CEO Report: AICD Review

Directors as leaders in a changing world. Earlier this month, the World Economic Forum in New York had as its theme "Leadership in Fragile Times: a Vision for a Shared Future". It was a timely meeting in an appropriately symbolic setting.

Incorporated as a foundation in 1971, the forums are funded by contributions from more than 1000 of the world's leading corporations and bring together world leaders from the political, social and business sectors to exchange views on how to deal effectively with change which is both planned and unexpected. And, as recent experience has shown, the very staging of these forums is not without controversy or drama in that they have become a focal point for protesters with an array of agendas and views. Managing change is critical issue both globally and domestically. For Australian directors, the management of change has become a priority issue as a result not only of global circumstances but also from the domestic corporate environment. Corporate collapses, auditor independence, the call for greater disclosure and the level of executive remuneration are only some of the issues that boards are increasingly confronted with and need to manage.

The failure of a huge corporation such as Enron in the US may seem an ocean away but the resultant outrage and the signals from corporate regulators that they intend to take tougher measures is sending ripples throughout the Australian business community. It will also put renewed emphasis on the debate surrounding compliance and corporate performance. Governments and regulators are often quick to rush to judgement and issue new regulations. But compliance is not a box-ticking exercise. The introduction last December of the Commonwealth Criminal Code makes companies potentially guilty of a criminal offence with directors and managers subject to imprisonment and fines if they have failed to create and maintain a corporate culture that promotes compliance with all federal laws. These laws include the Corporations Act, tax laws, Trade Practices Act, environment protection acts and the various laws on employment and anti-discrimination. Under the new criminal code boards of directors must ensure that they actively develop policies, rules and procedures to ensure that the company's staff, management and agents do not breach Commonwealth laws. The board must also ensure that it does not tacitly or implicitly permit an offence.

While management deals with the complexity of the practices and procedures of change, directors must be leaders to facilitate change and to ensure that the organisation adapts itself to respond effectively. The development of a corporate culture aimed at adherence and compliance to corporate regulation and the nurturing of a corporate culture that is entrepreneurial and innovative need not be mutually exclusive. It is on the fulcrum between compliance and performance, and the development of a corporate culture which can perform for both, that board leadership is vital. But leadership needs an environment in which to flourish. If the corporate environment becomes so onerous that innovation and entrepreneurship is shackled by regulation, then adapting to global changes also becomes difficult. Self-regulation versus corporate regulation will undoubtedly receive an airing over the next 12 months or so. But as the HIH situation shows quite clearly, it is not only regulation or lack of it that can create a problem but the role of regulators also needs to be looked at.

While the new Commonwealth Criminal Code is directed at ensuring greater compliance with both current and future laws, it does provide boards with the opportunity to review the corporate culture as a whole and ensure that compliance and performance work side by side in best interests of shareholders and stakeholders. Leadership in fragile times is about providing solid foundations.

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.