2. Good corporate governance demands the constant development and review of the corporate strategy to ensure that an organization remains true to corporate objectives and best practices. Thus while it is the normal duty of management to initiate and implement plans, the duty of the board is to ratify the plans and to constantly monitor them. This is linked to the age-old ‘principal-agent’ (or simply ‘agency’) problem, which is a scenario which arises whenever the advancement of the interests of one party (the ‘principal’, in this case members of the CMO or other rights holders represented by it as an agent), depends upon the actions of another party (the ‘agent’, namely the CMO as represented by the board and
management). In an agent-principal relationship, the agent is required to shun
his own interests and to work in the best interests of the principal. However, in such a relationship the agent may be tempted to ‘act opportunistically’ and to pursue his own interests to the detriment of those of the principal.128 Thus the agent-principal relationship sometimes gives rise to a clash between the interests of the agent versus those of the principal.
3. Because the principal does not have direct access to information that could enable him to advance his own interests, it is then incumbent upon the board of directors of an organization to ensure that the interests of the principal are not overridden by those of management. In this regard, corporate governance facilitates the principal’s control over the agent’s behavior, and thus becomes a ‘principal empowering’ strategy.129 Good corporate governance thus becomes an important tool in ensuring the safeguarding of the interests of a CMO’s members. In recent times, fueled by various corporate scandals and failures which have left share/stake-holders stranded, shareholders have begun to more actively assert their rights and to demand more accountability on the part of management and the board of directors.
Instances of member or rights holder activism can also be detected in the field of collective management, where more rights holders are demanding to know how their societies operate and how license fees are accounted for. Corporate governance is also of interest because as often observed, it ‘makes good economic sense’.130 In this regard, the negative economic consequences and the loss of confidence that inevitably arise from a failure of good governance make corporate governance more than just a moral or ethical decision.131
4. In an environment characterized by economic liberalization and globalization, where competition for the best services is on an increase, it would be important for a CMO to justify to its members why they should prefer it to other CMOs offering similar services. While CMOs have traditionally operated on a territorial and often monopolistic basis (with one CMO in a given territory), it is now becoming increasingly possible for a CMO to extend its operations beyond its territorial reach and to offer services to persons or entities in other countries.132 A reputation of adhering to the highest possible corporate governance practices will therefore increasingly become
128 See in this regard Armour J, Hansmann H and Kraakman R ‘Agency Problems, Legal Strategies and Enforcement’ Discussion Paper No. 644 (2009) Harvard John M. Olin Discussion Paper Series at 2, available at http://www.law.harvard.edu/programs/olin_
center/papers/pdf/Kraakman_644.pdf (accessed on 08 November 2014).
129 Ibid at 4.
130 See Spedding LS Due Diligence and Corporate Governance (LexisNexis Croydon 2004) 364. Emphasis added.
131 Ibid.
132 In the European Union this has been an issue, particularly since the so-called ‘CISAC decision’.
a determining factor when choosing between one society or the other, or as a way of expressing confidence in the board or management of a CMO. The importance of good corporate governance for CMOs was highlighted by the recent introduction of the so-called TAG of Excellence project. The project seeks to enhance understanding and respect for collective management of copyright and related rights by assisting a CMO to communicate to the outside world and its mandating rights holders that it maintains a high level of transparency (T), accountability (A) and governance (G).133 In this regard, it needs to be noted that corporate governance (or best corporate behavior) places a focus on the relevance, continuity and fiduciary aspects of the company and entails the following activities: (i) the monitoring and overseeing of strategic direction, and in this regard is concerned with the exercise of power over the direction of the enterprise; (ii) the supervision of executive actions; (iii) accountability (by putting in place mechanisms to respond adequately to demands for responsibility; and (iv) the regulation of the affairs of the corporation.134 It is underpinned by the universal principles of transparency, accountability, fairness and responsibility.135 This makes strategic planning crucial for any organization. The success or failure of an organization often depends upon the particular strategy it has chosen.
The two main components of strategic planning which have an impact on good corporate governance are strategy formulation and strategy execution.136 Strategy formulation includes conducting a strategic analysis, while strategy execution includes both the implementation and monitoring of the strategy. In the case of a CMO, strategic analysis involves properly answering the following questions: (i) what ‘rights business’ is the CMO concerned with?137 (ii) what specific rights should the CMO administer?138 (iii) what other services should the CMO render? (iv) who are the CMO’s customers, and (v) how will success be measured? Strategy formulation requires the setting of goals and objectives; assessing current resources;
the appointment of competent staff; obtaining the necessary resources; and responding to the regulatory environment. In this regard everything must
133 Ibid.
134 See in this regard Fernando AC Corporate Governance – Principles, Policies and Practices (Dorlin Kindersley Dehli 2006) 251.
135 Ibid at 251 – 252.
136 See in this regard Wixley T and Everingham G Corporate Governance – A Practical Guide For Effective Implementation (SiberInk Claremont 2005) 14 – 15.
137 In other words, is it only concerned with rights in musical works (and does this only involve mechanical rights or performing rights or both); or is it a multi-purpose society also administering audio-visual rights, private copy etc. In this regard it needs however, to be noted that ‘… it seems desirable to avoid parallelism and to establish only one organization for each category of rights for each category of rights owners.’ Ficsor M Collective Management of Copyright and Related Rights (WIPO Geneva 2002) 135 at para. 362.
138 Does it administer the whole bundle of rights in musical works and/or audio-visual works or is it only concerned with some of them?
align with and respond to the vision of the organization. On the other hand, strategy execution involves the setting of priorities; preparing detailed plans (including forecasts and budgets); communicating necessary information to members and other stakeholders; taking action to implement the plans;
measurement and monitoring of plans against objectives and goals and responding to any requirements for corrective action.