THE need for increased corporate governance is a trend that is here to stay as ethics plays a bigger role in the global business scene in the aftermath of a devastating financial crisis in the US four years ago, business ethics expert Thomas Donaldson has said.
Donaldson, a professor at the Wharton School of the University of Pennsylvania, told reporters and columnists in a discussion that more firms are looking at their identity and values, and at reputational risk to drive growth while increasing shareholder value.
“Governance is a process that aims at discipline, identity and direction for a firm as opposed to how we usually think of governance. The board structure, does it have the contents, that’s just the means to the end of achieving those things,” Donaldson said in Manila last week.
“ We need to think in the area of governance, about culture, about the leadership resources of governance, and structure things accordingly,” he added. Donaldson, who has consulted dozens of corporations including BP Plc. in the aftermath of an oil spill in the Gulf of Mexico two years ago, noted that true transparency should be a concerted effort, encompassing all segments of society, but that the private sector should nonetheless take the lead in promoting good governance within its ranks.
“ We’re going to regulate the incentives [that] financial-services people get and we are going to require that there be risk specialists on boards of directors,” he said. “But the next crisis will have very little to do with the mechanisms. In the end, the industry, the level of knowledge within the industry, will outstrip the capacity of the legislators to handle things.”
Donaldson was a guest of Manuel V. Pangilinan-led First Pacific Co. Ltd., an investment company listed in Hong Kong whose local units include Philippine Long Distance Telephone Co. (PLDT) and Metro Pacific Investments Corp. The meeting was part of a senior management program of First Pacific companies to keep pace with corporate-governance trends worldwide. During the discussion, Pangilinan likened corporate governance to both a science and an art.
“ You get a quick sense of whether companies are governed or not,” he said.
Speaking for PLDT and Metro Pacific, Pangilinan added that good corporate governance has resulted in increased participation from investors overseas. “It brings a lot of foreign shareholders into the picture because they can know that our governance results in something,” he said.
Donaldson said there is no “one size fits all” approach to building an effective good governance strategy but, as mentioned, new trends are emerging and corporations should keep an eye on them.
“ I’d like to see more directors having access to information that’s simply past their job. But this is difficult but I think it’s doable. I would like to see more directors in-touch with their managers, employees,” he added.
The same should go with their interactions with management, Donaldson said.
“ The question is not simply ‘Are we making money?’ but also, ‘How are we doing with respect to our identity, our values?’” he added. As corporations move to improve their profile in terms of good ethics and values, business-school programs in the US have taken steps in this direction.
“ It’s hard to find a business school that doesn’t have some dedicated faculty and courses. One of the things that fueled it is the financial crisis,” Donaldson said.