 Well, good afternoon, ladies and gentlemen. Thank you for joining us here. Thank you to you in your room. Thank you to you watching us live online. This is the fifth and final issue briefing of today. I sometimes almost think we've left the most important issues to day three. We've dealt with inequality this morning. We've dealt with climate change. And I think another one, ethics and corporate governance, is the subject of this session. Those of you unfamiliar with the format will know it's short and compact. We have 30 minutes for this reason, this reason alone. I'll keep my remarks to a minimum. But we're here to talk about how high ethical standards can become more commonplace in business and what the role of corporate governance is in ensuring this. Essentially what we want to know is whether in 2016 corporate governance can serve all stakeholders equally. Now my panel are two esteemed experts and leaders in their own fields. Barbara Novick, Vice-Chairman, Black Rock Investments of the USA. Lucy Marcus, a columnist at BBC and also a member of a number of boards in her own rights. I get a two for one here, a member of the media, a vocal columnist who writes on the subject avidly. And there's also an insider too. Lucy, I'd like to start with you first, if I may. And just ask you to explore the macro view on the narrative that's emerging in corporate governance. How things are moving. Are they moving too slowly or too fast? Well, it's hard to judge whether they're moving too slowly or too fast. It probably is good to give it some context, which is sort of five years ago, ten years ago, you wouldn't have even been having this conversation in an open room necessarily. The boardroom tends to be a fairly black box room, fairly opaque and board members we sort of keep to ourselves. We go in a room, the doors close and people don't know necessarily what we're doing and they're not familiar with what a boardroom does. But more and more we see boardroom issues on the front page of not just financial papers, but in the business section and other sections of regular newspapers. If anyone reads newspapers as much or at least digital. I hope they still do. I hope so too. One of the things that's happened is there has been more clarity, more transparency, more bringing of these issues out into the world because for a long time we existed in something that was more like the cult of the CEO where everyone thought a CEO is the head of the company and everything they do and say is what exactly happens. But who hires the CEO? Who fires the CEO? Who meets with the CEO on a regular basis? Who holds the company in check? And so it becomes clear and clear that we have to understand better what happens in this black box room. And that has been very powerful and a number of things have happened to propel that. Social media actually has been a part of that where issues start to rise to the forum. People think who's making a difference? What should be happening about that? And we realize actually it's the boardroom. Board members are getting more and more held to account for what we do and what we say. And I know that as a board member my job has changed over the past several years. It's no longer good enough to skim the papers and fly in, ask a couple of questions, have a slap up lunch and go home. We now must engage more because it's our job to ask the hard questions and make sure that we're holding the company account both on the stargazing side, what happens in the distance and strategic side and also on the grounding side, which is the sort of tick box stuff to make sure that the company is following the rules, they are following the law and so on. So there's been a huge shift in how the world sees companies, how the world sees the role of the board and also holding the board to account. So things were opaque, but are they now transparent? They're not transparent yet, but what has been very important is that investors who have in their own right begun to think about things that are important to them like climate change or diversity or any myriad of issues, they're the ones actually who helped to push through change as well because what it means is if a large pension fund decides that they want to decarbonise their portfolio, then they have two ways of doing it. They can either just say, okay, we're decarbonising, they just walk away from anything that they think is toxic of a sort within their portfolio and all of a sudden there it is. And apparently I was hearing last night actually here in Davos that someone was talking about doing that and that they said that when they had decarbonised their portfolio by walking away and investing in things that were more within what they wanted, that not only had their portfolio stayed not just the same, but actually had increased in value. So that's a good thing. The other way is for investors to engage. So rather than walking away, try to pressure or move the needle in some way to get a company or the portfolio of companies to think more carefully about things like climate or diversity. Thank you, Lucy. Barbara. So what degree is corporate governance a factor when you're weighing your investment decisions? You're one of the largest investors in the USA. So it's very important when you're thinking about asset management companies to understand the business mix of the products that they offer to be able to even answer that question. So for example at BlackRock, more than half, in fact, a very large percentage of the equity assets we manage are in what's called passive products or index strategies. So what does that mean? It means that if it's in the index, we're going to own it. And we're not in the position to say we like your governance, we don't like your governance, we're going to sell you if we don't like your governance. As a result, we feel an even strong obligation to engage. And as Lucy said, it's not a black and