CORPORATE GOVERNANCE

CHAPTER 1
Presenters name
Presenters title
dd Month yyyy
1. INTRODCTION
!HAT I" CORPORATE GOVERNANCE#
$ Corporate governance is the system o% &rin'i&les( &oli'ies( &ro'ed)res( and
'learly de%ined res&onsi*ilities and a''o)nta*ilities )sed *y sta+eholders to
o,er'ome the 'on%li'ts o% interest inherent in the 'or&orate %orm.

Hen'e( the im&ortan'e o% )nderstandin- the di%%erent %orms o% *)siness.

$ Cor&orate -o,ernan'e a%%e'ts the o&erational ris+ and( hen'e( s)staina*ility o%
a 'or&oration.

The .)ality o% a 'or&orations 'or&orate o% -o,ernan'e a%%e'ts the ris+s and

,al)e o% the 'or&oration.

E%%e'ti,e( stron- 'or&orate -o,ernan'e is essential %or the e%%i'ient

%)n'tionin- o% mar+ets.
Co&yri-ht / 0112 C3A Instit)te 0
0. CORPORATE GOVERNANCE4 O56ECTIVE"
AND GIDING PRINCIP7E"
$ There are inherent 'on%li'ts o% interest in 'or&orations in 8hi'h the o8nershi&
and mana-ement are se&arate.
$ O*9e'ti,es o% 'or&orate -o,ernan'e4

To eliminate or miti-ate 'on%li'ts o% interest.

: Parti')larly those *et8een 'or&orate mana-ers and shareholders; and

To ens)re that the assets o% the 'om&any are )sed e%%i'iently and
&rod)'ti,ely and in the *est interests o% its in,estors and other sta+eholders.
Co&yri-ht / 0112 C3A Instit)te 2
CORE ATTRI5TE" O3 AN E33ECTIVE
CORPORATE GOVERNANCE "<"TEM
Clearly de%ined mana-er
and dire'tor -o,ernan'e
res&onsi*ilities
Identi%ia*le and
meas)rea*le
a''o)nta*ilities
3airness and e.)ita*le
treatment in dealin-s
Trans&aren'y and a'')ra'y
in dis'los)res
Delineation o% ri-hts
o% shareholders and
other sta+eholders
Co&yri-ht / 0112 C3A Instit)te =
2. 3ORM" O3 5"INE""
AND CON37ICT" O3 INTERE"T
Co&yri-ht / 0112 C3A Instit)te >
The %orm o% *)siness 8ill di'tate( in &art( the relationshi& *et8een the o8ners o%
the *)siness and mana-ement.

The de-ree o% se&aration may *e minimal ?e.-.( sole &ro&rietorshi&@( or

si-ni%i'ant ?e.-.( lar-e 'or&oration@.

!hen there is a se&aration *et8een o8ners and mana-ers( there is a

&otential %or a-en'y &ro*lems( 8hi'h may a%%e't the ,al)e o% the *)siness.

!e 8ill eAamine three *)siness %orms4 the sole &ro&rietorshi&( the

&artnershi&( and the 'or&oration.
"O7E PROPRIETOR"HIP
$ A sole proprietorship is o8ned and o&erated *y a sin-le &erson
$ "ole &ro&rietorshi&s are the most n)mero)s in terms o% n)m*er o% *)sinesses.
$ !ho *ears -o,ernan'e ris+ in a sole &ro&rietorshi&#

There are %e8 ris+s 8ith res&e't to -o,ernan'e %rom the &ers&e'ti,e o% the
o8ner.

Creditors( in'l)din- trade 'reditors( ha,e the hi-hest ris+ 8ith res&e't to
-o,ernan'e.
Co&yri-ht / 0112 C3A Instit)te B
PARTNER"HIP
$ A partnership has t8o or more o8nerCmana-ers.
$ !ho *ears -o,ernan'e ris+ in a &artnershi&#

There are %e8 ris+s 8ith res&e't to -o,ernan'e %rom the &ers&e'ti,e o% the
o8ners( 8ith o8nershi& ri-hts and res&onsi*ilities detailed in the &artnershi&
a-reement.

Creditors( in'l)din- trade 'reditors( ha,e the hi-her ris+ 8ith res&e't to
-o,ernan'e.
Co&yri-ht / 0112 C3A Instit)te D
CORPORATION
$ A corporation is a le-al entity that has ri-hts similar to an indi,id)al.

