CORPORATE GOVERNANCE Spotlight OECD principles Corporate governance and responsibility Foundations of market integrity

Bill Witherell, Head, OECD Directorate for Financial, Fiscal and Enterprise Affairs © Getty Images

Good governance goes he recent spate of US corporate investment assessments followed by a sharp beyond common sense. It is failures and breakdowns in truthful market correction that spelt the end for a key part of the contract Taccounting has undermined people’s thousands of high-tech wannabes. Still, it is faith in financial reporting, corporate difficult to disentangle the negative effects that underpins economic leadership, and the integrity of markets the these two parallel developments have had on growth in a market economy world over. The fact that the wave of the confidence of investors. scandals has come hot on the heels of a and public faith in that collapse in the high-tech bubble has a sharp With the bursting of the high-tech bubble, system. The OECD ironic flavour. Both events have their roots in share values were written down and venture Principles of Corporate the heady days of stock market exuberance, capitalists took a bruising, as did many when anything was possible, from creating shareholders. That is the downside of Governance and Guidelines multibillion dollar companies with little committing resources to investments with a for Multinational more than an idea, an investment angel and high risk/high reward profile. But in the cases Enterprises are two a lot of faith, to believing that markets would of corporate misbehaviour, the public, buy any yarn a group of fast-talking employees and pensioners were deliberately essential instruments for executives could spin, even if to cover up misled. They have now lost many billions of ensuring that this contract serious losses and illegal practices. The dollars, and in some cases their life savings, corporate scandals and the bursting bubble while some insiders benefited. The truly is honoured. have different causes though: on the one unfortunate part is that both events might in hand, illicit management decisions and their own way have been avoided (or at least cover-ups, and on the other, over-bloated anticipated) if effective corporate governance

Observer No. 234 October 2002 7 CORPORATE GOVERNANCE OECD principles Spotlight and high levels of corporate responsibility constantly under scrutiny and must remain achieving effective implementation in the had been respected. so. Some private pension funds, for dynamic markets of the 21st century. instance, have recently been informing their The role of good governance and corporate pensioners of the prospect of reduced Corporate structures change fast, while responsibility in helping to assure the payments, due to falling stocks. If market financial innovation and globalisation all well-functioning markets needed for risk and cycles were the only cause behind present new challenges to maintaining economic growth and development cannot these announcements, that would be fine. good corporate governance. The recent be taken for granted. This idea has been The stakeholder public would probably live high-profile cases of governance failure and repeated by government and business leaders with that, and anyway, the market provides corporate misconduct have shown that the world over, and most recently reaffirmed other instruments for customers to invest in, corporate governance mechanisms sometimes at summits from Doha to Johannesburg. But like property or long-term bonds. But to the have not kept up with these developments. we are falling short: the systems may be there extent that the market’s fall can be traced to – the US had, on paper, one of the best – but scandals and breaches of trust, public The OECD principles already highlight that evidently they have not worked. Fixing them support wanes and the market becomes an annual audit of accounts be conducted by will require both private initiatives and unworkable. The state’s reputation is also “an independent auditor in order to provide strong government action. at stake. an external and objective assurance on the way in which financial statements have been Good corporate governance – the rules and This underscores a widespread public – and prepared and presented”. The principle is practices that govern the relationship between hence political – interest in reinforcing there, but as we have seen recently, it was not the managers and shareholders of corporate governance practices. Such always heeded. Governments, security corporations, as well as stakeholders like concerns become even more important in market regulators and the private sector itself employees, pensioners and local communities are all taking steps to strengthen the – ensures transparency, fairness and implementation of this principle. accountability. It is a prerequisite for the We need to develop governance integrity and credibility of market institutions. tools and incentive structures Nor have company boards lived up to their By building confidence and trust, good that are more robust in the face responsibilities. For instance, the OECD governance allows the corporation to have of rapid financial innovation, principles recommend that the board access to external finance and to make reliable and procedures that leave no “monitors and manages potential conflicts of commitments to creditors, employees and doubt as to the stakes involved. interest of management, board members and shareholders. It is this contract that underpins shareholders, including misuse of corporate economic growth in a market economy. Accounting standards need to assets and abuse in related party become principle-based, rather transactions”. There is obviously a gap When this trust is undermined, lenders and than being based on rules that between risk management practices by investors lose their appetite for risk, and invite evasion. corporations and investors and the existing shareholders offload their equity, resulting in tools for disclosing, accounting for and lost value and reduced availability of capital. controlling risk. And monitoring is not easy, This goes for every stage of the investment since the conflicts of interest that have been process, affecting issues from property an international context where the full identified extend beyond the corporations protection and ownership registration, to benefits of free capital flows will only be themselves to financial analysts, rating disclosure and the distribution of authority realised if there is a mutual understanding agencies and financial institutions. In other and responsibility among company organs. on the basic elements of good corporate words, who can we trust? We need to governance. These are the core concerns develop governance tools and incentive Clearly, the importance of good corporate that triggered and nurtured the discussions structures that are more robust in the face of governance goes far beyond the interests of on corporate governance in OECD rapid financial innovation, and procedures shareholders in an individual company. countries, leading to the development of that leave no doubt as to the stakes involved. Indeed, the central corporate governance the OECD Principles of Corporate Accounting standards need to become principles of transparency and accountability Governance. These principles, that have principle-based, rather than being based on are crucial to the integrity and legal received OECD ministerial backing, form rules that invite evasion. credibility of our market system. We already the basis of a true global standard in trust corporations to create jobs, generate tax corporate governance. But while details and principles may be revenues and provide markets with goods strengthened on paper, they will serve little and services. Increasingly we make use of In the light of recent developments, OECD purpose without the political commitment to private sector institutions to manage our ministers have called for an assessment of abide by them. The aim is to reinforce the savings and secure our retirement income. these principles. The basic ideas enshrined in contracts of trust that drive our market the principles are not being questioned, but democracies; governments as custodians Private participation in delivering these there evidently is a need to provide further must take a lead in ensuring these contracts services has been proven to work, but it is guidance, particularly with respect to are not only understood, but honoured too.

