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Date: 2024-03-29 Page is: DBtxt001.php txt00004286 |
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Burgess COMMENTARY | ||
See the pdf of presentations made at the CFI Governance Working Group January 2013
Companies as Parts of a Broader Community
The problem with this perspective is that it seems to assume that the purpose of business is to make money for its internal stakeholders ... it is a business centric view of everything. If people are the focus, then business is a vehicle for producing goods and services to satisfy the needs of people while doing the least damage to the environment and the global ecosystem. Shareholders and Employees as Major Stakeholders
Yes ... but what about Customers, Suppliers, Families of the Employees, People in the Community, Waste going into the Environment, Resources comming out of the ecosystem. Including employees as well as investors is a big step, but there are other stakeholders still to be taken into consideration. Upward vs. Downward in the For-Profit World
This is accurate ... but only about money. The equally important value flows are missing from the graphic. What value consumption and value destruction is associated with the making of profit. Which communities are suffering the value loss. Upward vs. Downward in the Non-Profit World
This is a reasonable graphic ... but it lacks a well defined value dimension. Money flows down into the Not-for-Profit where it changes into a product or service that gets delivered to beneficiaries. All the decisions in this process are based on the quality of project presentations and the submission of anecdotal stories about performance and maybe feedback from periodic monitoring and evaluation. The whole perspective lacks the multi-dimensions of money and value that are absolutely required. Elisabeth Rhyne center@accion.org via accion.netcommunity1.com 6:31 PM (14 hours ago) March 2013 to me The Shareholder vs. Stakeholder View on Governance With good governance a top priority for investors, donors, and regulators, it’s time to ask exactly what good governance looks like. A recent debate about the Anglo-American (shareholder) versus the European (stakeholder) models of governance set out to answer that question. The Governance Working Group (GWG), a member group of microfinance professionals hosted by the Center for Financial Inclusion, sponsored a webinar to discuss the characteristics of the two models and their implications for microfinance institutions, equity funds, and clients. Lauren Burnhill of One Planet Ventures started off the debate by describing the model of single tier governance commonly used in the U.K. and U.S. In this model, each company has a single board that includes both executive directors, who are employed by the company or have significant ties to its corporate management, and non-executive directors who have no direct relationship with the company or its management. The company CEO may serve as chair of the corporate board, in which case a great deal of power is invested in that board position. The overarching duty of the board is to protect the interests of shareholders. In this model, particular importance is given to the protection of minority shareholder rights. Judith Mayer of the Technische Universität München described the European (stakeholder) model. It is a two-tier model, with both a management board and a supervisory board, and it focuses not only on the interests of shareholders, but also of employees and clients. The management board is comprised of the executive committee of an organization that manages the day-to-day affairs and represents the organization. The supervisory board is not involved in day-to-day management, but instead shapes strategy, oversees the management team, and safeguards the institution overall. Underpinning the European model is the view that management should make decisions for the benefit of all stakeholders. What do the members of the Governance Working Group think of each model? While both models have their advantages, and while GWG members recognize that there are many variations of each model, they strongly agreed that a profit-maximizing lens (i.e., shareholder-focused) should not be the only view represented within the boardroom. They considered how best to ensure that governance practices reflect the values and principles inherent in their mission statements, including the interests of the client. During the debate it was evident that the members of the GWG generally preferred the European stakeholder model due to its inclusive nature. The Anglo-American model, with its singular focus on shareholders, does not as readily invite attention to the role of the corporation in society. As a result, there is less emphasis on the social or environmental impact of corporate decisions. For further information, we invite you to review the PPT presentation used in the webinar. Where Are Equity Flows Heading? The Council of Microfinance Equity Funds (CMEF), a council of 25 private equity funds, will gather in Lima in early April for their semi-annual meeting, themed “Where are the future global flows of equity funds heading?” Members will conduct a global mapping exercise to determine where equity investments are being made, what the investment drivers are, where exits are expected to take place, and how these investment flows might change in the future. Continuing the discussion on “balanced returns” that began at the recent SPTF’s social investor roundtable in Belgium, the CMEF will examine how greater clarity can be achieved around expected returns, and how the differences in social and financial objectives among investors can be more effectively communicated. This CMEF meeting will also place a lens on Latin America through discussions of existing hot spots or emerging high-activity areas which could lead to over-indebtedness or portfolio problems in the region. Roundtable on Corporate Governance and Financial Regulation March 14, 2013 - Washington, D.C., USA