BASICS OF CORPORATE GOVERNANCE..... ...!!

Meaning of corporate governance!!

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. he principal stakeholders are the shareholders, the !oard of directors, e"ecutives, employees, customers, creditors, suppliers, and the community at large

Good Corporate Governance

It means governing the company in a value based manner. OBJECTIVE - Enhancement o shareholder value !eeping in vie" the interests o other sta!eholders

#ey Constitutes$
%hareholders Board o directors &anagement Corporate Governance involves 'romotingTransparency- Everything happen in the company should !no"n to all the sta!eholders. (ccountability- The management is accountable or its decision. E)uanimity- *E)uitable Treatment+ ,ights o all the shareholders are e)ual- regardless o ma.or and minor shareholding.

M#$%&%' () C(*+(*$ #!!

$ corporation is an organi,ation created (incorporated) !y a group of shareholders who have ownership of the corporation. he elected -oard of directors appoint and oversee management of the corporation.

'overnance. ..meaning.!!
defines .'overnance/ as the act, manner, fact or function of governing, sway, control he word has 0atin origins that suggest the notion of 1steering1. &t deals with the processes and systems !y which an organi,ation or society operates.

Corporate 'overnance
Corporate governance is
3 a relationship among stakeholders that is used to determine and control the strategic direction and performance of organi,ations 3 concerned with identifying ways to ensure that strategic decisions are made effectively 3 used in corporations to esta!lish order !etween the firm4s owners and its top5level managers

/ Corporate governance specifies the istri!"tion of rights An responsi!i#i#ities a$ong ifferent participants in corporations.

 C' means a system !y which corporate entities are under control and are directed C' attempts to put a check on the working of the organi,ation.

6efinition of C'..!!
.C' denotes direction and control of the affairs of a company and it is the relationship !etween the owners ,directors and managers./

Corporate Governance
Corporate 'overnance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organi,ations

Corporate Governance Corporate 'overnance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organi,ations Concerned with identifying ways to ensure that strategic decisions are made effectively

Corporate Governance Corporate 'overnance is a relationship among stakeholders that is used to determine and control the strategic direction and performance of organi,ations Concerned with identifying ways to ensure that strategic decisions are made effectively 7sed in corporations to esta!lish order !etween the firm4s owners and its top5level managers

Main features of C'..!!

%. It is a set of s&ste$ an processes 'hich e$!races organi(ation str"ct"re. Ens"res !est interest of the sta*eho# ers ,enotes irection #ea ership e.p#ains re#ationship !et'een irectors / o'ners an $anagers. Atte$pts to p"t a chec* on 'or*ing ofa n organi(ation.

). +. -.

0.

)eatures continued
8. +rotects interests of !ond holders and society. 2. o make !alance !etween economic and social goals. 9. #nsures timely flow of all info. t o !oard of directors. :. #nsures sound system of risk management and internal control. ;<. 0eads to transparency in working of corporate affairs.

=cope of C'!!
1 IT provi es the str"ct"re for setting o!2ectives an provi ing $eans to attain the$.

-enefits of good C'!!

%3 )3 +3 -3 RE,4CES RIS5 STI647ATES PERFOR6ANCE I6PROVES ACCESS TO CAPITA76AR5ETS EN8ANCES T8E 6AR5ETIBI7IT9 OF GOO,S AN, SERVICES I6PROVES 7EA,ERS8IP ,E6ONSTRATES TRANSPARENC9 AN, SOCIA7 ACCO4NTABI7IT9 PRO6OTES TRANSPARENC9IN,ECISION6A 5ING PROCESS

03 :3

;3

= #+= )(* M$>&%' C(*+(*$ # '(?#*%$%C# #))&C&#% !!

i. ii. iii. iv. v. vi. vii. viii. i". ". Commitment of the management 0egal @ administrative framework ransparency in decision making +roper implementation of codes &mproving the system *eviewing !anking system Making laws effective =trict compliance &ncreasing role of independent directors Aighlighting governance role.