3or eAam&le( a 'or&oration 'an enter into 'ontra'ts.

$ Cor&orations a''o)nt %or most *)siness re,en)e aro)nd the 8orld.

Cor&orations aro)nd the 8orld4 7imited Com&any ?.E.@( Gesells'ha%t

?German@; "o'ietF Anonyme ?3ran'e@( ?China@; Gir+et ?T)r+ey@;
?Thailand@
Co&yri-ht / 0112 C3A Instit)te H
ADVANTAGE" O3 THE CORPORATE 3ORM
1. A 'or&oration 'an raise 'a&ital.

Grant o8nershi& sta+es ?that is( iss)e sto'+@ or *orro8 ?that is( iss)e *onds@.
0. O8ners need not +no8 ho8 to r)n the *)siness.

The 'or&oration hires eA&erts to mana-e the *)siness.

2. O8nershi& interests are trans%erra*le.
Co&yri-ht / 0112 C3A Instit)te I
DI"ADVANTAGE" O3 THE CORPORATE 3ORM
1. Cor&orations are more hi-hly re-)lated than are &artnershi&s or sole
&ro&rietorshi&s.

3or eAam&le( in the .". there are "tate la8s &ertainin- to 'or&orations and
the "e')rities and EA'han-e Commission re.)ires s&e'i%i' dis'los)res.
0. "e&aration o% o8ners and mana-ers.

This is the agency relationship( in 8hi'h someone ?the a-ent@ a'ts on

*ehal% o% another &erson ?the &rin'i&al@.

The &otential 'on%li't *et8een o8ners and mana-ers is the a-en'y &ro*lem
or &rin'i&al:a-ent &ro*lem(
: Prin'i&als4 shareholders
: A-ents4 Mana-ement and mem*ers o% the *oard o% dire'tors

There are 'osts to this a-en'y relationshi& arisin- %rom 'on%li'ts o% interest.
Co&yri-ht / 0112 C3A Instit)te 11
2. 3ORM" O3 5"INE"" AND
CON37ICT" O3 INTERE"T
Characteristic Sole Proprietorship Partnership Corporation
Ownership "ole o8ner M)lti&le o8ners nlimited o8nershi&
Legal requirements and
regulation
3e8; entity easily
%ormed
3e8; entity easily
%ormed
N)mero)s le-al
re.)irements
Legal distinction between
owner and business
None None 7e-al se&aration
*et8een o8ners and
*)siness
Liability nlimited nlimited *)t shared
amon- &artners
7imited
Ability to raise capital Very limited 7imited Nearly )nlimited
Transferability of ownership Non:trans%era*le
?eA'e&t *y sale o%
entire *)siness@
Non:trans%era*le Easily trans%era*le
Owner expertise in business Essential Essential nne'essary
Co&yri-ht / 0112 C3A Instit)te 11
EAhi*it 1:1( &a-e =
=. "PECI3IC "ORCE" O3 CON37ICT4
AGENC< RE7ATION"HIP"
anagers
anagers
!oard of
directors
!oard of
directors
Shareholders
Shareholders
Co&yri-ht / 0112 C3A Instit)te 10
Mana-ementJ"hareholder 'on%li'ts
Dire'torJ"hareholder 'on%li'ts
MANAGEMENTJ"HAREHO7DER CON37ICT"
$ "hareholders entr)st mana-ement 8ith %)nds %rom rein,ested earnin-s or
ne8ly iss)ed sto'+( 8hi'h mana-ement in,ests.
$ The o,erar'hin- o*9e'ti,e is to maAimiKe shareholders 8ealth.
$ Iss)e4 Mana-ers are h)man

Mana-ers may *e more interested in eA&andin- the siKe o% the *)siness(

*on)ses *ased on earnin-s( ta+in- on eA'essi,e ris+s( or 9o* se')rity.

Mana-ers may 'ons)me eA'essi,e &er.)isites( or in e%%e't( ta+e ad,anta-e

o% their &osition to s&end eA'essi,ely on thin-s %or themsel,es.