HBS-Accion Program on Strategic Leadership for Microfinance April 1-6, 2013 - Cambridge, USA CMEF Meeting Apri 3-4, 2013 - Lima, Peru The Center for Financial Inclusion at Accion (CFI) was launched in 2008 to help bring about the conditions to achieve full financial inclusion around the world. Constructing a financial inclusion sector that reaches everyone with quality services will require the combined efforts of many actors. CFI contributes to full inclusion by collaborating with sector participants to tackle challenges beyond the scope of any one actor, using a toolkit that moves from thought leadership to action. www.centerforfinancialinclusion.org Peter Burgess Good Governance and the Future of Equity Flows Peter Burgess Fri, Mar 15, 2013 at 10:20 AM To: Elisabeth Rhyne I have taken a close look at the presentation. Thank you for making it available. I have had the issue of external stakeholders on my agenda for a very long time, and it is good to see a company placed in the context of a broader community (TUM page 9) and to see not only the shareholder (stockholder) as a stakeholder but also an employee (TUM page 10). It is also good to see the graphic of the upward flows in the for-profit world and the downward flows in the not-for-profit world. But for me there is something missing from the graphics ... from the depictions of how society works. In my view people do not exist to be slaves to business, but rather business exists to serve society. The purpose of business ... the purpose of economic activity is to produce the goods and services people need. I like to remind myself that Adam Smith published his famous book in 1776 when scientific knowledge and technology was in a different place and human productivity was very low compared to what it is in 2013. Accordingly, we can have a much better quality of life now than then. But that is not how we measure things. The primary metrics used for decision making are whether or not an economic activity makes profit and whether investors will be richer after than investment than before. This is what money profit accounting measures, it is what stock prices measure as well as GDP growth. None of these metrics takes into consideration the impact of investment on the quality of life of people in the community and the impact on waste on the environment and consumption on global resources. A money centric world will fail ... and that is the agenda of the business schools, the bankers, corporate C-level executives and most of the people populating think tanks and politics. On the other hand productivity is amazing, and optimized for people it could improve the quality of life of everyone on the planet, and the impacts on environment and resources. So the image I see is an economic activity as the foundation for metrics ... consuming value in the form of labor and resources (directly and via suppliers) and producing something we need, plus waste that goes into the environment and wages (money) that goes into employees, their families, their communities and our society. The net of all these is what I call 'valuadd'. All of this is similar to the costs, revenues and profits of the money profit accounting system ... but these are holistic value flows that encompass the economic activity. For the implementing organization, the performance of the economic activity consolidates into the performance of the organization. For the community, the performance of the economic activity ... the same data ... consolidated into the performance of the community ... the performance of a place ... the performance of society ... the performance of the planet. The idea that money is important, and the organization is important is insane. They are means to an end, and nothing more ... and the sad reality is that in large part they are hastening the end. I used to be a corporate CFO ... and was good at the job. I could always make more profit by 'firing an American and renting a Chinaman'. But was it the right thing to do? This would improve my organization's profit by the difference between (say) $50,000 in the USA and $20,000 in China ... equals $30,000 a year. Meanwhile the impact on the US community would be a person with a loss of income of $50,000 and a family no longer with income and a community with less buying power and so on. The multiplier effect in the US society maybe 2.5 or 5 depending on which economist you believe, but being conservative say 2.5 which computes to $125,000. If this is going to be long term unemployment, then there is a net present value computation that should be done as well, and depending on the discount rate, the community loss in one year is not just $125,000 but perhaps as much as $1 million. My company gains a profit of $30,000 a year. My community gets a negative hit of something far bigger. To see this in practice visit Flint, Michigan or Detroit or any number of other communities around the United States. This is not the whole story. The value chains in a globalized society are long and complex ... but the basic mechanism is the same wherever in the world one lives and works. And the economy is unhealthy wherever investor decisions are based solely on money profit. Part of my history is working in developing countries over a period of almost 30 years. What are the drivers that make a country like Nigeria both the richest and poorest at the same time. The NGO not-for-profit community does some things. The oil multinationals do some things. The political community does some things. The military community does some things. What explains the dysfunction of the whole when looked at through the metrics of quality of life? Again thank you for posting the paper ... for me it is a catalyst for thought, and in this role it is wonderful. On the other hand, as a fair and accurate description of the world we live in, it has its limitations.
Peter Burgess
Center for Financial Inclusion
| March 2013 The text being discussed is available at | |
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