$C &?& B &M#.!!
.C(*+(*$ # '(?#*%$%C# &= A# -0((6 A$ )&00= A# ?#&% () *$%=+$*#% C(*+(*$ # 6&=C0(=7*#/ &% A# 0&'A () A&= #C+0&$% A# &M+(* $%C# () C'.

(!Dectives of good corporate governance

(!Dectives of good corporate governance =trengthen management oversight functions and accounta!ility -alance skills, e"perience and independence on the !oard appropriate to the nature and e"tent of company operations

 #sta!lish a code to ensure integrity =afeguard the integrity of company reporting *isk management and internal control 6isclosure of all relevant and material matters *ecognition and preservation of needs of shareholders

More efficient allocation of capital . #ncourage higher levels of efficiency, Euality, and competitiveness throughout the national economy. -oost private sector development. Create more Do!s. &mprove Euality of living. +overty alleviation of a %ation.

 Attracts investors Lowers costs of capital Improves performance, efficiency Reduces risks of financial crisis Promotes sustainable growth ngages stakeholders !efines responsibilities in "erving communities

A. Evolution of Corporate Governance: Wave of High Profile Scandals, Fraud, Crisis

;::<s 5 C#( dismissals in the 7= (&-M, >odak, etc.)F )inancial collapse of 7> corporates (+olly +eck, -ank of and Commerce &nt4l, Ma"well 'roup,etc.) ;::2 5 $sian )inancial Crisis G<<< 5 Massive !ankruptcies and criminal malfeasance (#nron, Horldcom, $&', $(0, $rthur $ndersen, etc.) G<<9 5 7= =u!5prime Crisis goes glo!al G<;; 5 'reece crises and impacts #uro,one G<;G 5 I+ Morgan4s .sloppy/ deals, -arclays4 0i!or5rigging scandal Credit

A.

Reactions !nterventions to address crisis

;::G 5 he Cad!ury *eport issued. 6efined -oards4 responsi!ilities and accounting systems. G<<< 5 (#C64s principles of corporate governance issued G<<G 5 =ar!anes and ("ley passed into law in the 7= G<<9 5 -ailouts of .too !ig to fail/ corporates !y governments e.g. #rou!led Asset Relief Program in the 7= G<<: 5 6odd5)rank Hall =treet *eform and Consumer +rotection $ct Current 5 tighter monetary and financial policies, risk management

". Corporate Governance in the Philippines G<<; 5 Horld -ank @ &M) *eportJ Corporate 'overnance $ssessment of the +hilippines !ased on (#C6 +rinciples High concentration of wealth by limited number of families Weak enforcement of corporate law and capital market regulations Weak corporate boards Need to professionalize accounting and auditing sectors Poor disclosures of financial and non-financial information Unprotected rights of minority shareholders Conclusion$ Crisis in Leadership

". " C, P" and %"P Response SE issued orporate !o"ernance ode in #$$#% amended in #$$&

'e(uired training and defined dis(ualifications of )irectors ! scorecard self-assessment issued and mandated 'e(uired accreditation of e*ternal auditors% term of managing partner limited 'e(uired setting up of "arious +oard ommittees

,mposed minimum of # independent directors in +oards 'e(uired -udit ommittees to Self--ssess Performance

Conclusion$ &ore Regulation vs' nforced Regulation

"eparation of (wnership and &anagerial Control

"eparation of (wnership and &anagerial Control

-asis of the modern corporation

"eparation of (wnership and &anagerial Control

-asis of the modern corporation =hareholders purchase stock, !ecoming...

Residual Clai#ants

"eparation of (wnership and &anagerial Control

-asis of the modern corporation =hareholders purchase stock, !ecoming...