white. There's a very active strategy you can take that is engaging with companies on issues that you have concerns about, asking hard questions so that you're not waiting for the proxy, you're not getting to the end of a process and then voting against. You can always hold that card, but rather than take that as your primary approach, we've insourced all of the proxy voting essentially. We don't outsource it. And we take engagement quite seriously. Last year alone, we engaged with 1,500 companies and voted 15,000 proxies. So it gives you some perspective. So very important issues, but how you go about it can differ from one company to another. What exactly do you look for when you're conducting your due diligence in this field? I would say the primary thing is the board. At the end of the day, the board members are there to protect the shareholders. And they should be thinking about long-term value. So, whether it's making sure you have board members who have the right expertise, board members who have the right time, as Lucy said, that time commitment today is different than maybe it was five and ten years ago, and certainly 20 years ago. Can they devote that time? And do they have, I'll say, the will, the strong will to make hard decisions? They are responsible for hiring and firing the CEO. They are responsible for certain decisions of the company, either approving them or being involved in them in some way. And they're the eyes and ears on a regular basis on behalf of the shareholders. So the quality of the board is probably the number one issue. And then the number two issue I think would be as you engage with companies over time, whether it's through due diligence or direct engagement of whatever sort, do they have a long-term vision? What is their long-term strategy? How do they express it? How do they measure themselves against it? Are they thinking about the different stakeholders? Are they thinking just about how do I maximize profit this quarter? Or are they thinking about the long-term? Are we factoring in our employees? Are we factoring in our clients? Are we factoring in the regulatory environment? Are we factoring in tech changes? What are we thinking about as a company? And is it a long-term thinking? Because otherwise you have a very short-term profit maximization, which may not be in sync with the portfolios that we hold. That's what I started with. As an investor, we're going to hold those companies. We're in it for the long-term. We want to make sure they're in it for the long-term. And when things start to go wrong, and corporate companies isn't up to the levels you expect, what can you do? How can you assert leverage on a business? And are you asserting leverage on a business? From a, I guess, style perspective, primarily we engage. So sometimes people track the numbers. How often did you vote with management? How often did you vote against management? We don't look at it as black and white. We can vote against management. We would much rather engage, have our issues addressed, and more often than not, be voting with management because they've already addressed their issues or they've committed to addressing them in the future. So I don't think the simplistic looking at someone's numbers is going to tell you the whole story and, from a style perspective, we would much rather be in the room with somebody, having the conversation. We think you actually move the needle more that way than having a public spat. And we see activism increasing generally amongst shareholders in general. Is this the best way to address corporate governance? I don't know that activism is necessarily targeted to corporate governance. I think some activism is targeted to short term profit motives. Some activism is targeted to perhaps a longer term vision. But it's effective in short term as well. Could it be used? Could the tactics of the activist investor be employed to assert authority and leverage to shape up and improve corporate governance structures? I think you've had a view on that. Are you abdicating them? I think it depends on how you define activism. I think that there are a couple of different ways of looking at it. As a board member, one of the positive things about activism is that most board members are scared witless of it. To them, it means something bad is going to happen. My job as a board member is to ask hard questions. Your job is to love the business enough, almost like a parent, you love them enough to ask them hard questions and demand more of them because you want them to do well. It's the same sort of thing as a board member. It's your job to ask hard questions and it can be uncomfortable sometimes. It can be the thing that stands between the board meeting finishing and lunch. But you have to be strong enough and stand there because it's your job. You have to remember every time you walk in the door that that's what your job is. What activism does, anytime something goes wrong, when you have a Sony hacking or a FIFA situation, God forbid, or a corruption, we were hearing about that today from Al Gore was talking about the cost of corruption. It's enormous and so all of these things, when something happens, it's an impetus to help board members as well, go in and say, are we going to be the next Sony? Are we vulnerable? The same thing with the threat of activism in a way, which is rather than going, oh, we have to do everything we can to make it look like our business is doing well. That's not going to work. We have to make sure that our business is doing well. When you have a situation like a VW where you have a board that was fairly insular and not well-structured and not communicating and not asking hard questions, where were the investors then? Not doing enough. Where were the board members who were on there who were independent? Not doing enough. That's a cautionary tale now for those of us who are board members and for those who