5ottom line4 there may *e a-en'y 'osts in terms o% the eA&li'it and im&li'it
'osts 8hen mana-ers do not a't in the *est interest o% shareholders.
$ E%%e'ti,e 'or&orate -o,ernan'e -)ards a-ainst a-en'y 'osts.
Co&yri-ht / 0112 C3A Instit)te 12
DIRECTORJ"HAREHO7DER CON37ICT"
$ The *oard o% dire'tors are an intermediary *et8een the shareholders and
mana-ement( and re&resent shareholders interests *y4

Monitorin- mana-ers;

A&&ro,in- strate-ies and &oli'ies;

A&&ro,in- mer-ers and a'.)isitions;

A&&ro,in- a)dit 'ontra'ts;

Re,ie8in- a)dit 'ontra'ts and %inan'ial 'ontra'ts;

Esta*lishin- mana-ement 'om&ensation;

Dis'i&linin- &oorly &er%ormin- mana-ers.

$ A 'on%li't may arise i% the *oard mem*ers ali-n 8ith mana-ement.
Co&yri-ht / 0112 C3A Instit)te 1=
RE"PON"I5I7ITIE" O3 THE
5OARD O3 DIRECTOR"
$ Esta*lish 'or&orate ,al)es and -o,ernan'e str)'t)res %or the 'om&any;
$ Ens)re that all le-al and re-)latory re.)irements are met and 'om&lied 8ith
%)lly and in a timely %ashion;
$ Esta*lish lon-:term strate-i' o*9e'ti,es %or the 'om&any;
$ Esta*lish 'lear lines o% res&onsi*ility and a stron- system o% a''o)nta*ility and
&er%orman'e meas)rement;
$ Hire the 'hie% eAe')ti,e o%%i'er( determine the 'om&ensation &a'+a-e( and
&eriodi'ally e,al)ate the o%%i'ers &er%orman'e;
$ Ens)re that mana-ement has s)&&lied the *oard 8ith s)%%i'ient in%ormation %or
it to *e %)lly in%ormed and &re&ared to ma+e the de'isions that are its
res&onsi*ility( and to *e a*le to ade.)ately monitor and o,ersee the 'om&anys
mana-ement;
$ Meet re-)larly to &er%orm its d)ties;
$ A'.)ire ade.)ate trainin-.
Co&yri-ht / 0112 C3A Instit)te 1>
>. CORPORATE GOVERNANCE EVA7ATION4
5OARD O3 DIRECTOR ATTRI5TE"
$ The *oard sho)ld *e 'om&rised &rimarily o% inde&endent dire'tors ?that is( not
insiders@
$ The Chairman o% the 5oard sho)ld *e inde&endent;
$ Dire'tors sho)ld *e .)ali%ied;
$ There sho)ld *e a re-)lar ele'tion o% mem*ers o% the 5oard;
$ There sho)ld *e a re-)lar sel%:assessment o% the 5oard;
$ The *oard sho)ld hold se&arate meetin-s o% the inde&endent dire'tors;
$ The *oard sho)ld re.)ire a)dit o,ersi-ht *y inde&endent dire'tors 8ho ha,e
s)%%i'ient eA&ertise in %inan'e( a''o)ntin-( and the la8.
Co&yri-ht / 0112 C3A Instit)te 1B
$ The nominatin- 'ommittee sho)ld *e 'om&rised o% inde&endent dire'tors;
$ The 'om&ensation 'ommittee sho)ld *e 'om&rised o% inde&endent dire'tors;
$ The *oard sho)ld *e a*le to hire o)tside 'o)nsel;
$ The *oard sho)ld dis'lose -o,ernan'e &oli'ies;
$ The *oard sho)ld ens)re ade.)ate dis'los)re and trans&aren'y;
$ The *oard sho)ld re.)ire dis'los)re o% any related:&arty transa'tions;
$ The *oard sho)ld res&ond to shareholders non:*indin- &roAy ,otes.
Co&yri-ht / 0112 C3A Instit)te 1D
>. CORPORATE GOVERNANCE EVA7ATION4
5OARD O3 DIRECTOR ATTRI5TE" ?CONTINED@
MONETAR< ATHORIT< O3 "INGAPORE
GUIDELINES AND REGULATIONS
ON CORPORATE GOVERNANCE
Prin'i&le 14 E,ery Instit)tion sho)ld *e headed *y an e%%e'ti,e 5oard.
Prin'i&le 04 There sho)ld *e a stron- and inde&endent element on the 5oard
8hi'h is a*le to eAer'ise o*9e'ti,e 9)d-ment on 'or&orate a%%airs
inde&endently %rom mana-ement and s)*stantial shareholders.
Prin'i&le 24 The 5oard sho)ld set and en%or'e 'lear lines o% res&onsi*ility and
a''o)nta*ility thro)-ho)t the Instit)tion.
Prin'i&le =4 There sho)ld *e a %ormal and trans&arent &ro'ess %or the
a&&ointment o% ne8 dire'tors to the 5oard.
Prin'i&le >4 There sho)ld *e a %ormal assessment o% the e%%e'ti,eness o% the
5oard as a 8hole and the 'ontri*)tion *y ea'h dire'tor to the
e%%e'ti,eness o% the 5oard.
Prin'i&le B4 In order to %)l%ill their res&onsi*ilities( 5oard mem*ers sho)ld *e
&ro,ided 8ith 'om&lete( ade.)ate and timely in%ormation &rior to
*oard meetin-s and on an on:-oin- *asis *y the mana-ement.
Co&yri-ht / 0112 C3A Instit)te 1H
GUIDELINES AND REGULATIONS ON
CORPORATE GOVERNANCE ?CONTINED@
Prin'i&le D4 There sho)ld *e a %ormal and trans&arent &ro'ed)re %or %iAin- the
rem)neration &a'+a-es o% indi,id)al dire'tors. No dire'tor sho)ld
*e in,ol,ed in de'idin- his o8n rem)neration.
Prin'i&le H4 The le,el and 'om&osition o% rem)neration sho)ld *e a&&ro&riate
to attra't( retain and moti,ate the dire'tors to &er%orm their roles
and 'arry o)t their res&onsi*ilities.
Prin'i&le I4 The 5oard sho)ld esta*lish an A)dit Committee 8ith a set o%
8ritten terms o% re%eren'e that 'learly sets o)t its a)thority and
d)ties.
Prin'i&le 114 The 5oard sho)ld ens)re that there is an ade.)ate ris+
mana-ement system and so)nd internal 'ontrols.
Co&yri-ht / 0112 C3A Instit)te 1I
Prin'i&le 114 The 5oard sho)ld ens)re that an internal a)dit %)n'tion that is
inde&endent o% the a'ti,ities a)dited is esta*lished.
Prin'i&le 104 The 5oard sho)ld ens)re that mana-ement %orm)lates &oli'ies to
ens)re dealin-s 8ith the &)*li'( the Instit)tions &oli'yholders and
'laimants( de&ositors and other ')stomers are 'ond)'ted %airly(
res&onsi*ly and &ro%essionally.
Prin'i&le 124 The 5oard sho)ld ens)re that related &arty transa'tions 8ith the
Instit)tion are made on an arms len-th *asis.
Co&yri-ht / 0112 C3A Instit)te 01
GUIDELINES AND REGULATIONS ON
CORPORATE GOVERNANCE ?CONTINED@
ORGANI"ATION 3OR ECONOMIC CO:OPERATION AND
DEVE7OPMENT ?OECD@
PRINCIPLES OF CORPORATE GOVERNANCE
I