8 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight OECD principles

Responsibility End of an affair? Corporate managers’ responsibilities, of An opinion poll in BusinessWeek magazine shows half of the US believing that what is good for business is not necessarily good for their country. Hardly surprising, you might think – course, are not limited to producing truthful except that the poll was carried out over two years ago, before the high-tech bubble burst financial reporting, carrying out the core and well before the recent corporate scandals. And the fact that the opinion poll was in one functions of conducting business and of the US’s main pro-business magazines meant that the results simply had to be taken obeying the various applicable laws. seriously. Businesses also have to respond to the expectations of the democratic societies in They were also quite unexpected. The BusinessWeek poll was wide-ranging, with which they operate – expectations that often respondents asked to agree or disagree with several given statements. The one that made the headlines was simple: in general, what is good for business is good for most Americans. are not written down as formal law. The Some 47% of respondents agreed with that statement, but 49% disagreed. This was much term “corporate responsibility” refers to the more negative than the previous poll conducted in 1996, when just 28% felt their interests actions taken by businesses in response to and those of business were not necessarily the same. Another finding to ruffle corporate such expectations in order to enhance the plumes in the 2000 survey was that 72% of respondents agreed that business had gained too mutually dependent relationship between much power over too many aspects of American life. business and societies. Shareholders, in fact, It was not all bad news for corporate America. Indeed, 68% of respondents agreed that expect their corporations to meet society’s American business should be given most of the credit for the prosperity that prevailed demands, consistent with maximising the during most of the 1990s. However, one question might make worse reading if the poll was value of the firm. Indeed, experience has conducted today: when asked how much confidence they had in those running big business, shown that companies that do so are only 19% had a lot of confidence, though as many as 58% had at least some. generally the best performers in the long run. Opinion polls have their limits, though the BusinessWeek survey at least suggests that, probably because of a backlash against globalisation as demonstrated at Seattle in 1999, the The challenge of meeting these expectations public image of corporate America was looking tarnished well before the scandals that has become more complex in today’s global erupted at Andersen, Enron and elsewhere. These scandals appear to have transformed that economy, with firms typically operating in a disillusion into a crisis of confidence. number of legal, regulatory, cultural and business environments. Globalisation’s Is it the end of the affair between America’s public and its business world? Probably not, benefits are well documented, but it has though a more demanding public will mean the relationship may never be quite the same raised legitimate public concerns, several of again. There is a coincidental footnote to add to this story: the issue of BusinessWeek in which this rather astonishing opinion poll appeared was dated 11 September, 2000. which have been directed at multinational enterprises as agents of the globalisation “Business Week/Harris Poll: How Business Rates: By the Numbers” in BusinessWeek, 11 process. Multinational enterprises sometimes September, 2000. See the full poll at: http://www.businessweek.com/2000/00_37/b3698004.htm are perceived as taking the money and running, not doing enough to build up local economies, and so on. They are accused of being party – in many cases, inadvertently – responsibility. These guidelines are structures and practices within corporations, to serious problems such as corruption of recommendations addressed by governments and their relationships with shareholders and public officials, human rights and labour to multinational enterprises operating in or other stakeholders. Good corporate rights abuses and environmental damage. from adhering countries. Being from the governance and corporate responsibility are Companies have to address such concerns OECD is somehow appropriate, given that no longer add-ons to markets; they are when they arise. In fact, apart from ethical nearly all FDI that takes place in the world integral to them. They are the basis on which considerations and the law, their host- originates and is financed in the OECD area. public-private partnerships can grow. The country market valuations would suffer if In fact, the MNE guidelines are the only OECD is determined to lead the way. they ignored them. multilaterally endorsed instrument for In recent years, businesses have engaged in corporate responsibility and reflect extensive References voluntary initiatives to improve their consultation with countries outside the The OECD Principles of Corporate Governance performance in various areas of business OECD, as well as business and civil society. and the MNE Guidelines can be consulted online at www.oecd.org, click corporate ethics as well as legal compliance. They have They cover the full range of areas relevant to governance. developed codes of conduct and management standards of responsible business conduct Fliess, B. and Gordon, K., “Better Business systems designed to help them comply with and so provide to corporations a most Behaviour”, in OECD Observer No. 229, these commitments. They have developed valuable international benchmark of society’s November 2000. Article focuses on corporate them with the help of labour unions, non- expectations (see article, p.10). codes of conduct. See www.oecdobserver.org, governmental organisations and governments. search Fliess. Witherell, W. and Maher, M., “Responsible Further improving the “fit” between corporate behaviour for sustainable The recently updated OECD Guidelines for corporations and the societies in which they development”, in OECD Observer Multinational Enterprises complement and operate is a key goal of the OECD. That No. 226-227, Summer 2001. See support these private initiatives for corporate means strengthening the governance www.oecdobserver.org, search Maher.

Observer No. 234 October 2002 9 CORPORATE GOVERNANCE MNE guidelines Spotlight The supply chain: a key link for better governance

One of the OECD’s main roles is to bring stakeholders together to discuss key global challenges. Few gatherings exemplify this more than the roundtables held to discuss progress on implementation of the OECD Guidelines for Multinational Enterprises. The most recent one was held over the summer.*

lobalisation has given rise to a kind intense. Many companies have taken published by a group of leading French of economic “culture shock” and positive steps by introducing corporate retailers. In the view of Neil Kearney of Ginternational business is one of the codes, embracing multilateral principles and International Textile, Garment and Leather principal sufferers. Tens of thousands of so on, yet, according to participants at a Workers’ Federation “the details companies are trying to conduct business in recent roundtable on the OECD Guidelines make grim reading” – children under 13 a global mosaic of legal, regulatory, business for Multinational Enterprises there is much hard at work, non-compliance with and social environments. Operating in all of more to do. minimum wage laws, working weeks of “86 these environments and responding to their hours or more”, “inadequate” occupational diverse expectations of corporate behaviour Take a recent study of the results of audits health and safety conditions, “endemic” is a formidable challenge, in particular as of 300 supplier establishments operating in abuse of workers’ rights, including suppliers public (and market) pressure becomes more poorer countries that was financed and using physical force to prevent workers

