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Irish Institute of Pensions Management

Governance Codes, Ethics and Codes of Conduct

Paul Turpin

31 October 2013

Questions

1. What is the value in adopting a corporate governance code?

2. Will things still go wrong?

3. What role for ethics and codes of conduct?

4. Who is accountable?

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How can Governance Codes promote trust?

Crises have created mistrust Calls for more regulation Criticisms of boards of directors Concerns with stewardship

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Regulation and guidance seeks to address concerns

UK Corporate Governance Code (formerly Combined Code)

Code of Practice for the Governance of State Bodies

Corporate Governance Code for Credit Institutions and Insurance Undertakings

Stewardship Code (responsibilities of Institutional Investors)

Focus on the Board/ those with governance responsibilities

“Every company should be headed by an effective board which is collectively responsible for the long- term success of the company”

- Corporate Governance Code

What is the impact of more regulation and guidance?

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“My basic message today is that the buck stops with the Board of Directors”

Or?

“These new regulations will fundamentally change the way we get around them”

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The Challenge

Concern about behaviors despite guidelines

Are there basic enduring principles? How can you insure ethical

standards? The Board must set the tone

Governance Codes

Why have a Code?

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Adopting a Governance Code for an Organisation

What benefits should Code bring? What should be in a Code

– Learning from previous problems

Who will use a Code?– Internal– External

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Governance Briefing

Key roles and mandate of the organisation

Strategic and business planning Risk management, audit, internal

controls Role and composition of the Board Reporting and external relationships Standards of Behaviour

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Constant review of Governance codes

UK Code (formerly Combined Code)

– Boards of directors are responsible for the governance of their companies

– Comply or explain

– (aim to) attack “the fungus of “boiler plate” which is …dead communication”

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Corporate Governance Code for Credit Institutions (CBOI)

“The Board of each institution is responsible for:– The effective ,prudent and ethical oversight of

the entity– Strategy– Risk and compliance being properly managed

What does CB mean by ethical?

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Ethics

Determine what is – Wrong, right, good, bad

Reflected in codes of conduct Codes of conduct provide an aide against

which decisions can be made and acted upon

Stewardship Code

Institutional investors should– Engage with companies on matters such as

strategy, risk…and corporate governance– Have a policy for identifying and managing

conflicts of interest– Be satisfied companies adhere to the spirit of

the Corporate Governance Code

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Governance Codes

Do things still go wrong?

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Why do things go wrong

Poor leadership and decision making processes

Inadequate systems and controls Ineffective risk management Poor standards of conduct

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Responses to controversy and misconduct

Loss of business Legislation and regulation Codes of Governance Codes of Conduct

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Codes of Conduct

“A Code of Conduct (contains) the principles that an organization considers significant and believes are fundamental to their successful operation”

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Content of a Code of Conduct

Integrity – neutrality, honesty

Information– Enhance accountability; Respect confidentiality

Obligations Loyalty Fairness

– (impartiality, employment equality) Work/ External Environment

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Code of Conduct - definition

The Code of Conduct serves as – a framework for ethical decision making within an

organization – a communication tool that informs internal and

external stakeholders about what is valued by a particular organization, its employees and management.

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Code of Conduct- examples

Supplier Code of Conduct – Apple is committed to ensuring that working conditions

in Apple’s supply chain are safe, that workers are treated with respect and dignity, and that manufacturing processes are environmentally responsible.

Google code of conduct – “Don’t be evil”– “it's about providing our users unbiased access to

information, focusing on their needs and giving them the best products and services that we can. But it's also about doing the right thing more generally

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Revenue Commissioners

Commitment to Quality Service– “devotes a great deal of time and effort to

providing a top quality service to our customers. We have a responsibility to provide clear information and to make dealing with us as easy as possible.

Presumption of Honesty– You can expect to be treated as honest in your

dealings with Revenue unless there is clear reason to believe otherwise

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The Seven Principles of Public Life (Nolan Principles)

1. Selflessness Decisions solely in the public interest

2. Integrity no obligation to outside individuals or organisations

3. Objectivity Choices made on merit

4. Accountability submit to appropriate scrutiny

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The Seven Principles of Public Life

5. Openness Restrict information only where public interest clearly demands

6. Honesty Declare and resolve any conflicts with private interests

7. Leadership Promote by example

Governance Codes

Some Conclusions

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UK (Combined) Corporate Governance Code

What a Board does and how it sets the values of the company

Five Principles– Leadership - Board– Effectiveness - Composition– Accountability - Reporting– Remuneration - Sufficient – Relations with Shareholders - Dialogue

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Corporate Governance Codes- what benefits?

Aiding performance Legislation/ avoiding sanctions Reputation External credibility Ethical leadership and oversight

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Compliance with Codes should give assurance

Board Employees Customers Suppliers Investors

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Good governance requires leadership to walk the talk

“The tone at the top sets the tune in the middle…

“You don’t have to be a weather man to see which way the wind is blowing..– Bob Dylan

Appendix

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Independent Commission on Good Governance in Public Services (2004)

1. Focus on the organisation’s purpose and outcomes for citizens and service users

2. Performing Effectively in clearly defined functions and roles

3. Promoting values for the whole organisation and demonstrating the values of good governance

The principles of good governance

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4. Taking informed, transparent decisions and managing risk

5. Developing the capacity of the governing body to be effective

6. Engaging stakeholders and making accountability real

Principles of good governance