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Cutting through the noise

26 January 2016 by Henry Ker

Cutting through the noise - read more

Tim Sheehy talks to Governance and Compliance about international governance and promoting the importance of the profession.

Tim is the new Director-General of the Institute of Chartered Secretaries and Administrators. He was formerly CEO of the Governance Institute of Australia, leading its transformation from Chartered Secretaries Australia.

 

What were your first impressions when joining Chartered Secretaries Australia as CEO?

I walked into an organisation which in many ways was moribund. It had the potential to build upon a strong but unknown brand and it had a small but very connected group of members who had tremendous intellectual horsepower.

I initially saw an enormous wasted opportunity. The organisation had a long history, it was part of an international organisation and had a qualifying programme that was not being leveraged. It had relatively substantial financial resources, but nobody was using it. That is why they hired a CEO.

Timing was everything. This was back in 2001, when the Enron and World Com governance disasters happened [Enron went bankrupt after an accounting scandal in which profits were falsified and billions of dollars of debt was hidden and WorldCom filed for bankruptcy after it revealed that it had improperly booked $3.8 billion in expenses]. ‘Fortunately’ for us, in Australia there was a large insurance company, the principal underwriter of almost all third party liability insurance in the country, which also had a disaster [HIH Insurance was placed into provisional liquidation in 2001, with estimated losses of $5.3 billion]. Its reason for collapse was governance failures. It permeated every part of the country – from small soccer clubs that could not put on matches because they could not get liability insurance, through to every trainee in the country who could not go to work.

So the government had to step in. That caused a huge royal commission enquiry, and suddenly the word ‘governance’ was on everyone’s lips. That gave us an opportunity to start to make commentary which meant we became more visible. This was the start of the journey.

However, this was an organisation called Chartered Secretaries Australia and it qualified people to be company secretaries. That is what it did, and it only did that – but it was a great nucleus from which to start.

What was the biggest challenge with transforming Chartered Secretaries Australia? How did you balance making significant change with retaining historical membership?

The transformation was very slow. From the time of the international governance failures, which gave us a platform, to the time we went to members to change the name [from Chartered Secretaries Australia to the Governance Institute of Australia], 12 years elapsed. 12 years is a long time to create a story to bring people with you.

However, there was no vision at the time of these governance scandals that we would change the name in 12 years’ time. Yet it was well known to the board and to interested people that the organisation’s focus was too narrow and unsustainable. If all we were going to do was qualify people to be company secretaries, this was not enough to generate a
viable business.

The first thing was to start to re-engineer the business, to increase the pathways to membership and to improve the quality of our training programmes. To compliment the teaching of classes, we made the commercial business decision to put in place an online learning platform.

These commercial decisions that evolved the business were made in the first five years, but to compliment that we needed to raise the awareness of the organisation in people’s minds. No one would have taken our course if they had not heard of us. So in year five and year six, it was all about making purely business decisions.

We then started to consciously de-emphasise in all of our literature the words ‘chartered secretary’. We made a conscious decision to adopt the expression ‘governance professional’ from 2006 onwards. By this time, we were starting to build up in people’s minds that the organisation was about governance, not just company secretarial practice.

We introduced a tag line, ‘leaders in governance’, around 2007; and all the literature was contrived around that. We then started to move more visibly into risk management. All of this led to the point where the organisation had fundamentally changed. The only thing that had not changed was the skin on the outside – this is how we describe it.

By the time we got to a decision to change the name, which was in 2012, the board was confident that we brought the membership along enough so that we could say to them, ‘let’s make a change’. The name change was the last thing. It simply was a reflection of what the organisation had turned into.

You became Director-General of the Institute in 2015 – an international role overseeing the entire organisation – how will you be promoting governance globally?

The Institute operates as a federation, and the nine divisions are all, to a greater or lesser extent, strong in their domestic environment. So with the international council, which sits at the top, there is no point in replicating what the divisions are doing. Its focus will be on engaging with supranational organisations, such as the Organisation for Economic Co-operation and Development or the World Trade Organisation.

The role of the international organisation is to have a global voice and take positions that support what the divisions are doing. It is there to champion the brand and to enable divisions to do what they want with greater strength – it is not there to replicate their work. It will have to focus on things that are universally applicable: the practice of good governance is beneficial because it achieves better outcomes for all businesses.

Governance helps organisations perform better, be it measured in terms of profit, decisions or delivery of services. The messaging that will come out of the international organisation will be at that level.

Are there any global principles of governance that are applicable worldwide or will each division of ICSA create their own governance that supports their environment?

