governance and ethics master class

by Dr Alison Freeman

The second Masterclass for this cohort of the Leadership Illawarra Program addressed the topic of Governance & Ethics. A full day workshop, led by UOW’s Executive Dean of the Faculty of Business, Professor John Glynn, gave participants an overview of the theory and some real life examples of corporate governance – both good and bad.

Given that the average term for an Australian CEO is about 4 years, and for an Executive Director is about 5 years, the group considered what drives these individuals. How we can ensure strong governance in a corporate environment that is often driven by financial motivations and personal career aspirations rather than on longer-term organisational views?

The tension between corporate law and codes of practice was also explored. How do we balance the profit-focus of corporate law with the broader-based codes of practice which assume an element of social responsibility? For example, is Corporate Social Responsibility the role of the Board, or is the Board solely responsible for maximising shareholder return?

Professor Glynn led the group through two examples of failed corporate governance:

1. Enron – Despite a change in industry from utilities to trading, Enron did not revise its governance structure. Compounding poor internal management, the professional bodies paid to audit and advise on Enron’s activities failed to adequately perform their duties leading to questionable practices and ultimately the failure of the company.
   
   
2. HIH Insurance – The biggest corporate collapse in Australian history, estimated at between $3.6b and $5.3b. Along with those directly affected, HIH’s collapse led to increased insurance premiums for policy holders across the country. The role of collective, informed decision making was highlighted, along with the importance of honest self-analysis and reflection. A corporate culture of blind faith in leadership and a lack of Board-driven strategy were key factors in HIH’s collapse. While HIH had a solid code of governance, it was ignored in practice.
   
   

What does good governance look like?

• It is flexible, adapting as the organisation changes
  
  
• It addresses the relevant legal issues, while ensuring that the behaviours it encourages are ethical, effective and support strong stakeholder relationships
  
  
• It works well in practice, rather than just ticking the boxes on paper
  
  
• It underpins an organisation’s strategy and planning processes
  
  
• It involves Board members that have a broad skill set, covering the core areas of the organisation
  
  
• It doesn’t create unnecessary red tape
  
  
• It covers a broad range of areas: relevant laws, OHS, environmental protection