are investors to say, you don't want to be the next VW and you certainly don't want to be associated with something like a FIFA. What's interesting about that as well is the risk report that came out just a week or so ago listed all the risks that businesses have to worry about. Climate change and refugee crisis was all really important things, but actually, if you look at our world of business and you look back at the past year or so, the big stories about what went wrong were nowhere on that list of risks. It's implosion. It's things going wrong in the business. It's corporate governance. It's ethics, the topic that we're here for. It's a combination work of those of us who sit on boards and those who are invested in companies to hold companies account to do we have something in common. We want to build better, stronger businesses because if you have better, stronger business you have better, stronger economies and everybody does better. So instead of seeing it as something that is bad for a business and something you should be afraid of, it actually can be very positive and if you have an investor who works with you and says we're looking at you, we're looking at you objectively, we're comparing you like with like with other companies and you have a problem. Let us help you or let us encourage you kindly or not so kindly. That's good for business in the long term as uncomfortable as it may be. I also think it's important to realize or recognize you can't legislate ethics. It's sort of in the necessary but not sufficient category. You need to have rules, you need to have some baseline, you need to have some guidelines but ethics is a very personal thing. It's personal to a company, it's personal to the individuals at the company. Employees see what the leaders do. They hear the messages. If the message that's reinforced over and over again is integrity counts, it's rewarded. It's part of your review process. It's part of your employee satisfaction survey. It's part of any town halls or group meetings. If that becomes just ingrained in the culture, that's very different than saying somebody legislated that you have five meetings a year or that you take the ethics training once a year. So many of the things that have gone wrong as Lucy said, are ethics issues. There's no way to legislate ethics. I agree with you to a certain extent. I think rules help. Rules are our friend in a way. I think a lot of people would disagree with me but also I like to be able to point to something and say we have to do it because it's there which makes it easier in a way to say that but also there's all the stuff about in the corporate governance community as well as saying people outside the boardroom saying well there's the rules they should do it but when you're in the boardroom it is the most human room I've ever been in. Everybody brings their baggage. It's really about the chemistry of the people around it. I could chair this room full of people. You could chair this room full of people and the outcome would be completely different because the chair sets the tone of the meeting which is also one of the reasons that I'm a big fan of separating chair and CEO a conversation for another day but still but I think things like that the personal becomes the professional. You're right. You can't say we need to look like a better company we need to look like we're doing better you just need to do better. Right but I guess my point would be a mechanical check the box we create so many rules that the only thing the board has time to do is make sure we've check, check, check, tick, tick, tick that's not good governance so yes encouraging good ethics embedding that in your culture great idea making a rule for that I don't even know what that rule would look like and saying annual mandatory compliance training those are good things to have necessary but not sufficient. Because my wrist kept on though I really like them I mean you have to do it in a way and in financial services it's even more onerous it's true but it's trying to fix something that's broken and you're right it's difficult if we do nothing This is an interesting conversation it's rules and values isn't it Barbara give us your insight you work with loads of companies and as you say you engage in cast votes and you have a view on a lot of these decisions personally are you satisfied with the level the values of the boardroom and the companies that you engage with? It's certainly we have some examples recent examples of some spectacular failures on that count but we also have many many success stories so I don't think you can tarnish whole industries or whole sets of companies I think it is very company specific I would look again to the leadership the tone at the top their actions not just their words are they emphasizing short term profits are they emphasizing cutting corners because if they are at the top you know that that's what's going to filter down if they're saying let's be more patient let's be more long term let's make sure ethics and ethics can be a lot of things ethics can be what kind of community member are you looking more holistically at I think somebody said doing good not just doing well and making sure that you're really taking into account multiple stakeholders and thinking about the company holistically seems a good juncture to see if there are any questions from the floor ok, so microphone on its way to you Paul Brits from Deutsche Weller you were talking about VW earlier and I can't resist asking about that you stress the importance of the board in terms of corporate ethics but as we've seen often enough the board isn't helpful in preventing these things to happen so what is going wrong and on the other hand how can corporations that have gone by a certain culture for a long time like VW actually get that change done and get it done quickly because they need to move quickly this is the early