To me, there are four pillars to governance: accountability, transparency, integrity and stewardship. The board sets the culture of an organisation. It must make sure that all of the process and structures that can define accountability are in place – and that is universal. It has got to operate in a manner that is transparent, and those principles are universal too. You cannot argue with acting with integrity and every organisation has to look to the future in order to be sustainable. These are the universal principles – the more country-specific things come in place when the pillars are implemented.

What do you think the future holds for those working in governance roles?

Even greater challenges. I think that the general public will have ever-increasing expectations of the role that companies play in society. They will also have increasing expectations on what the governance of companies delivers in terms of services. Governance professionals are going to be at the centre of this – they must promote accountability, transparency, integrity and stewardship.

They will have to ensure that their organisation operates in a manner which is most productive.
Take the transport industry for example. Every provider of train services, bus services and ferry services has to publish its on-time rate, its breakdown rate and numerous other metrics on how they are operating. You would have never seen that 10 or 15 years ago – that level of transparency is not going to change.

Governance professionals will also need consider how to effectively manage supply chains. They will need to look carefully at where they source their goods from and whether they have the mechanisms and the protocols in place to ensure that their supply chain operates with integrity and ethically. This challenge is only going to become greater.

For governance professionals there will be more opportunities in organisations for them to have a role which adds value, as opposed to a role which is largely compliance oriented.

Will the move toward greater transparency and pro-active governance come from companies, professionals or external regulation?

It should come from all. We all have a role to play in bringing to people’s attention the benefit of a qualified governance professional. The Institute and all of its divisions have a responsibility to cut through the noise and be able to annunciate what value a qualified professional can bring. That is one part of the equation and that is on the supply side.

There is no question of it on the demand side. That is not so much the company but the end user – the shareholder or the consumer of goods and services – who is demanding better governance practice and better integrity. You see it with investment funds divesting themselves of coal resources. There is also pressure for more integrity in labour practices – the way people are treated and so forth. This is pressure from the demand side.

You have observed that the way in which boards interact with investors has improved ‘immeasurably’ in terms of governance and transparency. Is there still further to go?

It varies from organisation to organisation and it would be a pity if we ever defined a point at which we said: we have got there, so we can all relax. I would hate to see that point, there is always room for improvement.

I have seen a dramatic improvement in the way public, private and not-for-profit organisations operate in terms of their governance, their accountability and transparency. Significantly, the importance of governance has also trickled down to smaller organisations – they may not have gotten there, but they know they need to. Some are struggling with how to get there, but it is a part of the conversation. And 15 years ago there was not one.

Governance professionals have moved into the spotlight following recent high profile governance failings. What can we do to further raise the profile?

It is a never-ending role of any professional association to promote the value its members can bring – be they architects, doctors, accountants, chartered secretaries or governance professionals.

For this organisation it has a lot to work with because members of this organisation – whether they have a role as a company secretary, or whether they have a role as an advisor or a director – have a common thing that binds them together. That is, each individual has a belief in the value governance can bring.

It is important for their professional association to constantly message what it is doing and the sorts of policy positions it takes, how it influences government and how it works with regulators in a cooperative way to solve problems. All of that builds a foundation of underpinning the value of the organisation, which underpins the value of the people and the members of the organisation. You never get to an end point, you just have to constantly work on it.

There is also a responsibility of those working professionals to promote their own profession. To operate themselves at the highest professional level. The responsibility of the individual is to walk the talk.

Do company secretaries and governance professionals need to receive greater official recognition? For example, ILO groups company secretaries under ‘Finance Managers’ – yet in Ireland a company secretary is a regulatory requirement.

There are clearly some gaps in the official recognition of either a company secretary or chartered secretary. But we need to be realistic in terms of where we will actually achieve success – in some jurisdictions the legislative requirement to have a company secretary is very narrow and in other jurisdictions it is very wide.

If a jurisdiction has made the decision that its requirements are quite broad, there is no point in trying to turn around what that jurisdiction thinks. That will just be wasted effort; we are better off letting the market decide on the value of the role by promoting the value it can bring, as opposed to relying on regulation to ensure future success.

Yet there are gaps at a supranational level – particularly in the way the World Trade Organisation has classified the role and in trade agreements. That is not so much a regulatory environment, so there is value in working with those organisations to get the role properly classified. Once it is classified, it is not compulsory anywhere. In jurisdictions where there is a very minimal requirement, that is just the way it is, and in a free market society we have to live with that.

Is governance at the heart of a strong economic future?

It is a facilitator. Good governance enables an organisation to make better decisions and operate at its most effective and efficient.

Interview by Henry Ker, Deputy Editor Governance and Compliance

 

Celebrating governance

Visit the ICSA 125 page for a full list of articles and blogs celebrating 125 years of history of ICSA and looking to the future of governance.

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