10 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight MNE guidelines

from exercising their right to organise. and rules that matched those of many people as possible know about them. The Other documents highlighted obstacles to OECD countries, but their enforcement MNE Guidelines are now quite well known organising labour unions and the presence was lacking. International declarations on by business, unions and civil society in of children in the supply chains of major labour and human rights, and standards some countries and are featured on many agrifood companies. These are probably and principles such as those from the websites. But as reports from the NCPs exceptional cases and most good OECD help to fill that vacuum, as do show, they are hardly known at all in other corporations would not tolerate them, but corporate codes of conduct and other countries. where they exist, all would agree they must private standards issued by labour unions be taken seriously. and NGOs. Yet, if the MNE Guidelines succeed in winning the confidence of business, trade The OECD roundtable’s theme was supply Business representatives stressed their view unions and NGOs, they could become one chain management. It showed the that corporate responsibility in the supply of the most important global initiatives for advantages and difficulties of chain could not extend to “taking on” other global corporate responsibility there is, multistakeholder cooperation. For while companies’ problems – in particular, their bolstering such instruments as the UN all participants, whether government, legal or regulatory responsibilities. Global Compact. The OECD, as home to business, labour or civil society Companies exist as discrete units for most of the world’s multinationals, can and must win that confidence. Companies exist as discrete units for reasons of economic efficiency The NCPs have already begun to bring and legal accountability, business representatives said. It is not material on specific cases for investigation, economically or logistically feasible for all enterprises to monitor of which there are now over 20. These and audit all their suppliers. This position sparked a reaction involve consideration by adhering governments of issues that go to the core of the debate on globalisation, whether it be behaviour of French companies (there were groups, clearly cared about the problem, reasons of economic efficiency and legal two) in Burma, a Canadian company’s they had different views on how accountability, they said. In any case, it is “resettlement” problems in the Zambian best to tackle it. Business generally argues not economically or logistically feasible for copper belt, occupational health and safety that the key lies in better supply all enterprises to monitor and audit all and accident indemnities for Indonesian chain management to alleviate poverty their suppliers. and Philippine sailors working for OECD and improve respect of human rights, based maritime transport companies, a others see tighter regulation and This position sparked a reaction. Carol Korean-run production site in Guatemala or surveillance as the only way to achieve Pier of Human Rights Watch argued that even a UK retailer’s behaviour elsewhere in progress. Deborah White of Proctor and when companies fail to use their influence the OECD. Gamble said the business community over their suppliers’ regarding respect of was committed to finding answers, and labour rights, these companies are complicit No one has a monopoly on the answers, while André Driessen from the in those human rights violations. but it is only by knowing and Confederation of Netherlands Industries Ineke Zeldenrust of the Clean Clothes understanding the problems face on, and Employers underscored the Campaign was pragmatic in stressing and working together to deal with them business sector’s willingness to responsible supply chain management that corporate responsibility will improve. co-operate with unions, NGOs and and the need to “break it down … and After all, whether the goal be sustainable governments to search for solutions, look at how it (supply chain management) development, poverty reduction, Stephen Canner of the US Council for can be operationalised.” equitable rights or just plain decent ethics, International Business noted that better business behaviour is in everyone’s governments have to act too as “there are Monitoring the guidelines interest. limits to what companies can and cannot do”. Others countered that while Roundtables like this one on MNE supply The OECD Guidelines for Multinational governments clearly had an important job chains are held annually at the OECD in Enterprises can be consulted at to do, lack of government responsibility conjunction with meetings of the National www.oecd.org/daf/investment. Detailed “is not an excuse for lack of corporate Contact Points (NCPs). These have been set accounts of the proceedings of this responsibility”. up in 37 countries to monitor the roundtable are available on request at implementation and efficacy of the MNE [email protected] or at Can domestic law help? Yes, but it is not Guidelines and to promote awareness of [email protected]. enough. Some countries like China, as them. Promoting the Guidelines is Serena Lillywhite from Brotherhood of Saint important, since standards and principles, * Views expressed by participants at the roundtable Laurence, an NGO that inherited a small however eloquent or tough to negotiate they are not necessarily shared by the OECD or its business, noted, set certain labour standards may be, are quite powerless unless as many member governments.

Observer No. 234 October 2002 11 CORPORATE GOVERNANCE World Knowledge Forum Spotlight Knowledge in a world of risk Forging a global corporate citizen

Young Chul Kang, Managing Director, World Knowledge Forum Secretariat

Can we promote ethical fter the accounting debacles of high of 279 on 15 December 1999. and responsible business Enron and WorldCom, the The CEOs of 810 companies listed on Acredibility of large companies hit the Kosdaq have made voluntary practices and make rock bottom. In a bid to restore pledges to ensure accurate accounting. financially successful confidence, the US authorities now Although these pledges are not legally require chief executives and chief binding, the list of participating companies in the financial officers of large listed companies will be publicly announced process? Yes. companies to swear to the truth of their and a company’s image risks being financial statements. The chief executive severely damaged if it fails to uphold its officer (CEO) and chief financial officer promise. may be charged with civil and criminal offenses if any of their financial Such events bring home the fact that as statements are found to be false. globalisation proceeds at a fast pace, companies in different countries are If only the problem were confined to being scrutinised in relation to the same the US, but it is not. The same kind set of principles and guidelines. To of problem has arisen in Korea, where survive, it no longer matters whether a recent accounting fraud in venture company is an international or a companies listed on the Korea domestic player. It still has to comply Securities Dealers Automated with what are internationally accepted as Quotations index (Kosdaq), the the “right” principles of corporate ethics Korean equivalent of the US Nasdaq, and governance. caused the index to plunge to a mere 53 on 19 September 2002 from a Companies are being made to act as responsible citizens of this global society, and they could be severely sanctioned, A jubilee of human knowledge not just by the market but by legislators, should they be seen to fall short of their The theme of the third World Knowledge Forum (WKF) is “Knowledge in a World of duty of making a good and honest profit Risk: A Compass towards New Prosperity”. for shareholders and keeping clear, “We like to define the World Knowledge Forum as a ‘jubilee of human knowledge’,” says accurate and open accounts to prove it. the WKF website (www.WKForum.org). “Evolution,” it says, “refers to steady, predictable change. Revolution – like a rugby ball in which we cannot predict the direction of the next How can we promote ethical and bounce – is all about disruption, discontinuity, instability, and unpredictable change. Could this be deemed as a threat? Or opportunity?” responsible business practices and thus The World Knowledge Forum takes place in Seoul, Korea on 15-18 October. This year’s help make financially successful speakers include OECD secretary-general, Donald Johnston; World Bank Human companies in the process? And how Development Network managing director, Mamphela Ramphele; and 2001 Nobel should the concepts of corporate ethics economics laureate, Joseph Stiglitz. and social responsibility in the 21st Governance issues figure highly on this year’s agenda, in particular at the OECD’s plenary century knowledge society differ from session on “Sustainable Globalisation: Politics, Money and Trends”. Bill Witherell, director of the OECD Directorate for Financial Fiscal and Enterprise Affairs, and William those of the industrial era of the 20th Davie of Schlumberger, are among the speakers. century?