warning system how can you see a crisis before it happens and then when you do see it how can you do something about it well I think there's the general answer which is every time there is a scandal whether it's an accounting scandal a regulatory issue whatever it's a wake up call I think for all boards if you're in the boardroom you think about can that happen here are we encouraging this are we putting in checks and balances it's got to be something that's talked about I'd say pretty widely so you would hope that the general answer is people wake up and they look at these things in their own they look in the mirror and they say for our own company what things should we be doing now that's not going to always be the case I see you smiling but I think that's where it has to start and I think there is more and more I think there is introspection about these issues as is more focus on corporate governance in general all good points I think there are a couple of things the role of a board member is what I say is it's to be hands on but not hands in so you actually have to have a real sense of the business and what's going on we're not executives we can make decisions but we cannot execute those decisions and if you don't have a chief executive and a team that can execute those decisions then you have to get a new chief executive and a new executive team so you need to have that in accord and you need to have a certain balance there the other thing is it is very important to make sure that that you need to have the right people around the table they need to be engaged you don't want people who are over-boarded who are sitting on too many boards because it's just impossible these days all the papers keep track of everything you want to make sure that the board is well educated because the world is changing on a constant basis and one of the companies that I sit on is a large company it has a lot of complexity to it they do induction sessions four times a year to go deep on various parts of the business so we understand it better so that we can be better but it's also my job as a board member to educate myself I cannot be happy because it's just the beautiful massaged board books the pablum that is fed to me so easily it's also my job to go out understand the sector understand what's going on ask questions, teach myself so that when I ask a question and the answer comes back my intuition even if it's not in my particular area or of understanding my intuition tells me is this right board members and constantly how are we doing as board members what do we need to know what's changed what's our responsibility I think I've been to 100 off sites in the past year where I go and talk to boards about what's happening in the world of boards and what's changing and it's easy for me in a way because I'm a board member so I'm not trying to say something that I wouldn't say myself but even as a board member I have to remind myself constantly not to get complacent and to keep asking because I'm a fan of term limits as well that if you stay on a board for too long and in the US it's not so popular term limits and a lot of times you have people staying on a board they leave the way the old popes used to feet first but actually in Europe we have a system of somewhere around nine years that gives you enough time to get up to speed quickly be effective and then step off before you sort of grow to love it so much that you can't bear to see it change and that refreshment is very important and I would also add if you're a board member one of the key risks is reputation risks and in a world where information is so readily available and travels so quickly there's no secrets anymore I mean this whole conference the web is about the next transformation the speed at which information travels and the absolute inability to hide anything it's on a blog whatever everything internal or external it's everywhere so reputation risk is a very real issue and it's probably a bigger issue today because of that speed of information and availability of information so I would think as a board member you've got to be thinking about that and do we have a program in place are we sending the right message from that top down let's just go back to that something you said earlier on Barbara for the last few minutes of this session you mentioned you can't pinpoint any one company or industry but as you said also the theme of this meeting is the fourth industrial revolution which is throwing up dizzying opportunities for reputational risk and new areas of science which could become minefields or danger zones do you foresee any particular challenges with the current speed of change in technology that we ought to be aware of and mindful of oh my you want me to jump in on that or you want to go first well certainly cyber issues it would be hard not to be cognizant of and concerned about I mean the Sony hacking is a great example right and you just there's no way you can't invest very heavily whether it's your business continuity or it's your trade secrets and it's just so many ways you can be attacked I think you have to be cognizant of that I wonder if there are industries that are more prone maybe the data for example and lack of clarity of the data on how it's used or or spread on nine and whether markets are pricing that in in their investment decisions whether there are industries that are seen as at risk for future corporate governance issues well I guess I would take the question I would step back from a little bit because you know one of the things that I've written about and talked about is this question of what's an industry so I mean there is no industry that isn't touched in some way changed in some way, moved in some way technology and also you know is Apple a technology company or is it a watch company or a car company or you know what is it, what is Google is it a search company, is it a data