4th Annual Corporate Governance Congress


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How can governments help to acheive sustainable governance.

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4th Annual Corporate Governance Congress

  1. 1. The Role of Government in Advancing Corporate Sustainability By Vinoth sivasubramanian
  2. 2. INTRODUCTION "There is a critical need to enhance corporate governance in the region, given the situation of the global financial markets. We need to urgently look at adapting global best-practices to the region's needs, which will help to stabilize our financial markets.“ The need for sound corporate governance assumes critical significance at a time when advanced economies are going through a financial meltdown. "Bankruptcy and failures in Western banks and financial institutions are in large part attributable to corporate mal-governance and distorted incentive structures,”.
  3. 3. The financial turmoil in developed countries gives the region an opportunity to play a prominent role in the global economy, but only if they can ensure the widespread adoption of institutions and corporate governance frameworks that bolster investor trust. "Good corporate governance is a key ingredient in the region rising to the challenge and becoming a global player. This is because market perceptions, including economic fundamentals, determine where global capital will flow. Capital will flow to where it is best protected by laws, institutions, respect of and enforcement of contractual obligations and an absence of corruption,“.
  5. 5. ECONOMIC AND BUSINESS CASE FOR SUSTAINABLE ENTERPRISE Sustainability and the New Economy Sustainability Benefits for Companies.
  6. 6. ROLES OF GOVERNMENT IN PROMOTING SUSTAINABLE ENTERPRISE Vision/Goal Setter Leader by Example Facilitator Green Fiscal Authority Innovator/Catalyst
  7. 7. SPECIFIC “POLICY LEVERS” GOVERNMENTS USE TO ADVANCE SUSTAINABLE ENTERPRISE Rebalancing the Roles of Government and Public Enterprise. Direct Regulation. Economic/Fiscal Measures. Voluntary/Non Voluntary Initiatives. Education/Persuasion/Information for Decision Making
  8. 8. Sustainable enterprises create economic, social and environmental value while avoiding or minimizing damage to economic, social, or natural capital. They operate on principles of transparency and accountability. The central focus of the paper and the definition of the topic: Focuses on the role of governments in promoting corporate sustainability, while noting the importance of promoting sustainability in the public sector (given that in most G8 countries the government is itself the biggest ‘business’ in the country).
  9. 9. THE ECONOMIC AND BUSINESS CASE FOR SUSTAINABLE ENTERPRISE SUSTAINABILITY AND THE NEW ECONOMY Efforts to move beyond the rhetoric of sustainability have sometimes lacked support because of the perception that a serious commitment to sustainability will limit a country’s economic prospects. Businesses initially saw environmental obligations as an “added cost,” and were very reluctant to go “beyond compliance” while often actively campaigning to minimize environmental regulation.
  10. 10. In the new economy, failure to incorporate principles of sustainability into economic practices will (sooner rather than later) force enterprise to “hit the wall” either ecologically or socially. The achievement of sustainability will mean billions of dollars in products, services, and technologies that barely exist today.
  11. 11. SUSTAINABILITY BENEFITS FOR COMPANIES “Corporate Sustainability means internalizing environmental and social responsibilities into a reinvented core business strategy in a phased manner that enables the corporation to deliver lasting benefits to current and future generations of shareholders, employees and other stakeholders.” A few examples that point to a growing trend where companies must “do good” to do well. It is becoming imperative for companies to build reputations and track records as socially and environmentally responsible corporate citizens if they are to ensure access to new resources, raw materials, skilled employees and markets in which to sell their products
  12. 12. To obtain and maintain a “license to operate” in a host community, companies must build relationships and trust with their communities. They must provide lasting value to communities in exchange for the natural resources they are taking; and assure host communities that the company will leave them in a better position – socially, economically and environmentally – over the long term. Leading companies (and in particular natural resource based companies) increasingly embrace sustainability principles and practices to maintain their global licenses to operate, and to increase both and “stakeholder value”. Companies that operate responsibly and in a sustainable manner can also impact businesses in their supply chain.
  13. 13. Companies committed to sustainability are using supply chain management to further their interests by, for example, requiring all their suppliers to certify their environmental management systems under ISO 14001 or similar schemes. Other benefits will also accrue to those companies that take sustainability seriously. In particular, reduced material inputs, reduced energy use and reduced waste generation can result in enhanced efficiencies and reduced costs for companies. Efforts to identify opportunities for improving sustainability performance can also give rise to technological innovations. New technologies in turn can open up new business opportunities and new research opportunities.
  14. 14. Exploiting these opportunities generates “top line” benefits to those businesses, which can provide products, or services that actually help (re) solve sustainability issues and problems. Finally, companies can attract highly skilled employees more effectively by aligning their corporate culture with the sustainability values that are becoming increasingly attractive to young professionals and other workers.
  15. 15. KEY ROLES OF GOVERNMENT IN PROMOTING SUSTAINABLE ENTERPRISE Vision/goal setter: “steering” and “rowing” society toward sustainability - Leader by Example: “Walking the talk” by practicing sustainability in government operations and purchasing policies - Facilitator: Creating appropriate “framework conditions” for sustainability - Green Fiscal Authority: Getting the prices right through “greening budgets” and introducing “ecological fiscal reform” (EFR) - Innovator/Catalyst: Promoting innovation within government and in other sectors
  16. 16. SPECIFIC “POLICY LEVERS” GOVERNMENTS CAN USE TO ACHEIVE SUSTAINABLE ENTERPRISE We have identified five categories of policy levers which may be explored by government in delivering on their role in promoting sustainable enterprise. There are: - Rebalancing the Roles of Government and Public Enterprise - Direct Regulation - Economic/Fiscal Measures - Voluntary/Non Voluntary Initiatives (VNRI’s) - Education/Persuasion/Information for Decision Making
  17. 17. New Directions Group Criteria and Principles for the Effective Use of VNRI’s Criteria for the Utilization of VNRI’s to Achieve Environmental Policy Objectives: 1) VNRI’s should be positioned within a supportive policy and regulatory framework. 2) Interested and affected parties should agree that a VNRI is an appropriate, credible and effective method of achieving the desired environmental protection objective. 3) There should be a reasonable expectation of sufficient participation in the VNRI over the long term to ensure its success in meeting its environmental protection objectives.
  18. 18. 4) All participants in the design and implementation of the VNRI must have clearly defined roles and responsibilities. 5) Mechanisms should exist to provide all those involved in the development, implementation and monitoring of a VNRI with the capacity to fulfill their respective roles and responsibilities. Principles for the Design of Credible and effective VNRI’s: 1)are developed and implemented in a participatory manner that enables the interested and affected parties to contribute equitable; 2) are transparent in their design and operation; 3) are performance-based with specified goals, measurable objectives and milestones;
  19. 19. 4) clearly specify the rewards for good performance and the consequences of not meeting performance objectives; 5) encourage flexibility and innovation in meeting specified goals and objectives; 6) have prescribed monitoring and reporting requirements, including timetables; 7) include mechanisms for verifying the performance of all participants; and 8) encourage continual improvement of both participants and the programs themselves.
  20. 20. Regulatory Approaches to Policy Regulatory Approaches .Typical drawbacks Main advantages 1. High formality, 1. Visibility, 2. Expensive operation costs, 2. Credibility, 3. Adversarial relations 3. Accountability, between regulator and 4. Compulsory application to regulated, all (including free riders) 4. Limited scope (i.e. 5. Likelihood of rigorous standards being developed, jurisdictional limitations), & 6. • Cost is borne by the entire 5. Difficulties in development society, and and amendment 7. • The availability and range of sanctions.