Visit www.WKForum.org In order to implement corporate citizenship globally, it is essential to

12 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight World Knowledge Forum

stick to one global standard, especially from all over the world that demonstrate in the field of management practices. By the execution of global management Be the first to know ... this, I mean that one should not fool standards. Johnson & Johnson is a oneself by practising double standards. pharmaceutical company that now runs In Korea, an international globally immensely successful operations in renowned brokerage firm was recently Korea while following to the letter the sanctioned by the authorities for leaking severe code of ethics imposed by its US an internal report on Samsung Electronics to its customers prior to To implement corporate publication. This “accident” could have been avoided if the company had citizenship globally, it is with our free e-mail alerting adhered to the core operating principles essential to stick to one service that it abides by in other markets. These global standard, especially in brokers may try to defend themselves by the field of management arguing that this is a common practice practices. among some Korean analysts, but it is this sort of act that may hinder the development of a global standard of • Completely free, no obligation corporate citizenship. It also gives headquarters. Johnson & Johnson’s to buy. ammunition to the anti-globalisation management have steered clear of activists. untoward practices and still manage to • Receive priority announce- run a successful business. ments of new OECD titles Some corporate leaders of multinational companies based in developing Codes of ethics or corporate citizenship on publication. countries may argue that they would be must be observed wherever a firm does • Choose from a list of publica- unable to compete with domestic firms business anywhere in the world. if they had to follow the strict code of Corporate governance is a key element tion services and free news ethics set by their headquarters. Clauses of this equation, and may help us to letters. strictly prohibiting kick-backs, bribery more quickly reach the goal of global or undue profits from abusing insider corporate citizenship, where we can be • Register, change your details information make it difficult for their sure that all companies operate to the or unregister at any time. business to survive, they say. However, same standards wherever they are one can cite several model practices doing business. • Remember – you remain in control. ©www.acuvue.co.kr FREE REGISTRATION www.oecd.org/OECDdirect

Global corporate citizen F5a

Observer No. 234 October 2002 13 CORPORATE GOVERNANCE Responsible accounting Spotlight Redefining corporate disclosure

Allen L. White, Acting Chief Executive, Global Reporting Initiative

Improving corporate behaviour is vital to sustainable development. The Global Reporting Initiative can help show the way.

he current crisis in confidence over corporate financial reports raises Tquestions that go well beyond a company’s financial sustainability. Business failures provide a vivid reminder of how fundamental corporate activity is to the lives and livelihoods of people and communities worldwide. As shareholders, institutional investors, trade unions and policymakers take stock of the social repercussions of the Enron and WorldCom affairs, and with the UN World Summit on Sustainable Development (WSSD) still fresh in our minds, it is time for governments to address the limits of financial reporting.

By most assessments, there were two main elements underlying the events that have prompted widespread calls for a higher ethic of corporate responsibility. The first was a failure of accounting systems. The second was a breakdown of corporate innovate, train and enrich its human capital, changing market; to maintain official and governance. Business collapses in recent enhance its reputation, strengthen brands, public trust; to attract and inspire a months were in part attributable to poor alliances and partnerships? And what about workforce; and to retain and expand the audits of required information. But, equally measures of public trust and the quality of support of local communities and the client important, they resulted from a fundamental governance? base. reality of financial reporting: even sound numbers that comply fully with required All these intangible assets, if reported at all, But financial accounts rarely assess the full standards do not deliver all that appear in non-comparable and inconsistent environmental impact of a company’s shareholders and others need to know to form. This is the reality, even though the activities or products. Nor do they weigh up assess the true health of a corporation. markets clearly signal the growing how its human resources policies may importance of such intangibles as critical influence the workforce, or how public As they currently stand, financial reports underpinnings of value in the marketplace. opinion about its social and human rights meet certain narrow technical requirements record may affect consumer attitudes to its and provide a glimpse of past performance The long-term sustainability of corporations products. This is starting to change, – last quarter’s earnings or last year’s rests on a complex balance of factors. While as many corporations seek ways of revenues. But what about the future? Where financial viability is clearly vital, so too are measuring their so-called “eco-efficiency” is the information on the firm’s capacity to elements such as the ability to adapt in a performance. They are doing this by using

14 Observer No. 234 October 2002 Spotlight CORPORATE GOVERNANCE Responsible accounting

“sustainability reports” as an adjunct to their instruments, like the OECD Guidelines on issuing GRI reports is likely to reach financial statements. Multinational Enterprises and its principles thousands within a few years. of corporate governance, which guide good The concept of “triple bottom line” business practice. The GRI guidelines have Sustainability cannot be reached without the reporting, such as that offered by the Global been developed since 1997 in a consultative robust and focused input of a healthy Reporting Initiative (GRI) – an assessment process involving thousands of business sector, working in close of a corporation’s performance in relation to representatives from the business, collaboration with governments and the rest profit, people and the planet – is accountancy, labour and NGO sectors of civil society. At the Bali preparatory increasingly welcomed by financial analysts around the world. They provide a meeting for the WSSD in June 2002, and investors because it helps them make ready-to-use, consistent and comparable ministers specifically agreed, in the draft Plan better judgements about the true value and framework designed to reinforce traditional of Implementation for the summit, on the prospects of a company across a broader financial reporting. need to enhance corporate environmental range of assets. Moreover, it enables and social responsibility and accountability, management to anticipate and exploit What kind of information do new “taking into account such initiatives as ...the opportunities to strengthen the firm’s GRI-based reports contain? Companies that Global Reporting Initiative guidelines on market competitiveness and boost company use the guidelines will report on a broad sustainability reporting...”. transparency. array of issues, including corporate governance; financial flows from the As was evident in Johannesburg, there is a Whether firms like it or not, a company’s company to the community where it near-global consensus that companies non-financial performance can directly operates, including taxes, payments, should go beyond financial philanthropy affect its financial health too. The link salaries, etc.; materials and energy use; and and apply their expertise and technology to between human rights or environment and carbon emission and biodiversity. The solve social problems. share value is already well-documented. reports will also cover labour practices and Four of the world’s major stock markets – human rights; bribery and corruption Judging from media reports and public New York, London, Hong Kong and policies; and product stewardship (how the opinion polls, the level of public trust in Johannesburg – have implemented or are company handles its responsibility for the corporations is at an all-time low. The proposing changes to disclosure rules that whole product life cycle and supply chain). disruption and loss to workers, investors will require information on corporate and communities associated with the recent governance, environmental liabilities, Knowing, for example, how much corporate failures have taken a severe toll on HIV/AIDs programmes, and human capital greenhouse gas a company is producing is economies and societies. Not only is there a issues from basic working conditions to important not only for the environment, but clear sense that corporations have a responsibility to provide a full and more accurate account of their financial situation, Non-financial information linked to sustainability performance but also that they must make more earnest is an essential ingredient in forecasting and securing a company’s efforts towards sustainability if they are to financial prospects. win back public support. This is clear from widespread calls by major NGOs for an international, legally binding mechanism to hold transnational corporations accountable policies on child labour. This development also for shareholders, especially if such for their behaviour. signals a growing recognition that non- emissions are taxed or subject to carbon financial information linked to sustainability trading. In the same vein, corporate Governments must make every effort to performance is an essential ingredient in governance is no longer an arcane issue assist businesses to meet these challenges. forecasting and securing a company’s relevant only to boards of directors. It is The GRI Sustainable Reporting Guidelines financial prospects. fundamental to the very survival of the firm can play a vital role. and to the well-being of its workers, Fortunately, a variety of tools are now suppliers and communities. References Environics International survey: available to make possible an ever-closer www.environicsinternational.com alignment between enhanced financial The fact that GRI guidelines are now used GRI and the 2002 Sustainability Reporting reporting, sustainability reporting and by more than 150 companies worldwide, Guidelines: www.globalreporting.org principles of corporate governance. With including ABB, General Motors, UNEP (2002), Industry as a Partner for the release of its 2002 Sustainable Reporting Royal/Dutch Shell, Eskom, Rabobank, South Sustainable Development – 10 Years After Rio: Guidelines, the GRI provides a flexible African Breweries, Nissan and Ford, The UNEP Assessment. Massie, R. (2001), “Reporting on mechanism for such enhanced reporting, underlines the growing recognition of this sustainability: a global initiative”, in OECD offering a detailed methodology for reality. As the business case for sustainability Observer No. 226/227, Summer 2001, performance disclosure. The GRI guidelines reporting is further articulated and www.oecdobserver.org, under sustainable can be seen as complementing other understood, the number of companies development.

