Theme: 'The financial crisis and a future with sustainable development'

Date: Wednesday 11th March 2009

Time: 18:00 - 20:30

Venue: rogenSi, 1 Plough Place
London, EC4A 1DE

Write up: Philip Whiteley

Governance makes the difference

Good governance of companies and of central governments is of fundamental importance to developing opportunities for people and for economic development, Sir Mark Moody-Stuart told 50+ members and guests at the inaugural lecture hosted by the Worshipful Company of Management Consultants on 11 March 2009. The event was sponsored by consultancy RogenSi.

Real progress comes through reliance on a blend of statutory measures and winning hearts and minds – rather than relying exclusively on either Government compulsion or market forces, said Sir Mark.

The talk reflected an optimistic description of progress through pragmatic co-operation of enlightened individuals, prepared to shed economic or political dogma.

Sir Mark, who has long experience in Board level roles across the world, is chairman of Anglo American, and of the United Nations Global Compact. He cited three countries that were all in a state of economic under-development 40 years ago, but which have had markedly contrasting trajectories. The differences reflect different standards of governance.

Oman and Malaysia have transformed themselves from economies based on subsistence agriculture and export of primary materials, to more broadly based, advanced economies. By contrast Nigeria has struggled to achieve its potential, ‘but Nigerian people are just as talented and entrepreneurial,’ he commented.

It is not always necessary to wait for governments to improve. The UN Global Compact has made great progress in promoting voluntary regional accords within which participating companies agree to abide by high standards of transparency and ethical conduct.

High levels of social responsibility often make business sense, said Sir Mark. As an illustration, he gave the example of an Anglo American project in Peru, in which local people were sceptical of the benefits of a mining project. The company proposed a local ballot on the project after a year’s discussion and promotion of the pros and cons. The vote was in favour but then the economic downturn put a question mark over the near-term profitability of the project. However, Anglo American proceeded to open and to honour its promise of employment opportunities. ‘We realised that we could not return to the area if we had lost their trust.’ The company also needed to invest locally in education, in part to boost the local supply of recruits.

In a similar vein, he argued that business leaders are often not opposed to the objectives of social responsibility legislation – more to rules that are overly prescriptive. He said that the decision in 2005 of the then UK Chancellor to cancel the requirement for an Operating & Finance Review was ‘an inexplicable mistake’.

He added: ‘Having had serious concerns, we business leaders had come to think that we could probably handle it; to have some statement on strategy. People had been worried that they would have had to put in all the details in the front of the annual report.’

Business leaders often raise question marks over cost of regulation as a starting point in a debate, rather than as a policy of hard-line refusal. He confessed that, when he was at Shell, the company had over-estimated the costs of conversion to unleaded petrol. ‘It turned out it was only about 10% of what we estimated, which was rather embarrassing.’

Some objectives can only be achieved by a mandate with a clear deadline; the market will not deliver. In a similar way, business executives can often achieve remarkable efficiency savings by informing a unit that it has to save 25% or face closure.

The problem with the banking failures and credit crisis arose from the common phenomenon of an ‘imperceptible shift of a value system’, in which increasing levels of risk were gradually normalised, and accepted throughout the banking industry and among regulators. The best way to guard against such collective failure on boards is to have at least one or two outsiders who are prepared to ask awkward questions.

All in all it was an excellent start to a series of lectures that will be held by the Company's Professional Development Group.

About the presenter

Sir Mark Moody-Stuart chairman of Anglo American plc, chairman of the UN Global Compact, and is a Board member with the Global Reporting Council. He is a former chairman of Shell, and is director at HSBC, Accenture, Saudi Aramco and the International Institute for Sustainable Development.

For further details of the Professional Development Group please email PDG@WCoMC.org 

T 020 3207 9002
E clerk@wcomc.org