nomination, evaluation, remuneration and development (including succession planning) of well diversified supervisory and managing board teams (3) Introduce annual outside directors-only meeting 35
Strategic Direction Conclusion Levels of Corporate Governance Personal Entrepreneurship Corporate Controlpreneurship 3 4 1 2 Corporate Administration Corporate Control Strategic Monitoring 36
Conclusion Board Effectiveness means: both as well as Shareholder Value Entrepreneurship Legality Short-term Success Global Learning Transparency of Information Direction Stakeholder Value Checks and Balances Legimity Long-term Sustainability Local Adaptability Confidentiality of Information Control «A board should keep its nose in AND its hands out!» 37