Observer No. 234 October 2002 15 CORPORATE GOVERNANCE Business view

Spotlight Better governance for sustainable business*

Philip Watts, chairman of the committee of managing directors, Royal Dutch/Shell group and chairman of the World Business Council for Sustainable Development

Sustainable development is not against business interests. In fact, business can profit from it.

en years ago at the Rio Summit, 50 business leaders pledged a Tcommitment to sustainable development. That was the start of the World Business Council for Sustainable Development (WBCSD). Since then, we have trebled in size and hugely amplified the voice of business in widespread dialogue.

Business is good for sustainable development, and sustainable development

is good for business. It should be at the ©Peter Mueller/REUTERS heart of business thinking and government policymaking.

What does that mean? Well, it means tough choices and new thinking. For instance, you choose to work by a set of declared Cleaner image

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principles and to stick to them whatever the with a range of interested parties who will ideas. That’s the aim of two recent circumstances. often be opinion leaders. publications.

You say “no bribery of any kind”. You make In my view there is no doubt that economic, The first sets out the WBCSD’s blueprint sure it’s clear to everyone that you mean it social and environmental improvement is for action. It’s called “Walking the Talk” and if anyone goes against it you ask them best nurtured in open, competitive and it illustrates the argument with 64 to leave. If you can’t win business without international markets where governments case studies. Ten years after Rio we know bribes you go without. If necessary you set stable and pragmatic frameworks for we are on a tough journey of continuous leave the country or you get out of joint business investment. However, the benefits learning. WBCSD members see action ventures – even if there are short-term of markets must be extended further to build a sustainable future as part of financial hits. towards the world’s poor. their commercial responsibilities. But

You set environmental standards and keep Briefly, one of the keys to sustainable to them. If you have an important project progress in developing countries is foreign If you can’t win business that is likely to fail those standards, you tell direct investment (FDI). But only about 5% without bribes you go without. If your people “no go” unless they find ways of FDI goes to the 40 least developed necessary you leave the country to get the environmental element in line. countries. If that investment is to increase, or you get out of joint ventures – You’ll be amazed at the innovation a especially in Africa, there must be an even if there are short-term challenge like that can unleash. If they can’t emphasis on establishing good governance, do it, you leave it. stable regulatory systems, pragmatic financial hits. economic policies and accountability You put people and communities in the mechanisms. frame. If you are working in a developing we can pursue that most effectively country and your staff take it for granted But investment alone is not the answer. in partnership with governments, they will use the usual international Linked to it is the challenge of developing political leaders, NGOs and international contractors, tell them to think again. Make Africa’s human and natural resources to the bodies. it the norm to find local firms, build local African peoples’ advantage with minimum capacities. adverse impact. We need partnerships for The second comes from Shell and it’s a progress between business, governments collection of sustainable development case I can hear you thinking “that’s the best way and civil society here, and we need them studies from around the world – from to lose business, to lose out to competition, urgently. For me, it’s just as urgent for working for biodiversity in Gabon to that I’ve heard in a long time.” Not so, in business to take on board the essentials for pioneering cleaner fuel in Thailand, from the long run. Once people know you won’t pursuing sustainable development. Let me community development in Nigeria to bribe, once you make eco-efficiency highlight a few of them. reducing gas flaring in operations there. It is called “There is no Alternative”. We have to learn to change. We need to We need partnerships for stimulate innovation that allows us to create We need more initiatives like the progress between business, wealth in ways that reflect changing partnership in China with the United governments and civil society, concerns and deep-seated values. We Nations Development Programme (UNDP) and we need them urgently. should be taking on eco-efficiency as a on the West-East gas project. This project management strategy – seeing how we can will be built by a joint venture with Chinese create more value with less impact in terms and international involvement. of energy and material. And we should be standard practice, once you have developed informing consumers about the The UNDP has carried out a survey to local, more cost-effective, contractors, your environmental and social effects of the better understand the likely social impacts competitive edge will be enhanced. choices we offer them. on people who live along the route of the pipeline. It will be part of the Care for the environment and social justice We have to demonstrate action to remain decision-making process. That kind of should be an integral part of the economic credible. That’s why the WBCSD is independent consultation gives invaluable development that funds progress. developing initiatives on sustainable input and helps avoid future, often costly, Demonstrating this in action helps us meet mobility and sustainable livelihoods. And problems. societies’ expectations, and that is an why we are partners in a project to make increasingly important part of our this summit “climate-neutral”. * This is an extract from a speech given during the Business Day at the World Summit on Sustainable commercial challenge. Being seen to share Development in Johannesburg, 1 September 2002. societies’ concerns attracts and motivates Sustainable development isn’t an easy Mr Watts has also participated in the OECD Round people to join and stay with a company. option. We need to support each other, Table on Sustainable Development. More by Equally, it boosts that company’s reputation to share problems, experiences and Mr Watts can be found at www.shell.com

