Sustainability, business and risk - Professor Mervyn King

Summary

The script discusses the evolving corporate landscape, highlighting a shift from focusing solely on maximizing shareholder wealth to prioritizing long-term sustainability. It emphasizes the importance of corporate governance, ethical culture, leadership, and trust in business operations. The changing view of risk management is explored, with a focus on intangible assets such as reputation, strategy, and stakeholder activism. Companies now face broader risks, including disruptions from groups like Greenpeace, making risk management a more complex and lateral-thinking process. Overall, the script presents the need for companies to adapt to new challenges in value creation and risk management.

Takeaways

• 😀 The world of corporate governance has shifted from maximizing shareholder wealth to focusing on the long-term health of companies.
• 😀 Companies are now seen as inanimate entities that rely on the guidance of their directors, who provide the heart, mind, and soul of the organization.
• 😀 Governance outcomes must focus on ethical culture, effective leadership, adequate controls, sustainable value creation, and trust in the company's legitimacy.
• 😀 Companies' behaviors and decisions have a significant impact on risk management, requiring a broader understanding of risk in today's corporate world.
• 😀 Risk management has expanded beyond traditional concerns to include intangible assets like reputation, long-term strategy, and trust in the business.
• 😀 By the late 20th century, 80% of a company's market capitalization was made up of intangible assets, which are not captured by standard financial reporting.
• 😀 Intangibles like reputation, strategy, and trust are now key to understanding and managing risk in corporations.
• 😀 Today's risk managers must think creatively and laterally to anticipate untraditional risks, including those posed by stakeholder activism.
• 😀 Stakeholder activism, especially from civil society groups like Greenpeace, poses a growing risk to companies, as demonstrated by Nestlé's experience a decade ago.
• 😀 The evolving focus on sustainable value creation and corporate responsibility has significantly altered how companies assess and manage risk.

Q & A

How has corporate thinking changed in recent times?

Corporate thinking has shifted from focusing on the maximization of shareholder wealth to prioritizing the long-term health and sustainability of the company.

What is meant by the company being an 'incapacitated inanimate person'?

The company is referred to as an 'incapacitated inanimate person' to emphasize its dependency on the actions, decisions, and leadership of its directors, who provide its direction and purpose.

Why is governance so important in modern corporations?

Governance is crucial as it helps ensure that companies are making ethical decisions, have effective leadership, and maintain proper controls and oversight, which are essential for sustainable value creation and building trust with stakeholders.

What are the key outcomes of good governance?

The key outcomes include ethical culture, effective leadership, adequate controls and oversight, sustainable value creation, and maintaining trust and confidence in the legitimacy of operations.

How does a company's behavior impact its risk management?

The behavior of corporations and individuals can significantly influence the risk management of organizations, making it crucial to consider wider and more complex risks in the modern business environment.

How has the view of risk evolved over time?

The view of risk has broadened significantly, especially since the end of the 20th century, as intangible assets such as reputation, long-term strategy, and trust now play a central role in determining a company's risk profile.

What is the significance of intangible assets in modern companies?

Intangible assets, including reputation, strategy, and trust, now make up a large portion of a company's market capitalization and are crucial in assessing both value creation and associated risks.

What role does risk management play today?

Risk management today requires thinking more laterally and beyond traditional financial factors, considering risks related to intangible assets and the actions of external stakeholders like civil society organizations.

How have stakeholder activism and civil society influenced risk management?

Stakeholder activism, particularly from civil society organizations like Greenpeace, can create significant disruptions for companies. Risk managers must now account for unanticipated risks from these external forces.

How did stakeholder activism affect companies like Nestlé?

Nestlé experienced significant disruption due to stakeholder activism, particularly from Greenpeace, highlighting the importance for companies to be prepared for such external challenges in their risk management strategies.