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Best Practices in achieving Good Corporate Governance - a Practitioner’s Perspective

“We have no lessons to give, only experience to share”

June 2005

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Establishing Ethical Standards – CLP’s Experience

No company is free from the shadow of individual misdeeds

The foundation is a corporate culture of honesty and integrity. In CLP’s case this stems from

- a clear and longstanding decision by the Board and Management to adopt and promote good ethical

behaviour;

- the obligations that come from being a public utility withresponsibilities to the communities we serve and thepublic scrutiny this involves; and

- an awareness that the long-term interests of the Companyare best served by maintaining a strong commitment tohonest and open business practices.

This must be backed up by corporate governance mechanisms to measure and enforce compliance with ethical standards, including the necessary checks and balances

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Promoting Ethical Standards – Practical Steps in Corporate Governance

Limited management influence at the Board

Strong independent non-executive directors

Structure of executive remuneration

Effective Audit Committee

Strong Internal Audit function

Company Management Authority Manual (CMAM)

Value Framework

Code of Corporate Governance

Code of Conduct (and enforcement mechanisms); and

Disclosure

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Policies and Codes

Commitments

Values

Strategy

Mission

Vision What do we want to be?

What benefits will we bring to our stakeholders?

How will we achieve this?

What guides the pursuit of our strategy?

What must we do to uphold our values?

What must we do to meet our commitments?

Practical Steps - a Value Framework

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Practical Steps - a Corporate Governance Framework

The CLP Corporate Governance Framework identifies the key participants involved in ensuring the application of good governance practices and polices and the relationships between those participants

The CLP Code on Corporate Governance uses this corporate governance framework to provide structure to our explanations of the practices and procedures which we aim to follow to ensure that our standards meet our stakeholders’ expectations

We do not believe in a “one size fits all approach” to corporate governance

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Practical Steps - a Code of Conduct

A Code of Conduct does make a difference :

- key tool in setting the standards to which a company operates

- clarifies and defines the required norms of corporate behaviour

- sets the tone for the conduct of a business

- binds all directors, management and employees equally

- creates a higher standard than legal compliance

- tailored for specific business characteristics (heightens

relevance)

- tells all stakeholders of a company’s required standards

(publish the Code)

- benchmark for disciplinary measures

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Practical Steps – Increased Disclosure

This promotes quality and reliability of information

use of objective industry standards for measurement and reporting

benchmarking

informed internal and external monitoring

stakeholder engagement and feedback

continuing improvement (stakeholders will not be satisfied with the status quo)

But there are barriers to specific financial forecasting and target-setting

some aspects of performance are hard to measure and benchmarks may be inappropriate

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Ethical Standards and Corporate Governance – Practical Challenges Ahead

Increasing disclosure of non-financial matters

Recognising and engaging a wider range of stakeholder interests

Development of standard metrics for non-financial performance

Stricter internal and external verification of non-financial disclosure

Demands for multi-dimensional excellence in corporate performance (financial, social, environmental etc.)

Intolerance of failure, shortcomings or setbacks

Wider skill-sets required from Boards and Management

Over-regulation – the assumption that compliance and “box-ticking” equals ethical values and good corporate governance