This presentation identifies that academic/practitioner collaboration could be the catalyst for a more integrated approach to governance and how this could address the failure of traditional corporate governance thinking to deliver value even its narrow frame of reference, leave aside taking account of wider mega-trends. The presentation also considers what academics can do differently to realise this potential.

1. Governance & integrated thinking….
through a responsible investor lens
The challenge of academic/practitioner
collaboration
Raj Thamotheram
16 September 2014

2. 1. The context

3. Thank you for listening!
A “sceptical” academic/practitioner!

4. The dominant narrative = blame someone else!
"It's very dangerous to join up dots that
may not be appropriate to join up"
Tony Hayward
“I left BP a long time ago, four years”
Lord Browne
“an Act of God”
Rick Perry, Governor of Texas

5. The dots that we shouldn’t join up….
Source:
Yahoofinance.com
Texas
Refinery
Accident
Texas
Refinery
Accident
Alaska
Oil
Spill
Azerbaijan
Gas leak
Violations
Of Clean
Water Act
Penalties
From the
OSHA
Gulf of
Mexico
Oil spill
Thunder
Horse
Accident
Charges for
Manipulation
Of gas
market
Grangemouth
2000
“Up until April 19, his performance was
excellent.”

6. What drives Preventable Surprises?
Narrow
Conception of risk
Shareholder
value
fundamentalism
Weak concern
for negative
externalities
Regulatory
capture
Leadership &
Governance
Organisational failures
Learning disabilities
Focus on
riskier
and dirtier
O&G
Ineffective
regulation
Outdated
approach
To safety
Weak safety
culture
M&A and
Outsourcing/SCM
Saviour CEO
SYSTEM O&G SECTOR BP

7. Research and Practice 7 Other (corporate goverance) “blow ups”
Copyright © 2011 Richard Leblanc.
Thanks to Richard LeBlanc, York All University
rights reserved.

8. Research and Practice 8 Other (corporate goverance) “blow ups”
Copyright © 2011 Richard Leblanc.
Thanks to Richard LeBlanc, York All University
rights reserved.

9. And systemic blow-ups!
“Why the World Faces Climate Chaos”

10. 10
The Eco-Resources Crunch

11. s
“The hallmarks of
tomorrow’s world will be
scarcity – of land, oil, food
and ‘air-space’ (for
greenhouse gases)”
US NIC, 2008
The Great Disruption
The ‘Perfect Storm’
(UK Government Chief Scientist,
John Beddington, 2009)
[Climate change risk]
“should compel all elected
leaders to take immediate
action”
Mayor Bloomberg, 2012

12. Exploding inequality
“A hungry man is an angry man”
Bob Marley

13. Accenture: we aren’t on track!
http://www.guardian.co.uk/sustainable-business/video/
peter-lacy-business-strategy-sustainable-investment-systemic-
change?INTCMP=ILCNETTXT3486
(0:35 – 3:30)
Unilever: investors are holding us back!
http://www.reversethefuture.org/discussions/47/resource-efficiency-
shareholder-value/
(25:20 – 26:57)
13
Views from the corporate frontline

14. Investors = enablers of dysfunction
Investors are more important than even regulators in shaping
directors’ priorities.
PwC, Annual Director Survey 2010
“[…] the destruction of shareholder value through legal means
is pervasive, perhaps even a routine way of doing business.
Indeed we assert that the amount of value destroyed by
companies striving to hit earning targets exceeds the value
lost in these high-profile fraud cases.”
John GRAHAM, Campbell HARVEY & Shiva RAJGOPAL
“Value destruction and financial reporting decisions”, Financial Analysts Journal, Vol 62 No 6, 2006
“Investors don’t care about Sustainability”
Business Week, 9th Nov 2010
(Global Compact / Accenture survey)

15. Investors = enablers of dysfunction
“Investors are showing greater interest—but
remain ambivalent and are unlikely to drive
change”
The UN Global Compact-Accenture CEO
Study on Sustainability 2013

16. ESG staff evaluate their own performance on climate
• 98% say investors are not doing enough to evaluate and integrate the risk of fossil
fuel exposure and climate change into valuations and buy-sell decisions [Q2]
• A bit better on stewardship: 94% say investors are not doing enough to safeguard
corporate and market health [Q3]
• 3 of the top 4 things that investors should do to have maximum impact are about
lobbying (ie where funds are weakest in practice) [Q8]
• Is the criticism of investors fair? 53% say yes. 40% say the criticism is too light! [Q4]
• Strong support for public reporting & accountability (which contrasts with
organisational views) - 93% partially or fully agreed that “public accountability with a
methodology independent of investor control is a good thing” [Q10]
• Even though they are divided about whether divestment will help in the real world
[Q6], 49% agreed fully and 34% agreed partially that campaigns gives ESG
professionals more internal space to manoeuvre [Q7]
• Very bullish about climate bonds: 88% strongly or partially disagreed with the
comment that there’s nothing new about climate bonds or fundamentally flawed [Q18]
• NGOs/media are the most effective agent for change, whilst investment CEOs the
least [Q9]
• Biggest block to stronger action is investor short-termism and how performance is
measured/rewarded [Q5] – and long-termism also ranks highly in solutions [Q8]
http://www.responsible-investor.com/images/uploads/articles/RI_Divestment_Survey_.pdf

17. 2. Where are the points of maximum
leverage?
Are we focusing on what matters most?