Residual Clai#ants

5 =hareholders reduce risk efficiently !y holding diversified portfolios

"eparation of (wnership and &anagerial Control

-asis of the modern corporation =hareholders purchase stock, !ecoming... Residual Clai#ants 5 =hareholders reduce risk efficiently !y holding diversified portfolios +rofessional managers contract to provide decision5making

"eparation of (wnership and &anagerial Control

-asis of the modern corporation =hareholders purchase stock, !ecoming... Residual Clai#ants 5 =hareholders reduce risk efficiently !y holding diversified portfolios +rofessional managers contract to provide decision5making Modern pu!lic corporation form leads to efficient speciali,ation of tasks

"eparation of (wnership and &anagerial Control

-asis of the modern corporation =hareholders purchase stock, !ecoming...

Residual Clai#ants

5 =hareholders reduce risk efficiently !y holding diversified portfolios +rofessional managers contract to provide decision5making Modern pu!lic corporation form leads to efficient speciali,ation of tasks 5 *isk !earing !y shareholders 5 =trategy development and decision5making !y managers

Agency #heory $n agency relationship e"ists whenJ

Agency #heory
$n agency relationship e"ists whenJ =hareholders

(+rincipals) )irm (wners

Agency #heory
$n agency relationship e"ists whenJ =hareholders

(+rincipals) )irm (wners

Aire

Managers ($gents) 6ecision Makers

Agency #heory
$n agency relationship e"ists whenJ $gency *elationship =hareholders
Risk %earing "pecialist )Principal*

(+rincipals) )irm (wners

Aire

&anagerial !ecision+ &aking "pecialist )Agent*

Managers ($gents) 6ecision Makers

which creates

Agency #heory he Agency pro!lem occurs whenJ

5 he desires or goals of the principal and agent conflict and it is difficult or e"pensive for the principal to verify that the agent has !ehaved appropriately

Agency #heory he Agency pro!lem occurs whenJ 5 he desires or goals of the principal and agent conflict
and it is difficult or e"pensive for the principal to verify that the agent has !ehaved appropriately

,ample$ (verdiversification !ecause increased product

diversification leads to lower employment risk for managers and greater compensation

Agency #heory he Agency pro!lem occurs whenJ 5 he desires or goals of the principal and agent conflict
and it is difficult or e"pensive for the principal to verify that the agent has !ehaved appropriately

,ample$ (verdiversification !ecause increased product

diversification leads to lower employment risk for managers and greater compensation

"olution$ +rincipals engage in incentive5!ased performance

contracts, monitoring mechanisms such as the !oard of directors and enforcement mechanisms such as the managerial la!or market to mitigate the agency pro!lem

Agency #heory
+rincipals may engage in #onitoring !ehavior to assess the activities and decisions of managers 5 Aowever, dispersed shareholding makes it difficult and and inefficient to monitor management4s !ehavior

Agency #heory
+rincipals may engage in #onitoring !ehavior to assess the activities and decisions of managers 5 Aowever, dispersed shareholding makes it difficult and and inefficient to monitor management4s !ehavior

-or e,ample$ -oards of 6irectors have a fiduciary

duty to shareholders to monitor management

5 Aowever, -oards of 6irectors are often accused of

!eing la" in performing this function

$gency *elationshipJ (wners and Managers

Shareholders (Principals) Firm owners Decision makers Managers (Agents)

1 Ris* !earing specia#ist <principa#3 pa&s co$pensation to a $anageria# ecision= $a*ing specia#ist <agent3

An Agency Relationship
KK

Iss"es in corporate governance>>>.

C' &s a system !y which corporate entities are !eing controlled and directed . corporate governance attempts to puts check on working of an organi,ation .it checks the !alance !etween directors, auditors and management..