Observer No. 234 October 2002 17 CORPORATE GOVERNANCE Family firms Spotlight When corporate governance is a family affair

Robert Zafft, OECD Directorate for Financial, Fiscal and Enterprise Affairs

Family-run firms tend to believe that principles of good corporate governance do not really concern them. This is a mistaken view. The question is how to convince them.

orporate governance has become an incentives of managers and shareholders. businesses account for more than 85% of all industry – and a growth one at that. Disclosure rules are intended to stop firms in OECD countries. Such businesses CConferences spring up like managers from inflating company make up 30-40% of the 500 largest mushrooms after rain. Technical assistance performance. Boards of directors are companies in the United States. The money gets spread around like so much established to guide managers’ business 30 OECD member countries contain at least fertiliser, and acres of rain forest end up as strategy, to monitor their reporting systems 244 family-run firms with annual revenues expert papers on “new and improved” and to ensure that managers do not overpay of more than US$1 billion, not counting corporate-governance frameworks. or entrench themselves at shareholder giants like Microsoft or Berkshire Hathaway Policymakers and investor groups seem to expense. In general, the corporate-governance that are still managed by their founding love it. But do the real decision-makers – world pictures owners and managers as generation. OECD family-run businesses business owners and managers – actually need sitting on opposite sides of the table. with annual revenues of several million or want corporate governance, and, if not, dollars probably number in the tens of why should we expect them to buy into it? But what happens when the owner is the thousands. manager? This situation is more widespread Most corporate governance experts – and more relevant to large companies – In a family-run firm, a single person or concentrate their attention on divergent than many might think. Family-run group enjoys a controlling interest and can

18 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight Family firms

appoint family members as managers, or transfers. For these capital providers, typical Keeping a business going across generations can unilaterally appoint, monitor, corporate-governance practices, such as board is hard. In fact, North American and UK compensate and fire third-party managers. review of transactions between management studies indicate that only about one in six This situation may threaten minority and the company, board committees, non- family-run firms survives to the third shareholders with exploitation, but offers executive directors, or separate CEO/board generation. Failure to maintain the family the controlling family the best of both chairmen, hold little interest. business can stem from any number of worlds: it can run the business as it sees fit causes. Divisions form between those and gamble, at least partly, with other Data on family-run firms raise additional relatives enjoying both salaries and people’s money. As a consequence, if the questions about the access-to-capital dividends and those receiving only purpose of corporate governance is to argument. Of those 244 OECD family-run dividends. Jealousies emerge as some family constrain managers and control firms with revenues of US$1 billion or more employees rise higher than others or work shareholders, one may well ask whether a (“large firms”), only half are publicly traded. less hard for the same pay. Supervisors family-run firm would ever really want it. At the same time, the average ages of find themselves incapable of firing an publicly traded and privately held large under-performing subordinate who is a The answer to this question is “yes”, but not firms are about the same, suggesting that child or a sibling or a cousin. necessarily for the reason most commonly large private firms have been able to access given: better access to capital. One often sufficient capital without inevitably As the business grows and markets evolve, hears the argument that, when investors “evolving” into publicly traded firms. finding sufficient managerial talent and refuse to put their money in companies with experience within the family becomes bad governance, the cost of capital for such This observation is bolstered by European harder. Where the family decides at last to companies goes up, making them data showing that the average company hire an outside manager, failure to motivate uncompetitive. Eventually, so the argument operates for 40 years before going public, and monitor him can damage or destroy the goes, the owners/managers of such and that when such a company does go business. public, nearly 60% of the money raised from its initial public offerings goes into the Corporate governance goes to the heart of While the founder of a pockets of family shareholders rather than these problems, though many family-run family-run firm might believe into the business. In many cases, therefore, firms have never thought of it in these that raising money or wealth diversification or liquidity may be a terms. Families need corporate governance diversifying wealth will never greater issue for family-run businesses than both to operate the business and to promote pose a problem, one thing he financing operations. family harmony. This means putting in place decision-making and monitoring procedures does know for sure is that Studies indicate that the stronger a country’s that are open and fair, as well as possibly some day he will die. corporate governance, the more robust its hiring non-family members as advisors, capital markets and the higher its level of managers and directors. external financing as a percentage of GNP. companies must either mend their ways or However, while these findings may persuade It is not an overnight exercise, and often, by go out of business. policymakers, at the level of the individual the time the need for corporate governance family firm the slogan “embrace corporate has been recognised, family relationships or But firms can obtain external financing in a governance in order to access capital” can the business’s prospects have deteriorated number of ways besides issuing shares to the remain a tough sell. beyond repair. public, such as reinvesting profits, borrowing money or selling shares through private Fortunately for the corporate-governance Family-run businesses can represent the placements. industry, a compelling case for corporate work – and the wealth – of several governance can still be made, and it generations. If business owners want to In such cases, providers of non-public sources involves the greatest challenge family-run preserve, enlarge and pass on this legacy, of capital (banks, pension funds, insurance businesses face: management succession. they need to make corporate governance a companies, venture capitalists, private-equity Succession issues resonate strongly with family affair. investors, etc.) expect to look out for business owners. While the founder of a themselves. They will want to secure their family-run firm might believe that raising References loans with company assets, to be able to money or diversifying wealth will never Rydqvist, K. and Hogholm, K. (1995), accelerate repayment of loans if the company’s pose a problem, one thing he does know for “Going Public in the 1980s: Evidence from performance falters, and to review books and sure is that some day he will die. Sweden”, European Financial Management, records directly. They will seek direct Vol. 1, No. 3. La Porta, R., et al (1997), “Legal Determinants assurances from the company’s auditor and Will his children be interested in running of External Finance”, The Journal of Finance, officers, or personal guarantees from the the business? Will they be capable? Will Vol. LII, No. 3. company’s owners. They will demand the right they get up as early, stay as late, and work OECD (1997), Best Practice Policies for Small to approve major transactions or money as hard as the founder did? and Medium-sized Enterprises, Paris.

