New Corporate Governance

16th IBGC Congress

Sao Paolo

© by Professor Martin Hilb

President of the Swiss Institute of Directors and

the International Center for Corporate Governance

November 16th, 2015

2www.icfcg.org

CG

Re

se

arc

hCG

Pra

cti

ce

CG Education

(in cooperation with IMP-HSG) Swiss Board School

International Board Academy

University Board Education

Board Networks

Board Consulting

Female Board Pool

Board Publications

Board Guidelines

Board Research

(at HSG)

(in cooperation with IMP-HSG)

(in cooperation with EIASM & FIM-HSG)

(in cooperation with Haupt)

The

«Controlling»

Board

The

«Prestigious»

Board

The

«Entrepreneurial»

Board

The

«Directing and

Controlling»

Board3 4

1 2

Controlling

Dir

ecti

on

3

Development Levels of Boards

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

Corporate Governance Problem Areas

5

S ituational

S trategic

I ntegrated

K eep it controlled

Reversed KISS-Principles

6

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

New Corporate Governance

Non-listed companies

Small companies

Family companies

Hospital governance

Governance in Germany

Corporate governance system National governance system

But often …

=

7

SKeep it ituational

Listed companies

Big companies

Public companies

Bank governance

Governance in Canada

Best Practice for:

≠

≠

≠

≠

≠

(1) Exemplary

BoD Team

8

Keep it trategic

(2) Effective

Structure

S

(3) Innovative

Culture

of Trust

(4) Holistic

Vision

9

(1) Board Composition

«How can a team of committed

Board members with

individual IQs above 120 have

a collective IQ of 60?»

(Peter Senge)

10

11

12

Board

Function

Board-

Team-

Roles

Board

Know

How

Chairperson

of the Board

Vice Chair

of the Board

Independent

Member A

Independent

Member B

Independent

Member C

Corporate

Secretary

Coach Developer Controller Creative

Designer

Constructive

Critic

Organizer

Auditing

International

Markets

(Europe/Asia/

Americas)

HRM

Consumer

Business

Risk

Management

Compliance

X

X

X

X

X

X

(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

14

(3) Board Culture

WE NEED …

(1) … to freely express our

own views, …

(2) … to learn from

conflicts, …

(3) … to trust our

management …

„COOL HEAD, …

… WORKING HANDS”

♥… WARM HEART …

… and to be diplomatic.

… and to be able to forget.

… and to keep an eye on

what is happening.

Cooperation Rules

Board Cooperation

Principles

(How do we get along with

one another?)

Board Sucess

Measures

(How do we create an

enduring differentiation

between our company and

our most important

competitors?)

Board Coopetition

Cooperation

Co

mp

eti

tio

n

15

16

Society

Customers

Employees

(incl. Executives)

Stakeholder Value Approach

Shared

Value

Approach

Customers

Shareholders

Top Executives

Shareholder Value Approach

Stakeholder Orientation

Sh

are

ho

lde

r O

rie

nta

tio

n

Customers

Intrapreneurs

Public

Share-

holders

(4) Board Vision

Employees

Shareholders

«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

18

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

19

Roles of Board of Directors and Executive Board

Value

Creation

Strategy

Development

Strategy

Ratification

Strategy

Implementation

Strategy

Implementation

Monitoring

Board of

Directors

Top

Management

Team

PHASE

LEVEL

20

- 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

In Search of

Excellence by

Adding

Simultaneous

Value for Our

Associates

Pu

blic

Clients

Part

ners

-W

e w

ant to

be re

cogniz

ed a

s o

ne o

f the le

adin

g

inte

rnatio

nal la

w firm

s in

the c

om

merc

ial b

usin

ess

world

-W

e m

easure

our q

uality a

nd s

uccess o

n th

e

reactio

n o

f the p

ublic

- 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

-W

e a

re s

triv

ing f

or

reasonable

pro

fita

bili

ty,

whic

h w

ill

enable

us to independently a

chie

ve q

ualit

y g

row

th

-W

e m

easure

our

qualit

y and s

uccess o

n the r

eaction

of our

part

ners

Example of a Corporate Vision of an International Law Firm

«Vision without action is a

dream, but action without

vision is a waste of time.»

(Nelson Mandela)

21

(3) Board

remuneration

22

IKeep it ntegrated

(1) Board

selection

Board

vision

Board

team

Board

culture

Board

structure

(4) Board

development(2) Board

feedback

Interviewers Chairman CEOBoard

Member

Team

Assessment

Time 09.15 - 10.15 10.15 - 11.00 13.45 - 14.45

Personality Integrity ■ ■

Independence ■ ■

Breath of Mind ■ ■

Stress Tolerance ■ ■

Professional ExpertiseExperience of CFO with

Success Record■ ■

Management

Experience in China■ ■

Risk Management

Expertise■ ■

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 ■ ■

Key Dimensions

(1) Board Selection

24

Performance of

the Board Team

Performance of

the CEO

Performance of

the Company

(2) Board Feedback

25

(2)

(1)

(3)

Internal Equity

External Equity Company

Performance Equity

(3) Board Remuneration

26

(4) Board Development

Internal Board Workshops

External Board Seminars

Board-Network Meetings

Yearly Board-Meeting regarding Succession

Planning

The Board’s

Controlling

Functions

Financial

Reporting

Risk

Management

Internal

Control

Internal

Audit

Legal & Ethical

Compliance

Communication

Measuring

Effectiveness

External

Audit

27

eep it controlledK

Ethical Compliance

Le

ga

l C

om

plia

nc

e

28

illegitimate legitimate

legal

illegal

Compliance Management

Probability

Imp

ort

an

ce

29

low medium

mediu

mlo

whig

h

high

Risk Matrix

Reputation

Risk

Product

Risk

Market

Risk

HR Risk

Liquidity

Risk

30

Self-review by board members

Board review by shareholders

Board review by researchers

Board review by the media and the public

Board review by top management

Board Audits

31

Corporate Governance Survey – Self-Evaluation by Board of Directors Team

… ongoing …

32

Shareholders

Board

Management

Corporate Governance Survey from a Management, Shareholder and Board Perspective: Importance

33

Satisfaction

Shareholders

Board

Management

34

Shareholders

Board

Management

Areas for Development

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

Action Plan

Corporate

Control

Corporate

Administration

Personal

EntrepreneurshipCorporate

Controlpreneurship

Strategic Monitoring

Str

ate

gic

Dir

ec

tio

n

36

Conclusion – Levels of Corporate Governance

3 4

1 2

… both …

… Shareholder Value …

… Entrepreneurship …

… Legality …

… Short-term Success …

… Global Learning …

… Transparency of Information …

… Direction …

«A board should keep its nose in …

… as well as…

… Stakeholder Value

… Checks and Balances

… Legimity

… Long-term Sustainability

… Local Adaptability

… Confidentiality of Information

… Control

… its hands out!»

37

Conclusion – Board Effectiveness means:

AND