18. A “101” about the investment chain
18

19. What interests (ESG) Academics Today?
• PRI Academic Network 66 papers from academics past two conferences (2011
and 2012):
• 1 of the 66 papers focus on the ‘gatekeepers’ of information (sell side, credit
ratings, investment consultants).
• 15 of 66 address systemic problems (behavioural, cultural and institutional)
• 7 of the 66 papers address public policy
• What is getting attention? Doing well and doing good- that is, how integrating
ESG can lead to better financial performance, using the same old models.
• E > G > S
• Fundamental investors > Index Investors
Thanks to Heather Hachigan

20. Fundamental investors ain’t where the game’s at!
Fundamental
investors
Deep understanding of
strategy/sector
More like to support
management thru ST
volatility
20% of market
4-10 positions
Mechanical investors
Mathematical formulae
(incl index & closet
index)
Supporting or not
supporting management
isnt part of their reality
30%
100-150 positions
20
Traders
Bet against market
with regards to news
Interested in earlier
access to better news
35%
20 positions
Adapted from McKinsey & Co

21. 21 14136
It’s not just academics who mis-focus!
New technologies
Carbon constraints/climate
change
Corporate governance
Consumer and public health
'New technologies' peak
relating to clean tech,
Employee relations, human
capital
40%
35%
30%
25%
20%
15%
10%
5%
0%
Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08
As a % of reports in evaluation
'Consumer and public
health' peak relating to
obesity and avian flu /
SARS epidemics
laterally including
biofuels

22. 3. How to do academic research that
is more disruptive/progressive?

23. Role models to avoid!
• Frederic Mishkin, Professor, Columbia Business School
http://www.youtube.com/watch?
v=8lHvTKzfu8Q&feature=player_embedded#t=0s
• Glenn Hubbard, Dean Columbia Business School
http://www.youtube.com/watch?v=CaXNqGgIc-g&
feature=player_detailpage#t=6s

24. The good guys can mess up too!

25. Anat Admati – “Focus on what matters”
http://www.preventablesurprises.com/

26. Alice Stewart – Challenge convention
“Pioneering woman scientist whose
research into the dangers of x-rays
and nuclear radiation shook the
Establishment”
(GUARDIAN OBITUARY)
"We have already doubled the level
of background radiation today.
What is the effect on human genes?
That is the really important question:
it won't show up for two or three
more generations.”

27. Jeremy Grantham – “Be arrested”
“Scientists are understandably protective of the
dignity of science and are horrified by publicity and
overstatement.”

28. Campbell Harvey – “Bridge the gap"
“Often academics don’t know the
important problems facing industry”
Survey methodology to bridge the gap
Disguised the real question
Big impact – earnings management
isnt primarily by accounting but rather
by cutting budgets
1900 google cites (2006 paper)

29. Richard Duncan – “It’s the Communication, Stupid!”
• “Write books, articles and blog.
• Lots of media interviews. This requires cultivating
relationships with journalists.
• Hired PR firms.
• Website
• Speeches
• And now my Course on Udemy.com”

30. 30
Our workout agenda!
Engage with a practitioner/academic who cares about what you care about
Show relevance to the debates that matter in your field/firm
“Tool up” to understand systemic change
Find a mentor who is “part of the solution”

31. Some possible “tipping point” research questions
1. Governance failures – what did CSR/ESG teams know & do and what have they and their
management learnt?
2. ESG/CSR – is there a gap between commitments & implementation and why?
3. Internal power issues – eg ESG access to research budgets, ratio of sell/buy/hold
recommendations
4. Performance Metrics & Remuneration design – how do investors understand their support for
linking pay with share price when there is no evidence after 35 years that this works?
5. Whose risk counts (metrics & decision making processes) – eg bees have no value!
6. Corporate strategy, business reporting & integration of ESG
7. Pension funds of pro sustainability companies – how do they explain their decisions & how does
this change over time
http://www.reversethefuture.org/discussions/47/resource-efficiency-shareholder-value/ (29:15)
8. How much are the sustainability projects at business schools changing the core curriculum? How
effective are business schools at changing their own culture and managing their own immunity to
change and how might this learning help them help their corporate clients/students?

32. A proposal for GARI…..
A global intellectual dating site between real world
academics and reflective practitioners who want to show
“positive deviant” leadership
http://blogs.hbr.org/ideacast/2010/06/positive-deviance-and-unlikely.html (0:22- 1.43)
In partnership with all other networks (Preventable
Surprises, nSFM, Long Finance Initiative, Capital Institute,
The300 Club, Focusing Capital on the Long Term, PRI
Academic Network, SRIConnect etc) but with focus on
communities of practice

33. Conclusion…. our integration challenges are linked!
• Different cultures of corporate governance
• Traditional corporate governance AND “E & S” (environmental
& social)
• Economics/finance AND enhanced/behavioural corporate
governance
• Logic AND Intuition (Roger Martin = “integrative thinking”)
• Objective AND value-led/normative – this is the one we
ignore!

34. “Power concedes nothing without a
demand. It never did and it never will.”
Frederick Douglass (1818-95)
Former slave turned leader of the
abolitionist movement