Observer No. 234 October 2002 19 CORPORATE GOVERNANCE Workers’ view Spotlight Globalising workers’ rights

John Evans, General Secretary, Trade Union Advisory Committee to the OECD (TUAC)

More could be done to strengthen the OECD Guidelines for Multinational Enterprises to ensure global workers’ rights receive the attention they deserve in policy and business decision-making.

lobalisation has drawn serious attention to the importance of core G workers’ rights on a global basis. There is a strange paradox in the treatment of labour when it comes to mainstream debates about globalisation. Surveys on foreign investors’ intentions suggest that in most sectors market access, good governance, skills and education levels are more important in attracting investment than low wages or submissive workers. Yet rather than improving living and working conditions, globalisation appears to pressure governments into reducing workers’ rights to minimise labour costs and attract foreign investment. ©Mike Hutchings/REUTERS Take export-processing zones (EPZs) where semi-manufactured or raw materials are processed into goods for export by foreign companies, outside the normal laws and regulations of the host country. They may operate very differently in different parts of the world, but they tend to have one over- riding characteristic in common: trade commonplace in many parts of Asia and labour market, and this in good as well as unions are tolerated in few, if any, of them. Central America and are now spreading to in hard times. A study by Cornell This is disturbing. An update in 2000 to Africa as a development model. University in 2000 found that, despite the an OECD report on trade and labour longest boom in US history, workers were standards noted that the number of EPZs Multinational companies may also simply feeling more insecure than ever before. worldwide had risen from some 500 in decide to switch country, or at least More than half the firms surveyed, when 1996 to about 850, not counting China’s threaten to do so, when faced with labour faced with union action, had threatened to special economic zones. EPZs have become dissatisfaction or the prospect of a cheaper close the plant and move to another

20 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight Workers’ view

country. In some sectors, the figure rose to revised, we have made some tentative 20 global framework agreements have been 68%. The fact that only 5% of firms assessment of how they are functioning in concluded – most in the past two years – actually moved away does not lessen the practice and what can be done to improve between the federations and companies in perceived risk of the threat, increasing the their implementation. One problem is that sectors such as mining, chemicals, food, imbalance of relative power of unions and probably still less than half of the forestry, services and automobiles. employers in the labour market. signatories of the OECD guidelines have really functioning National Contact Points TUAC is also part of a joint Global Unions The trade union response to globalisation (NCPs), which are meant to vet the committee reviewing the social must be to ensure that, in terms of labour implementation of the guidelines. Though performance of enterprises in which workers’ pension and saving funds are invested, and it is beginning to train union A study by Cornell University in 2000 found that, despite trustees. the longest boom in US history, workers were feeling more insecure than ever before. More than half the firms surveyed, We have also been working closely with the European Trade Union Confederation when faced with union action, had threatened to close and the European Parliament to ensure the plant and move to another country. that, at the European level, initiatives can be taken to achieve better enforcement of the MNE guidelines and linkages developed with European Works Councils. conditions, we start a “race to the top” and an improvement on the situation before stop the “race to the bottom” between 2000, we have still not arrived at a critical There are also non-government activities in multinational companies. At the level of mass of governments who take their which unions are participating, such as the TUAC, we are giving priority to maintain responsibilities seriously. Global Reporting Initiative’s (GRI) work to and encourage enforcement of the OECD establish common international standards Guidelines for Multinational Enterprises, Another problem is that the guidelines still for corporate reporting on social and revised by governments in consultation need to be better known compared with environmental sustainability (see with labour unions, businesses and NGOs other instruments, like the UN Global article p.14), or certification schemes such in 2000. The guidelines are Compact. Within TUAC we have organised as SA 8000. recommendations for good corporate a project to raise awareness among trade behaviour, primarily addressed to unions, including a users’ guide for trade The International Labour Organization corporations based in countries that adhere unionists which is now available in several itself is having to define its own role in the to them but applying to their operations languages. With our partners, we are area of corporate social accountability – worldwide, that cover 85% of total foreign running workshops and seminars on the one task for the newly established ILO direct investment. guidelines, particularly in non-OECD World Commission on the Social countries. But we feel governments could Dimension of Globalisation. The MNE guidelines may not be binding in do much more. Also, although cases are a legal sense at the international level but now appearing before NCPs, they are often For labour perhaps the greatest danger is they are not optional either. If companies being dealt with very slowly. Of the 20 not globalisation itself; it is rather to argue could simply pick and choose among the cases which have been raised over the past policy paralysis as a result of it. Some of provisions of the guidelines or subject year by trade unions, as of June 2002 only the tools to prevent this paralysis are them to their own interpretations, then the five have been resolved or have led to there – it is up to the union movement to guidelines would have no value. Nor does recommendations being issued. make sure it uses them effectively, but their application depend on endorsement governments cannot absolve themselves by companies. The OECD’s MNE One might ask whether the OECD could from their own ultimate responsibility for guidelines are the only multilaterally not devote more resources to the managing markets globally. endorsed and comprehensive rules that implementation of the MNE guidelines. If governments have negotiated, in which the OECD does not take them more they commit themselves to help solve seriously, who will? References problems arising with corporations. Most For more on the Global Unions Group: www.global-unions.org importantly, the ultimate responsibility for There are other instruments in an evolving For the TUAC Users’ Guide to the OECD enforcement lies with governments. This “toolbox” that the global union movement MNE Guidelines: www.tuac.org makes the guidelines more than just a can use to counteract the social downside Bronfenbrenner,K. (2000), “Uneasy terrain: public relations exercise. of globalisation. They include work by the The Impact of Capital Mobility on Workers, Global Unions Federations to develop Wages, and Union Organizing”, Cornell To judge by experience of the past two collective bargaining relationships with University, report prepared for US Trade Deficit Review Commission. years since the MNE guidelines were companies at an international level. Some

Observer No. 234 October 2002 21 CORPORATE GOVERNANCE Japanese management Spotlight Japan: in search of a winning formula

Risaburo Nezu, Senior Executive Officer at Fujitsu Research Institute and board member of the Research Institute of Economy, Trade and Industry, a research organ of the Japanese Ministry of Economy, Trade and Industry*

Teamwork, goals, out-of-bounds: sport is often held up as a model for business. Now, the success of a French sports personality in Japan may hold lessons for the country’s corporate players.