 .Corporate 'overnance is concerned with holding the !alance !etween economic and social goals and !etween individual and pu!lic goals. he governance framework is there to encourage the efficient use of resources and eEually to reEuire accounta!ility for the stewardship of those resources. he aim is to align as nearly as possi!le the interest of individuals, corporations and society.

he foundation of any structure of corporate governance is disclosure. (penness is the !asis of pu!lic confidence in the corporate system and funds will flow to centers of economic activity that inspire trust./

 0%hareholders role in governance is to appoint the directors and the auditors. 'oor corporate governance has ruined companies- sent directors to .ail- and destroyed a global accounting irm and threatened economies and governments.1

(!Dectives of C'.!!
+arties to corporate governance -oard of directors Managers Horkers =hareholders or owners *egulators Customers =uppliers Community (people affected !y the actions of the organi,ation)

Corporate 'overnance Mechanisms

Internal Governance &echanisms
(wnership Concentration -oard of 6irectors Managerial &ncentive Compensation Multidivisional (rgani,ational =tructure

,ternal Governance &echanisms

Market for Corporate Control

L;

Governance &echanisms

(wnership Concentration %oards of !irectors ,ecutive Compensation &ultidivisional (rgani.ational "tructure &arket for Corporate Control

Governance &echanisms

(wnership Concentration

Governance &echanisms

(wnership Concentration
5 0arge !lock shareholders have a strong incentive to monitor management closely

Governance &echanisms

(wnership Concentration
5 0arge !lock shareholders have a strong incentive to
monitor management closely 5 heir large stakes make it worth their while to spend time, effort and e"pense to monitor closely

Governance &echanisms

(wnership Concentration
5 0arge !lock shareholders have a strong incentive to
monitor management closely 5 heir large stakes make it worth their while to spend time, effort and e"pense to monitor closely 5 hey may also o!tain -oard seats which enhances their a!ility to monitor effectively (although financial institutions are legally for!idden from directly holding !oard seats)

Governance &echanisms

%oards of !irectors

Governance &echanisms

%oards of !irectors
5 &nsiders 5 *elated (utsiders 5 (utsiders

Governance &echanisms

%oards of !irectors
5 &nsiders 5 *elated (utsiders 5 (utsiders 5 *eview and ratify important decisions

Governance &echanisms

%oards of !irectors
5 &nsiders 5 *elated (utsiders 5 (utsiders 5 *eview and ratify important decisions 5 =et compensation of C#( and decide when to replace the C#(

Governance &echanisms

%oards of !irectors
5 &nsiders 5 *elated (utsiders 5 (utsiders 5 *eview and ratify important decisions 5 =et compensation of C#( and decide when to replace the C#( 5 0ack contact with day to day operations

Governance &echanisms

*ecommendations for more effective %oard Governance

Governance &echanisms

*ecommendations for more effective %oard Governance

5 &ncrease diversity of !oard mem!ers !ackgrounds 5 =trengthen internal management and accounting control systems 5 #sta!lish formal processes for evaluation of the !oard4s performance

Governance &echanisms

,ecutive Compensation

Governance &echanisms

,ecutive Compensation
=alary, -onuses, 0ong term incentive compensation

Governance &echanisms

,ecutive Compensation
=alary, -onuses, 0ong term incentive compensation
5 #"ecutive decisions are comple" and non5routine 5 Many factors intervene making it difficult to esta!lish how managerial decisions are directly responsi!le for outcomes 5 &n addition, stock ownership (long5term incentive compensation) makes managers more suscepti!le to market changes which are partially !eyond their control

Governance &echanisms

,ecutive Compensation
=alary, -onuses, 0ong term incentive compensation 5 #"ecutive decisions are comple" and non5routine 5 Many factors intervene making it difficult to esta!lish how managerial decisions are directly responsi!le for outcomes 5 &n addition, stock ownership (long5term incentive compensation) makes managers more suscepti!le to market changes which are partially !eyond their control &ncentive systems do not guarantee that managers make the .right/ decisions, !ut they do increase the likelihood that managers will do the things for which they are rewarded

Governance &echanisms

&ultidivisional (rgani.ational "tructure

Governance &echanisms

&ultidivisional (rgani.ational "tructure

6esigned to control managerial opportunism

Governance &echanisms

&ultidivisional (rgani.ational "tructure

6esigned to control managerial opportunism
5 Corporate office and -oard monitor !usiness5unit managers4 strategic decisions 5 &ncreased managerial interest in wealth ma"imi,ation

