IOD Convention 2017_Governance, Ethics and Sustainability_Marc Ronez

ARiMI – Asia Risk Management Institute
By MARC RONEZ
Chief Risk Strategist & Knowledge Leader
ARIMI – Asia Risk Management Institute
NOTES
IOD Global Convention 2017–
Singapore, 14th December 2017
Board's Risk Management : Focus on
Sustainability Issues and the Ethic Gap
Challenge

Agenda for this Session
þ Shifting the focus of Management from SHORT-term profit
to LONG-term sustainable performance
þ Expanding the focus from Creating SHAREHOLDERS
Value to Creating STAKEHOLDERS SHARED Value
þ Supporting Risk & Performance Management SYSTEMS
with a strong Risk Management CULTURE grounded on
solid Ethical foundations
Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 3

Changes, Risks & Crises.. Can take many forms
Terrorism Diseases
Earthquake
Pollution
Bank run
SubprimeExplosion
NGO
Attack Lawsuits

With Disastrous Consequences: Corporate Scandals
& FAILURES
9/11
Fukushima

Root Causes for Organization's problems
The investigations that followed each of these cases, and
many others, revealed one COMMON element behind the
institutions‘ troubles:
The People’s Factor!

“To educate a man in knowledge but NOT in morals
is to create a menace to society. “
Theodore Roosevelt, USA president

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Lack of ETHICS will eventually impede Sustainability
"It's only when the tide goes out that … you learn who's been
swimming naked."
Warren Buffett, Berkshire Hathaway
Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

Understanding Corporate Governance – Who are all
the Parties involved in the Corporate "Game” ?
OWNERSHIP
CONTROL
Management
(Agent)
Shareholders
(Principal)
B.O.D - Board of
Directors
?
Any other
Stakeholders that
matter.. ?

Agency Relationships and the Alignment Gap
The Problem is… that human beings are inherently Self-
centered & SELF INTERESTED …
..and hence in case of Conflict of Interests,
… there is the possibility of opportunistic, self-interested
behaviour on the part of the AGENT that works AGAINST
the welfare of the PRINCIPAL and other Stakeholders.
How could this Happen?
10Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

Can you TRUST your Boss, staff, suppliers,
customers, etc? The Agency Problem.
1.  Inherent Conflict of Interest: The interests of principal
(shareholders) and agent (Management) will DIVERGE
2.  Lack of Control: With its delegation of authority, the
agent can make the decisions he wants and it is difficult
for the Principal to interfere and organize effective
control.
3.  Lack of Transparency & Information asymmetry: The
agent’s actions are HIDDEN from the principal or are
costly to observe. The agent possesses information that
is, for the principal unobservable or costly to obtain.

Increased PRESURES on Resources, human
communities & Environment
Business has been viewed increasingly as a major cause of
Social, Environmental and Economic problems.

Criticisms against Business Activities
Companies and their leaders are widely perceived to seek
profits on the short-term for themselves at the expense of
the broader community and futures generations.

If we destroy this
one..
any Plan B?

An OUTDATED model of value creation?
In their pursuit of Short-term Financial Profits,
Companies overlook :
 the well-being of their customers,
 the depletion of natural resources vital to their
businesses,
 the viability of key suppliers,
 or the economic distress of the communities in which
they produce and sell?
 And other ethical issues

You cannot be healthy in the long run if your value
chain ecosystem is unhealthy
Key Partners:
(Supply
Chain)
Raw Materials,
Goods &
Services
Competitors
& New Entrants
YOUR
ORGANIZATION
Key Partners:
(Routes to
Markets, Channels)
Distributors,
Complementors,
Vendors, etc.
Customers
(Segments &
Profiles)
Prospectivecustomers
Substitutes
Source: Marc Ronez – Asia Risk Management Institute
Who are your competitors and what is the intensity of the competition in your marketplace.
How easy is it to enter your industry? Are there substitutes products /services that can
answer the needs of your customer just as effectively?