few months after the FIFA soccer World Cup, the fever with which the A Japanese people watched their players in blue heroically reach the latter stages of the competition has not much dissipated in Tokyo. But the interest is moving quietly from that of a sports event to the personality of a ©Mark Baker/REUTERS foreigner who engineered the team’s unexpected success and how he did it. He is Philippe Troussier, a 47-year-old Frenchman who coached the Japanese team for four years until stepping down just after the World Cup. His place has been taken by another non- No longer the odd couple Japanese manager, the Brazilian Zico. Mr Troussier has set a high standard. in the history of the World Cup! By 9 July, outstanding. Hardly a first choice candidate when the Japanese football team made it for a nation bent on avoiding embarrassing In fact, his is the second French success story through to the final stages, Mr Troussier had defeat. To cap it all, this Parisian had to speak to take Japan by storm after Carlos Ghosn, become a national hero. Eventual defeat by through an interpreter. the CEO of Nissan, who was sent by Renault Turkey would not change that. The emperor to rescue the financially troubled second and prime minister each sent a message to How irrelevant all of this proved to be. largest automotive company in Japan and express their personal thanks. Mr Troussier’s first pleasant discovery was that now enjoys widespread respect in Japanese he would work with several good young circles (see references). Mr Troussier’s rise is full of lessons for players with international potential. But Japanese managers working in large because of the heavy culture of seniority and Mr Troussier was invited to Japan four years companies. When the Frenchman was other background issues, they had not been ago when the country, together with Korea, chosen, there was considerable doubt and given the chance to demonstrate their talents. volunteered to host the World Cup 2002. suspicion as to whether a foreigner should be He promptly replaced old players with these Doing well in football became a matter of allowed to coach a Japanese team at all. young people, making Japan’s perhaps the national pride for both co-hosts. Humiliating Moreover, Mr Troussier was largely unknown youngest team in the competition. (Ironically, defeat at an early stage of the competition had in Japan – nor was he a household name in his own country France’s dismal failure at the to be avoided. This was an ambitious goal for France – and despite some success in World Cup has been put down by many to a Japan, since it had never won a single game Africa, his track record had not been that failure to do just that: renew an ageing team.)

22 Observer No. 234 October 2002 CORPORATE GOVERNANCE Spotlight Japanese management

Mr Troussier urged his players to think for where local managers fail. Insiders tend to This is what openness is all about. As well as themselves and act independently, rather than shy away from a bloody reform. They are trade liberalisation, foreign investment and waiting for his instructions. A spirit of either too close to the people or too used to international capital transactions, openness independence and mental toughness were the established working practices. Japanese should apply to recruitment of managers and qualities he wanted to inject into the minds of CEOs have long been chosen from the skills. In general, the Japanese are very cautious the Japanese players. inside. Continuity is too often seen as about immigration. They fear it would result in important, the fear being that a major break more crime and higher unemployment among Out of frustration, the Frenchman with the past would only result in confusion locals. However, the success of Mr Troussier is occasionally criticised Japanese attitudes, and a loss of loyalty and morale. leading people to think that foreigners can do sometimes in rather acerbic fashion. “Those some good after all. who wait until the traffic signal turns green Another lesson from the experience with are of no use on the pitch. You must go Mr Troussier, who never played for France Is it just a coincidence that Mr Troussier and when there is no car coming,” he once said. Mr Ghosn are both French? Japan and France In many respects, this ran counter to the knew very little about each other. In fact, they culture that had dominated the Japanese Mr Troussier urged his players were often at odds with each other, as well as sports community, where collective to think for themselves and with everyone else. The French viewed the achievement is given priority over act independently, rather than Japanese as economic obsessives. One French individual success. He introduced a sense of waiting for his instructions. leader famously likened them to ants competition among the teammates and His management style and scurrying around and invading with their caused a public uproar when he did not handling of problems were industries. In turn, the French were hardly include some popular names in the final seen as an open, corporate lot, but rather as team sheet. In short, his management style anything but Japanese. arrogant, with their own suspicion of and handling of problems were anything foreigners and seeming respect for hierarchy but Japanese. He was stubborn and from probably making them quite like the time to time caused tensions in the camp to and who has a Master’s degree in sports Japanese. And while the Japanese were fond rise. His abrasive style nearly cost him his science, is that playing and coaching call for of French wines and fashion, they had never job early on, but success followed success, very different talents. Selecting managers viewed France as a model business nation. with a runners-up spot for his youth team based on in-company record is a Now the two nations enjoy each other’s at the FIFA World Youth Championship fundamentally flawed approach. Yet, this is company immensely. For while Messrs Ghosn Nigeria 1999, a quarter-finals place at the what most Japanese companies still do. and Troussier have been opening Japanese 2000 Sydney Olympics and victory in the corporate minds, Paris has become home to Asia Cup the same year. How right he was Mr Troussier made clear what he wanted Japan’s first major overseas cultural institute. to stick to his guns; in Japan, a polite and from his team. He asked the same of his conciliatory coach would probably not have players, urging them to come forward and A good number of the Japanese players who achieved as much. speak clearly. This is in sharp contrast with excited the Japanese people in June 2002 left Japanese management practice where for Europe this summer. They will form the If only Japan’s companies could follow silence and evasiveness rule. core of the World Cup team in 2006. The Mr Troussier’s example. In the 1980s, number of students leaving Japan to study Japanese firms dominated key global An international perspective was another abroad is also on the rise. Foreign companies industries such as electronics and quality that Mr Troussier brought to the job. in Tokyo are pleased with their increasing automobiles. Today, although information European players are used to playing abroad, popularity among top-notch students who technology is still a strength, the world including in Japan’s J-league, with teams like 10 years ago would never have thought of corporate directory is dominated by Grampus and FC Tokyo. But apart from applying to them for jobs. A gradual but American and European names, like Nokia, Ichiro, a Japanese baseball player plying his steady change is occurring in the business Motorola, Microsoft and Dell. Korean trade in the US, Japanese sports people rarely community of Japan. The World Cup 2002 electronics companies, like Samsung, are play abroad. Under the Frenchman, several probably helped accelerate this change. At competing head-on with Japanese ones. stars joined leading European clubs. Though long last, the Japanese have begun to (Incidentally, Korea also enjoyed World Cup the Japanese Football Association feared appreciate the real benefits of openness. success under a foreign coach, Dutchman losing their top strikers, Mr Troussier was *Risaburo Nezu is former head of the OECD Guus Hiddink.) And three of the five main uncompromising. Directorate for Science, Technology and Industry. Japanese automotive companies are foreign- owned. Japanese industry has without The CEOs of leading global companies like References doubt lost ground. Canon and Sony spent their early years in OECD (1999), Open Markets Matter: The Benefits foreign subsidiaries. Ironically, such overseas of Trade and Investment Liberalisation, Paris. Nezu, R. (2000), “Carlos Ghosn: cost cutter or But as the case of Mr Troussier shows, a posts were not mainstream career paths. Yet keiretsu killer?”, OECD Observer No. 220, leader from abroad can have a better chance they created the bosses that now lead these April 2000, Paris, also available at of succeeding in driving industry forward successful companies. www.oecdobserver.org

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