IOD Convention 2017_Governance, Ethics and Sustainability_Marc Ronez

1. 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

2. 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

3. Changes, Risks & Crises.. Can take many forms Terrorism Diseases Earthquake Pollution Bank run SubprimeExplosion NGO Attack Lawsuits Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 4

5. 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! Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 6

7. 8 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

8. Understanding Corporate Governance – Who are all the Parties involved in the Corporate "Game” ? Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 9 OWNERSHIP CONTROL Management (Agent) Shareholders (Principal) B.O.D - Board of Directors ? Any other Stakeholders that matter.. ?

9. 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

10. 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. 11Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

11. Increased PRESURES on Resources, human communities & Environment 12Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 Business has been viewed increasingly as a major cause of Social, Environmental and Economic problems.

12. Criticisms against Business Activities 13Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 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.

14. 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 15Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

15. 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? Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 16

16. 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 Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 17

17. 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 Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 18

19. 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 20Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

20. 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 Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 21

21. 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 Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 Human Capital Cycle Management Hire, Reward & Promote the right employees HEALTHY SUSTAINABLE ORGANIZATION 22 Detection & Remediation Set appropriate, Resources Processes & Tools

22. 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). Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 23

23. Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 24 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

24. 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 Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 25

25. Risk Management is a continuous journey, not a destination! Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 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

27. 28 For more information on ARiMI, check our website at: www.arimi.org Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017 Developing Effective Leaders & Decision- makers for complex & volatile times

28. 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. 29Marc Ronez - Governance, Ethics & Risk Management - Copyright © ARiMI 2017

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