Governance &echanisms

&ultidivisional (rgani.ational "tructure

6esigned to control managerial opportunism 5 Corporate office and -oard monitor managers4 strategic decisions 5 &ncreased managerial interest in wealth ma"imi,ation M5form structure does not necessarily limit corporate5 level managers4 self5serving actions

Governance &echanisms

&ultidivisional (rgani.ational "tructure

6esigned to control managerial opportunism 5 Corporate office and -oard monitor managers4 strategic decisions 5 &ncreased managerial interest in wealth ma"imi,ation M5form structure does not necessarily limit corporate5 level managers4 self5serving actions 5 May lead to greater rather than less diversification

Governance &echanisms

&ultidivisional (rgani.ational "tructure

6esigned to control managerial opportunism
5 Corporate office and -oard monitor managers4 strategic decisions 5 &ncreased managerial interest in wealth ma"imi,ation M5form structure does not necessarily limit corporate5 level managers4 self5serving actions 5 May lead to greater rather than less diversification -roadly diversified product lines makes it difficult for top5level managers to evaluate the strategic decisions of divisional managers

Governance &echanisms

&arket for Corporate Control

Governance &echanisms

&arket for Corporate Control

(perates when firms face the risk of takeover when they are operated inefficiently

Governance &echanisms

&arket for Corporate Control

(perates when firms face the risk of takeover when they are operated inefficiently
+ #he /012s saw active market for corporate control, largely as a result of available pools of capital )3unk bonds* + &any firms began to operate more efficiently as a result of the 4threat5 of takeover, even though the actual incidence of hostile takeovers was relatively small + Changes in regulations have made hostile takeovers difficult

Governance &echanisms

&arket for Corporate Control

(perates when firms face the risk of takeover when they are operated inefficiently
+ #he /012s saw active market for corporate control, largely as a result of available pools of capital )3unk bonds* + &any firms began to operate more efficiently as a result of the 4threat5 of takeover, even though the actual incidence of hostile takeovers was relatively small + Changes in regulations have made hostile takeovers difficult

he market for corporate control acts as an important source of discipline over managerial incompetence and waste

Corporate Governance and thical %ehavior &t is important to serve the interests of multiple stakeholder groups

Corporate Governance and thical %ehavior

&t is important to serve the interests of multiple stakeholder groups =hareholders are one important stakeholder group, which are served !y the -oard of 6irectors

Corporate Governance and thical %ehavior

&t is important to serve the interests of multiple stakeholder groups =hareholders are one important stakeholder group, which are served !y the -oard of 6irectors +roduct market stakeholders (customers, suppliers and host communities) and (rgani,ational stakeholders (managerial and non5managerial employees) are also important stakeholder groups

Corporate Governance and thical %ehavior

&t is important to serve the interests of multiple stakeholder groups =hareholders are one important stakeholder group, which are served !y the -oard of 6irectors +roduct market stakeholders (customers, suppliers and host communities) and (rgani,ational stakeholders (managerial and non5managerial employees) are also important stakeholder groups $lthough controversial, some !elieve that ethically responsi!le firms should introduce governance mechanisms which serve all stakeholders4 interests

code of !usiness conductMMM

/ This Code o Business Conduct and Ethics helps ensure compliance "ith legal re)uirements and our standards o business conduct

Code of conduct continued..!!

/ (ll Company employees are e2pected to read and understand this Code o Business Conduct and Ethicsuphold these standards in day-to-day activities- obey "ith all applicable policies and procedures- and ensure that all agents and Contractors are a"are o understand and adhere to these standards. Because the principles described in this Code o Business Conduct and Ethics are general in nature CO&'3I(4CE I% EVE,5O4E6% B7%I4E%%

/ Ethical business conduct is critical to our business. (s an employee- your responsibility is to respect and adhere to these practices. / &any o these practices re lect legal or regulatory re)uirements. Violations o these la"s and regulations can create signi icant legal responsibility or you- the Company- its directors- o icers- and other employees. 'art o your .ob and ethical responsibility is to help en orce this Code o Business Conduct and Ethics.

