I had a conversation with KPMG's global head of citizenship and diversity Lord Michael Hastings from London. He proposed a radical shake-up of corporate governance around the world. Read on.




SOX FIRST: What should boards do that's different? What sort of changes do we need to see?


HASTINGS: At the decision making level and for boards there is a really important role for having independent people who are not either paid by the companies or party to the companies prospects or future. They come in as representatives of of the public interest. What I mean by that is not as civil servants or government ministers to sit on business boards. What I mean by that is having appropriate people who need to be part of the governance of the companies of the future. Their remunerations should not come from companies, it should come from the central regulatory authority.

SOX FIRST: But what's the justification for giving regulators a seat in the board room?

HASTINGS: That way, they can be genuinely free of the self interest of promoting just the view of the company. I think we need a change of authority within the governance structure of organisations. And of course you need better supervision and transparent reporting and all of those kinds of things.

SOX FIRST: But what about the interests of shareholders?

HASTINGS: But the other way is clearly when there is a genuine shareholder democracy. You don't get that when the ownership is entirely with pension funds or investment funds, fairly faceless anonymous organisations. When the ownership is genuinely spread among a greater mass of people, then you have meaningful decision making. This has to be built into future frameworks. There is a need to bring independence of voice into board decision making and investment decisions and that independence of voice should clearly have economic independence so that there is no compromise. The share owning model which has been very big in Europe and North America. It started off being every citizen's opportunity to have a stake in corporate business. What it ended up being is institutions taking mass stakes. It's gone from the individuals to the anonymous groups. They don't take any immediate interest in the proceeds, until it goes wrong and then they just ditch the stock and walk away from the responsibility

SOX FIRST: But how likely is to happen?

HASTINGS: It brings it back to the core principle which that governance is on behalf of the public interest. That's really at its heart what corporate citizenship is about. It's about serving the interests of the immediate local communities, the national communities and the international community. What's going to happen now is that the financial services regulatory bodies are going to beefed up by further legislation. They are going to have much more thought and insight into the financial investment trends, particularly the investment banks and those that deal in the financial markets. Given that regulation is going to come about, and it's inevitable, it would be sensible to build this regulatory opportunity into the design so that the regulatory authorities make those appointments in conjunction with the company.