Corporate Governance & Social Responsibility:
Aligning Stakeholders’ Rising & Diverging Interests
Government
& Regulators
ORGANIZATION
External Auditors
Rating Agencies
Customers
Shareholders
/ Investors
coverage and pressure
groups scrutiny
Decisions to
invest or to
hold its shares
Regulatory
Framework
& control
Competitors’
behaviors
Lending funds
& at what rate
Partners
/Suppliers
Competitors
Media / Public
/ Pressure Groups
Lenders
Management/
Employees
Audit
requirements
Ratings
requirements
Needs met or
not
supply at
what price
productive
or not

Similarly the Objectives of the CODES of
Corporate Governance is .. SUSTAINABILITY
þ Control the impact of Greed, conflict of interest and Fraud
þ Force accountability and responsibility by to executives
þ Ensure information symmetry to truly gauge financial
health of company and build transparency into processes
þ Provide protection of investors, employees and other
relevant stakeholders

The Centrality of the
ROLE of the Board of
Directors

New Codes of Corporate Governance put clearly the
responsibility of Risk Management on the Board of
Directors
A number of aspects of ERM are closely aligned to the work of the
board:
þ  Determine Strategic approach to risk-taking and set risk
appetite and policy
þ  Establish organizational structure for risk management
þ  Monitor the effectiveness of Risk Management Systems in
Place, and
þ  Establish ERM values and promote a Risk-Aware corporate
culture
þ  Monitor the Key Risks and anticipate on critical emerging
challenges

How to Nuture Risk Aware & Ethical Behavior
in your organization?
Understanding the key factors of Unethical behaviors, it will
help to:
1.  Set & monitor indicators of pressures on employees to
engage in unethical actions and/or commit fraud through
effective Performance Management Systems
2.  Reduce an individual’s ability to commit fraud and
remain undetected for long periods through effective
Governance & Controls systems
3.  Promote a more ethical and risk aware environment
inside the organization

A framework for Managing Ethical Risk & Building a
Risk Aware Culture
Code Conduct
& Ethics
Management
Leadership
Communication
& Training
Set clearly the
principles &
values to guide
behaviors
Top
Management
must lead by
example
Provide
information,
induction,
training &
mentorship
EMBED in PROCESSES, SYSTEMS & CULTURE
Human Capital
Cycle
Management
Hire, Reward
& Promote the
right
employees
HEALTHY SUSTAINABLE ORGANIZATION
22
Detection &
Remediation
Set
appropriate,
Resources
Processes &
Tools

The Objective of Risk Management is that …
.. an organisation takes risk KNOWINGLY and
manage risk exposure INTELLIGENTLY
.. in a controlled (or balanced) manner so that the
business is viable for a longer term (SUSTAINABILITY)
while meeting the expectation of all the relevant
stakeholders by CREATING SHARED VALUE
(i.e., shareholders, customers/policyholders, employees,
regulators, rating agencies, suppliers, etc).

A recognized expert with more than 20 years of experience both as a practitioner &
trainer for large MNCs, Governments & Charities.
Areas of expertise include ERM, risk decision-making processes, Corporate Governance,
Business Ethics, Social Responsibility, risk-aware culture, risk communication and crisis
management, Business Model/Strategy Risk Management, corporate learning systems
development.
MBA from the University of Chicago Booth, an MSc in
Insurance & a LLM from the University of La Sorbonne,
Master Degree in Advance Business Research from UNISA –
University of South Australia
Marc has an MBA from the University of Chicago Booth GSB, MSc in
Insurance from the Université De Paris I - Panthéon-Sorbonne, LL.M.
from Université Panthéon-Assas (Paris II) and Master’s Degree in
Advanced Business Practice from University of South Australia. He is a
Fellow in Applied Risk Management (FARM) from the CARM Institute.
ARiMI – Asia Risk Management Institute, ESSEC
Business School
Work
Education

What do I do?
I help managers & leaders to use Risk
Management to:
þ RESOLVE difficult operational and
business challenges
þ TAKE & MANAGE risks effectively to
build sustainable & profitable growth
models

Risk Management is a continuous journey, not a
destination!
Marc Ronez is on Linkedin & WordPress
You can find his profile & read his blogs at:
P: www.linkedin.com/in/marc-ronez
B: theriskmanagementparadox.com
B: riskmanagementdemystified.com
26

ARiMI – Asia Risk Management Institute

28
For more information on ARiMI,
check our website at:
www.arimi.org
Developing Effective Leaders & Decision-
makers for complex & volatile times

Important Note: Please note that that this presentation and its
contents, is the intellectual property of the Asia Risk Management
Institute Pte Ltd. It has been prepared for this IOD conference 2017
event and it cannot be used for any other purposes without the
specific written consent of the Asia Risk Management Institute.
Whilst any third party information contained in this document has
been obtained from sources believed to be reliable, no
representations are made as to its accuracy or completeness.
Further, ARiMI expressly disclaims any responsibility for liability or
loss arising from use of such information or from any of ARiMI's
comments upon it.

IOD Convention 2017_Governance, Ethics and Sustainability_Marc Ronez

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