overview on corporate governance

8/12/2019 Overview on Corporate Governance

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OVERVIEW ON CORPORATE

GOVERNANCE


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1.0 Corporate Governance

Definition

Corporate Governance is a system of

structures and processes to direct and control

companies It specifies the distribution of responsibilities

among companies stakeholders including

shareowners, directors, and managers

It articulates the rules and procedures formaking decisions on corporate affairs


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Corporate Governance Definition

(Contd)

It provides the structure for defining,

implementing, and monitoring a company s /

an institutions or an organisations goals andobjectives, and ensuring accountability to

appropriate stakeholders


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Corporate Governance Definition

(Contd)

Corporate Governance as defined by Sir Adrian

Cadbury, UK 1992:

The system by which companies / institutions are

directed and controlled


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2.0. Hence Corporate Governance

Means Leadership

For efficiency

For probity(complete honesty)

Withresponsibility Both transparent and accountable


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3.0. The 4 Pillars Corporate

Governance

Transparency: Directors shouldclarify to shareowners and other

key stakeholders why everymaterial decision has been made

Accountability: Directors should be held accountable for theirdecisions and actions to shareholders (private or public / govt)

and, in certain cases, key stakeholders (management, staff etc),

submitting themselves to rigorous scrutiny

Fairness:All share owners should receive equal, just and unbiasedconsideration by the directors and management

Responsibility: Directors should carry out their duties with honesty

and integrity


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4.0. Agency And Stewardship


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5.0. Competing Tensions

If managementisabout running business,

governanceis about

seeing that it is runproperly. All companiesneed governing as well

as managing.

Prof. Bob Tricker, 1984


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5.1. Corporate Governance Tensions

An effective system of corporate governance must strive to

channel the self-interestof managers, directors and the advisors

upon whom they rely into alignment with the corporate, shareholderand public interest.

Ira Millstein

Senior Partner, Weil Gotshal & Menges, LLP

Senior Associate Dean, Corporate Governance,

Yale School of ManagementChair Emeritus, the Forums Private Sector Advisory Group


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6.0. Five Key Examples of Good

Corporate Governance Practice

Board Commitment

The board discusses corporate governance issues and has created corporate governance committee

The company has a corporate governance champion

A corporate governance improvement plan has been created

Appropriate resources are committed

Policies and procedures have been formalized and distributed to relevant staff

A corporate governance code has been developed

The company is publicly recognized as a corporate governance leader

Good Board Practices

Clearly defined roles and authorities

Duties and responsibilities of directors

understood

Board is well structured

Appropriate composition and mix of skills

Appropriate board procedures

Director remuneration in-line with best practice

Board self-evaluation and training conducted

Transparent Disclosure

Financial information disclosed

Non-financial information disclosed

Financials prepared according to IFRS

High-quality annual report published

Web-based disclosure

Well Defined Shareowner rights

Minority shareowner rights are formalized

Well-organized general assembly conducted

Policy on related-party transactions

Policy on extraordinary transactions

Clearly defined and explicit dividend policy

Control Environment

Independent audit committee established

Risk-management framework present

Internal control procedures

Internal audit function

Independent external auditor conducts audits

Management information systems established

Compliance function established


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6.1. Good (Sound) Corporate

Governance Practice Attracts

Investors Sound Corporate Governance practices inspire

investor and lender confidence, spur domestic

and foreign investment, and improve corporatecompetitiveness. Key to this are well informed

Boards and Directors fully aware of their

responsibilities and functions

Philip Armstrong, Head, Global CorporateGovernance Forum, Washington


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7.0. Boards Over Riding Role

The Boards role is to provide entrepreneurial

leadership of the company / organisation within

a framework of prudent and effective controls.

United Kingdom Combined Code (2006)


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8.0 Board Responsibilities

Develop the companys / institutionspurpose,

vision, values

Guidestrategy Overseemanagement

Monitorcorporate governance

Ensurethat controls are in place Overseedisclosure, communications


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9.0 Differences Between Directing

And Managing

Collective decision-making

Duties and responsibilities to

shareowners, company

Directors report regularly to

shareowners

Leadership vision, strategy

Approve, abide by ethics code Signoff of financial statements,

etc.

Joint and several liability

Individual decision-making

Specific to department

Report to board

Implement vision, strategy

Abide by ethics code

Preparation of financial

statements, etc. Several liabilities

Directing Managing


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10.0 Chairman, CEO Role Separation

Board Chairman

Provide overall leadership to the Board

Responsible for Board Agenda, Work Plan

Work with Chairmen of Board Committees

Informal link between Board and CEO/Management

Participate in selection, induction of NEDs

Counselindividual Directors, Performance Evaluation Relations with Shareowners, Investors, Key

Stakeholders


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Chairman, CEO Role Separation

(cont.)

Chief Executive Officer (Managing Director)

Work closely with Board / Council Chairman

Formulatestrategy, business plan, gain board budget

approval

Responsiblefor financial, corporate objectives

Formulatemajor corporate policies, supervise management

Ensureeffective management succession planning

Ensure continuous improvement in services, products

Relations with investors, major customers, business partners

Ensurecompanys long-term sustainability


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11.0 Directors Role

Decision-maker

Challenger

Supervisor

Reflective Listener

Process Manager

Knowledge Provider

Company Representative Status Provider

Innovator

Developer


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12.0 Directors Duties

12.1 Duty to Act Within Powers

Act only within their powers as defined by the

constitution or approved by shareowners

12.2 Duty of Care

Legal obligation imposed on directors requiring that theyadhere to a reasonable standard of carewhileperforming any acts that could potentially harm others

Directors are normally expected to discharge their dutiesin: Companys best interests

Compliance with companys code of conduct


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Directors Duties (cont.)

12.3 Fiduciary Duties

Directors must act in a faithful, trustful manner

towards or on the companys behalf,putting

their duty before personal interests. Considerations include:

Good faith

Proper purpose Not to make secret profits

Avoiding conflicts of interest

Confidentiality


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13.0 Directors Rights

Access to information

Reimbursement for expenses incurred

Discharge their duties withoutinterferencefrom co-Directors

Attend andparticipate in Board Meetings

Notice of Meetings

Advice

Delegation


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14.0 Corporate Governance: Local

Examples

The Good

The Bad

The Ugly


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15.0. Conclusion: Action Ideas

I plan to take the following actions upon my

return to my company:

Obstacles that may prevent me fromimplementing CG in my Company:

Actions to overcome such anticipated problems

are:


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overview on corporate governance

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