Code of corporate practice..!!

Hritten guidelines i ssued !y an official !ody or professional associ ation to its mem!ers to help themcomply with its ethical standards.

#"ample of code of corporate practice!!

The Internationa# Co"nci# of To& In "stries <ICTI3/ an association of associations/ is co$$itte on !eha#f of its $e$!er co$panies to the operation of?to& factories in a #a'f"#/ safe/ an hea#thf"# $anner. It "pho# s the princip#es that no "n erage/ force / or prison #a!or sho"# !e e$p#o&e @ that no one is enie a 2o! !eca"se of gen er/ ethnic origin/ re#igion/ affi#iation or association/ an that factories co$p#& 'ith #a's protecting the environ$ent.

/ S"pp#& agree$ents 'ith fir$s $an"fact"ring on !eha#f of ICTI $e$!ers $"st a#so provi e for a herence to these princip#es. / The ro#e of ICTI is to infor$/ e "cate/ an s"rve& its $e$!ers so that in ivi "a# $e$!er co$panies can a here to its Co e of B"siness Practices. / As an association/ it a#so acts tao enco"rage #oca# an nationa# govern$ents to enforce 'age an ho"r #a's an factor& hea#th an safet& #a's

1%peci ic operating conditions that member companies are e2pected to meet and obtain contractor agreement in advance are as ollo"s$

0a!or..!!
That 'or*ing ho"rs per 'ee*/ 'ages an overti$e pa& practices co$p#& 'ith the stan ar s set !& #a' or/ in the a!sence of a #a'/ a ress h"$ane/ safe an pro "ctive 'or*ing con itions@ that no one "n er the #ega# $ini$"$ age is e$p#o&e in an& stage of to& $an"fact"ring@ that a $ini$"$ age of %- app#ies in a## circ"$stances/ !"t not'ithstan ing the foregoing/ that C%+A 6ini$"$ Age Convention <%B;+3 an C%A) Corst For$s of Chi# 7a!or Convention <%BBB3 of the Internationa# 7a!or Organi(ation app#&@ that no force or prison #a!or is e$p#o&e / that 'or*ers are free to #eave once their shift en s/ an that g"ar s are poste on#& for nor$a# sec"rit& reasons@ that a## 'or*ers are entit#e to sic* an $aternit& !enefits as provi e !& #a'@ that a## 'or*ers are entit#e to free#& e.ercise their rights of e$p#o&ee representation as provi e !& #oca# #a'.?

A# H(*>+0$C#.!!
/ / / / That to& factories provi e a safe 'or*ing environ$ent for their e$p#o&ees an co$p#& 'ith or e.cee a## app#ica!#e #oca# #a's concerning sanitation an ris* protection@ that the factor& is proper#& #ighte an venti#ate an that ais#es an e.its are accessi!#e at a## ti$es@ that there is a eD"ate $e ica# assistance avai#a!#e in e$ergencies/ an that esignate e$p#o&ees are traine in first ai proce "res@ that there are a eD"ate an 'e##=i entifie e$ergenc& e.its/ an that a## e$p#o&ees are traine in e$ergenc& evac"ation@

H(*>+0$C# C(% &%7#6!!

/ that protective safet& eD"ip$ent is avai#a!#e an e$p#o&ees are traine in its "se@ / that safeg"ar s on $achiner& $eet or e.cee #oca# #a's@ / that there are a eD"ate toi#et faci#ities 'hich $eet #oca# h&giene reD"ire$ents/ an that the& are proper#& $aintaine @ / that there are faci#ities or appropriate provisions for $ea#s an other !rea*s@ / if a factor& provi es ho"sing for its e$p#o&ees/ it 'i## ens"re that or$itor& roo$s an sanitar& faci#ities $eet !asic nee s/ are a eD"ate#& venti#ate an $eet fire safet& an other #oca# #a's@ / that

Compliance..!!
he purpose of this Code is to esta!lish a standard of performance, to educate, and to encourage commitment to responsi!le manufacturing, not to punish. o determine adherence, &C & mem!er companies will evaluate their own facilities as well as those of their contractors. hey will e"amine all !ooks and records and conduct on5site inspections of the facilities, and reEuest that their contractors follow the same practices with su!contractors. $n annual statement of compliance with this Code must !e signed !y an officer of each manufacturing company or contractor.

