I joined the Rotary Club of Makati-Dasmariñas (RCMD) for dinner with guest speaker Keiichi Miki, CEO of JP Morgan Chase Trust Asia Pacific. He has been an investment manager for over 25 years based in both Hong Kong and Japan. Appointed CEO at the age of 41 - a little bit rare I have to say coming from the Asia-Pac region. Moreover, he is a CEO of a company (well, part of a group of companies held under JP Morgan Chase) who has survived the 2008 meltdown.
Of course it starts off with what is corporate governance and what not, but the highlight of his talk is on the system of laws in countries, the definitions of stakeholders and what differentiates companies from not failing.
First off, the system of laws. The US, UK and Australia have what is called a “common law”. Meaning: wealth maximization. This system means that there isn’t much control over the market explaining the supposed lack of oversight and due diligence that led to the financial meltdown of 2008. This also explains why the US and the UK are the countries most heavily affected.
On the other side of the fence, you have Germany, Italy, France, Japan and Korea who have a “civil law”. Meaning: benefits for all. This system is what the Philippines also has because of our obvious Spanish inheritance - somewhat socialist if you look at those countries. If you again look at the list, these are also the companies who have not been as heavily affected by the meltdown.
Looking back at “common law”, more laws have to be put in place to have better oversight. This has led to the implementation Sarbanes-Oxley Act (aka SOX) in the light of the Enron Scandal.
Just quickly on stakeholders, when talking about corporate governance, he presented a P&L statement and identifying who are the real stakeholders aside from the actual shareholders. It included employees and such.
Lastly, what differentiates companies from failing is not exactly the lack of oversight, but rather the lack oversight given the responsibilities of management and monitoring. Traditionally in Asia, management is about management. Running day to day operations and making sure everything is going on as it should be. No one in management really monitors what is going on which is why now companies have started creating GRC (Governance, Risk and Compliance) departments that have stronger audit capabilities than there was before.
In short, corporate governance started with nations implementing laws (or even not implementing them) that benefitted economic development (think US and UK military industrial complex) and probably imperialist tendencies. It has to be noted that the UK had a vast empire in the last centuries and even now the US has a vast military empire pretty much everywhere.
The lack of or loose laws, so to speak, led to more or less risky behavior on the part of top management which led to companies failing thus damaging economies, lives and even whole societies. The laws that were put in place to protect and serve the people were not very successful in a sense and corporate governance has to be strongly implemented to prevent another financial crisis.
Whew, lengthy post. Not one I normally do these days. The cool part about his talk was really his very good use of the English language and they way he uses investment terms like “strike beater” in describing CEOs of companies. Japanese are big baseball fans thus the influence. Till the next time I join RCMD.