Rule-making has its limits - but individual integrity is decisive
 |
| Peter Brabeck-Letmathe: Corporate governance should contribute both to business prosperity and to accountability. |
Vevey, Switzerland, 9 September 2002 - It is illusory to think that rules and regulations are a sure path to irreproachable corporate governance. What ultimately counts is rock-solid principles and the integrity of the individuals who run companies.
The point is made in an article made available to the ICC Corporate Governance website by Nestlé Chief Executive Peter Brabeck-Letmathe who says: "There are no rules that can prevent every mistake or every abuse in every situation."
The flurry of prescriptions, regulations and rule-making that have followed the E
nron, WorldCom and other corporate accountability failures is criticized by the Nestlé chief. Mr Brabeck-Letmathe is concerned that the debate surrounding corporate governance is nowadays controlled less and less by those who actually make the decisions in the corporate world and carry the responsibility.
"Instead, professors, politicians and political functionaries, and perhaps in some cases corporate lawyers, toss their ideas about in bodies such as the OECD, or in national business associations, stock exchange supervisory boards and in a growing number of ad hoc groups."
In a debate with many trends, but no clear direction, the focus - wrongly in Mr Brabeck-Letmathe's view - has increasingly been on detailed rules rather than principles, and on control rather than responsibility. What he would like to see is balance, to achieve corporate governance that contributes both to business prosperity and to accountability.
Mr Brabeck-Letmathe writes: "The fact that control within corporate governance has now come further to the fore and is being extended to as many new areas as possible, can be explained partly by recent events and partly by a changed political climate.
"I am not appealing against every new, generally applicable form of rule outside or within the formal law, but simply for a sense of proportion," Mr Brabeck-Letmathe adds. The Nestlé chief goes on to say that new initiatives proposed for extra-legal standards, as well as for laws and government regulations, should be sufficiently pragmatic to ensure they do not lead to permanent and over-detailed controls damaging to the prosperity of the business concerned.
He says that the question should be asked: "Do new rules produced in response to one-off events actually help matters and effectively prevent abuses of power?"
Discussing the issue of double mandate - whether the functions of chairman of the board and CEO need to be segregated - Mr Brabeck-Letmathe says the debate has paid too little heed to the role of the board as a whole.
"Even when two different people perform the two functions, global institutional responsibility for overall stewardship of the company and supervision of the executive board never rests with the chairman of the board of directors alone. It rests with the entire board of directors as a body."
He adds: "The question of how a board of directors organizes itself should be resolved pragmatically rather than dogmatically. One thing that recent events in the United States has demonstrated is that an excessively complex, formalistic approach tends to heighten rather than reduce the risk of abuse."
Mr Brabeck-Letmathe then lists what he considers to be the decisive factors in the way a board of directors organizes itself: the general corporate environment, the structure of the executive board, and the quality of the available people. "These factors will determine the most suitable solution for the company's given situation."
Full article