Contracts for the manufacture of toys should provide that a material failure to comply with the Code or to implement a corrective action plan on a timely !asis is a !reach of contract for which the contract may !e canceled. -ecause of the great diversity in the kinds of toys manufactured and the manufacturing methods used, as well as the wide range in factory si,es and num!ers of employees, three anne"es are attached to this Code to provide guidelines for determining compliance. $ rule of reason must !e used to determine applica!ility of the anne" provisions. his Code should !e posted or availa!le for all employees in the local language.

%oard of !irectors
$ board of directors is a !ody of elected or appointed mem!ers who Dointly oversee the activities of a company or organi,ation. he !ody sometimes has a different name, such as !oard of trustees, !oard of governors, !oard of managers, or e"ecutive !oard. &t is often simply referred to as Nthe !oard.N

*ights of 6irectors ..!!

6irectors have the right toJ +articipate in corporate decisions and inspect corporate !ooks and records. Compensation (usually a nominal sum) and indemnification. &f a director is sued for acts as director, the corporation should guarantee reim!ursement (indemnification) or purchase lia!ility insurance to protect the !oard from personal lia!ility

$ !oard1s activities are determined !y the powers, duties, and responsi!ilities delegated to it or conferred on it !y an authority outside itself. hese matters are typically detailed in the organi,ation1s !ylaws. he !ylaws commonly also specify the num!er of mem!ers of the !oard, how they are to !e chosen, and when they are to meet.

ypical duties of !oards of directors include

governing the organi,ation !y esta!lishing !road policies and o!DectivesF =electing, appointing, supporting and reviewing the performance of the chief e"ecutiveF ensuring the availa!ility of adeEuate financial resourcesF $pproving annual !udgetsF $ccounting to the stakeholders for the organi,ation1s performance.

he legal responsi!ilities of !oards and !oard mem!ers vary with the nature of the organi,ation, and with the Durisdiction within which it operates. )or pu!lic corporations, these responsi!ilities are typically much more rigorous and comple" than for those of other types.

C' =B= #M H(*06H&6#..!!

 Horld wide corporate governance systems (outsider) are those in which the owners of firms tend to have a transitory interest in the firm and do not have close relationships with those in senior managerial positions within the company.

/ ,ather- these systems are characteri8ed by relationships bet"een management and shareholders being luid and arms-length. / Outsider systems are also characteri8ed by the e2istence o an active 6mar!et or corporate control6ta!eovers- particularly hostile ones- are seen as both a remedy or managerial ailure and a disciplinary mechanism on managers- ensuring that they act in the best interests o shareholders. / Indeed- a urther eature o this system in the protection o shareholder rights over those o other organi8ational groups *particularly employees+.

/ !& contrast/ in Einsi erE s&ste$s the o'ners of fir$s ten to have an en "ring interest in the co$pan& an often ho# positions on the !oar of irectors or other senior $anageria# positions. / These s&ste$s are characteri(e !& sta!#e an c#ose re#ationships !et'een $anage$ent an shareho# ers. / This sta!i#it& of o'nership/ often co"p#e 'ith #ega# or instit"tiona# !arriers to ta*eovers/ $eans that there is #itt#e !& 'a& of a $ar*et for corporate contro#. / 6oreover/ insi er s&ste$s are characteri(e !& the e.istence of for$a# rights for e$p#o&ees to inf#"ence *e& $anageria# ecisions/ often thro"gh s"pervisor& !oar s or 'or*s co"nci#=t&pe !o ies. / ? / ?