The modern business corporation has come a long way. Its history is the mirror image of that of the free enterprise economic system. Its impact and its presence is so pervasive and all-encompassing today that business corporations have come to overshadow nation-states as the central players in world affairs. Unfortunately, while the corporate sector seems more than willing to enjoy its growing power and influence, it has failed to demonstrate its readiness to accept a greater share of social responsibility. Furthermore, the globalization of commerce and the ascendancy of the transnational corporations is gradually eroding the capacity and power of governments to regulate and control the marketplace. These emerging realities underpin the concern expressed in recent discourse on corporate governance and pose a great challenge to civil society and its institutions. I hope this Conference will contribute towards a better understanding and appreciation of the issues that have to be tackled and resolved in the quest for the evolution of a just and effective system of corporate governance.

The business corporation is a creature of the law which provides a formal mechanism for the organisation and the operation of commercial enterprises within the free market system. Its concept and structure is based on the idea of specialisation. The shareholders provide the capital, the directors and the managers organise and run the business, and the employees do the work. While the directors, managers and employees get paid for their services and labour, the profits of the business belong exclusively to the shareholders who collectively own the business and, therefore, bear the ultimate risks of losses and failure.

This simplified model of corporate structure, together with the advantages of limited liability, separate legal personality and perpetual succession, has formed the basis of the system of corporate governance in countries following the common law tradition. The system is meant primarily to govern the relationship between directors, shareholders and the public based on the notion that the directors are accountable to the shareholders in their overriding duty to maximise rather than optimise profits.

There is ample evidence in the experience of governments and regulators in the last few decades to suggest that the present system of corporate governance is no longer adequate to cope with the demands of our shrinking world. The current corporate governance system seeks to provide checks and balances between the interests of shareholders and the powers of the directors and professional managers. It fails to guarantee that corporations serve the interests of wider constituencies of stakeholders such as employees, consumers, and the public.

The conventional view that what is good for General Motors is good for America is no longer sustainable because it treats the shareholders as the only legitimate beneficiaries of a corporation. It is founded on a myopic assumption that since a corporation is essentially a private institution, it should therefore merely be concerned with private interests and nothing more.

This view is not only erroneous but dangerous. The mega corporations of today wield so much power that no section of society is immune from the impact of their activities and practices. The argument that the public good is the sole preserve of governments therefore no longer holds water. The sine qua non of a civil society is that those who exercise power must be accountable to those who are affected by it, for power demands accountability. If businesses expect society to accept the corporate form as a legitimate arrangement for the operation of commercial enterprises, then they must readily shoulder the responsibility of protecting and upholding public interests. Anything less is tantamount to a betrayal of the social contract. And by this we mean the underlying moral duty to be discharged by those who have, in favour of those who have not. Inherent in this covenant is the principle of distributive justice which stipulates that growth must be accompanied by equity and that opportunity must not be appropriated by a few but be available to all.

To be fair, one has to acknowledge that while the principle of corporate social responsibility is easy and simple enough to state, it is much more difficult to apply in the case of corporate entities. Being abstract personae, corporations do not have the capacity for human responsibility. As has been said, the corporation has no soul to be summoned before God and has no body to be flogged.

It has been argued that the burden of responsibility should fall on the shareholders, for responsibility is an inseparable part of ownership.This view has been well articulated by Justice Brandeis of the US Supreme Court who said, "There is no such an innocent stockholder. He may be innocent in fact but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with the public welfare."

To my mind, while this view may still be valid today in specific cases, present day corporations whose shares are widely dispersed amongst a large number of shareholders and are transferrable across national boundaries are not as amenable to control by shareholders as before.

If one cannot attach the burden of corporate social responsibility on shareholders, the proposition that the directors and professional managers should be made solely accountable is equally unsatisfactory. It is argued that they are what they are in order to carry out their duty to advance the interests of the shareholders over everything else. And that is what they are paid for.

Again, this view is not entirely correct in view of the present day realities impinging on corporate ownership and control. I am sure the resolution of the issue would require a re-examination of the whole system and concept of corporate governance. In this regard, the role of independent audit committees has to be critically reassessed. To be really effective, members of such committees must be highly competent and truly independent. In the discharge of their duties they must not only be impartial but must be seen to be impartial. They ought to be held accountable for their statements. We are not talking of token responsibility but real responsibility, the breach of which should carry punitive sanctions.

The task of evolving an enlightened system of corporate governance cannot be left to governments and regulators alone. The corporate sector has to play its part. In fact, in certain areas such as the formulation and application of a code of corporate ethics, the voluntarist approach is preferrable over one enacted by regulators. As the Cadbury Report in the UK pointed out, such an approach will engender a deeper sense of commitment on the part of corporate management. This is something which ought to be seriously taken up by our corporate leaders. Corporate governance has to include the global dimensions which have to be addressed by governments and supra-national institutions such as the United Nations, and the World Trade Organisation in cooperation with the International Chamber of Commerce and other bodies representing the corporate sector.

Unless corporations are prepared to assume greater responsibility in protecting the environment, improving public health and morality, and promoting equity and social justice their own future will be at stake.

Thank you