company is it a car company, is everybody a car company now their music company so one of the things is and analysts are finding it very difficult to classify as well is you can no longer say that a company is in a particular sector and what that means is that everybody is a technology company and everybody is something else and so that's one piece of it the other piece is the security piece and you know there are regulations about what you have to do particularly in Europe we have data protection and all that stuff and you know in every company I mean you know infrastructure company that deals with highways and airports we hold a lot of data it's our job to be exceptionally good about taking care of it and you need people around the board table who they don't necessarily have to be technology experts because there's a lot of demand for we need someone in the board room who has a tech who's a tech expert but rather what you need is people who understand the changing nature of what's happening in the world and they need to understand and help companies think through and challenge companies and question companies are you protecting your data are you thinking about the implications of this for your business do you understand social media you don't have to be a social media expert but you know but even someone like me who I adore social media but I wouldn't call myself an expert but I understand and I understand the cadence of it and I think that's important because that influences business and what we need is a much more holistic understanding of how everything is changing which is very much this fourth industrial sort of thing and also what we need to protect for it what we need to see is an opportunity for it and that's asking a lot I'm a board actually but if you pull together enough people and you don't instead of having a tick boxing if we need five CEOs if you have a board room filled with six Scottish accountants who went to Cambridge and even that's not diversity they all might be very skilled you need gender diversity but you also need age diversity you just need people on the table who can ask the hard questions and something better will always come a conversation amongst people from different backgrounds I also think there's with technology new products some of which we don't even know what they're going to be so whenever there's new products there's always new issues so I'll give you two examples driverless cars if they crash who's responsible who's liable the poor insurance agency what happens if somebody's injured and what's acceptable as a parent can you put your little kids in a driverless car and they're off on their own driving around somewhere because they have to get to their music lesson or their play day think about that two little five year olds in the backseat of a driverless car is that allowed or not allowed that can't be good for all kinds of reasons but that's my point it brings up new questions that we've never even thought about because there were no driverless cars that wasn't even an option drones delivering your packages what if that drone runs into another drone what if that drone creates some problem with air traffic what if that drone is next to Kennedy airport so I think the question for technology and this next revolution is how do you even think about the questions with new products, new services whether they're ethical things in biotechnology or they're practical things in some of these product oriented solutions it's I don't even know the questions to ask it's a really great point and one of the things that it reminds me of is something I wrote about several months ago which is a lot of these companies they're enamored by the technology and they're developing the technology but there's no counter board they don't have boards, they're so young early stage startups nobody's there saying that's great, that sounds exciting have you thought about the ethics of that or have you thought about data protection or have you thought about something there are issues that come along with every change and you need to be able to counter that and say it's fantastic that's great but there are some issues and we need to think about those as well and you can't just ram your way through there's legislation for a reason there's taxi regulation for a reason it's not necessarily something that you can't overcome or do something with but everything we're doing also challenges the way we work as a society so nothing is developed in a vacuum and you're right, the knock on effects of choices that are made or new developments I don't want to slow it down I just want us to be cognizant and it's much better to be asking those questions in the board room which is a relatively safe space to have a hard conversation then for it to go out and someone gets hurt and then we're asking it in the world and we're having to clean up something so you'd rather have a board that challenges you because a lot of CEOs I've met some of them here it's such a pain the board can be your friend it can be the thing that saves you from having mistakes that are costly and problematic which people will always say in the rear of your mirror of course that was a problem why didn't you think of it so you do want the board to ask those hard questions and to be thinking about the long term value and making sure various things are factored in which is why Barbus looks at the boards to make sure that they're qualified because she's not going to be there all the time to make sure so somebody has to also take care of that it's about values isn't it Barbara it's about rules Lucy it's a blend of both it's about improving fast the black box is no longer with us but we're not yet at transparency we're not satisfied yet we have to ask the right questions whatever they may be we have to figure out what the questions are seems like a fitting place to end this session thank you very much