The ri-hts o% shareholders
II

The e.)ita*le treatment o% shareholders
III

The role o% sta+eholders in 'or&orate -o,ernan'e
IV

Dis'los)re and trans&aren'y
V

The res&onsi*ilities o% the *oard
Co&yri-ht / 0112 C3A Instit)te 01
B. ENVIRONMENTA7( "OCIA7( AND
GOVERNANCE 3ACTOR"
"S# ris$ exposure
$ "nvironmental% social% and governance &"S#' ris$ is the ris+ asso'iated
8ith the mana-ement o% en,ironment( so'ial( and -o,ernan'e iss)es.
: In,ol,es miti-atin- ris+s and mana-in- these ris+s 8hen they arise.
$ E"G ris+ a%%e'ts the 'om&anys s)staina*ility and ,al)ation.
Co&yri-ht / 0112 C3A Instit)te 00
En,ironment

Poll)tion

Dis'los)res
"o'ial

!or+&la'e
iss)es

Prod)'t .)ality
and sa%ety

Comm)nity
intera'tion
Go,ernan'e

E%%e'ti,e
-o,ernan'e
ELAMP7E" O3 E"G RI"E"
$ 7e-islati,e and re-)latory ris+ ?that is( the role o% -o,ernments@
$ 7e-al ris+ ?%or eAam&le( la8s)its@
$ Re&)tational ris+
$ O&eratin- ris+
$ 3inan'ial ris+
Co&yri-ht / 0112 C3A Instit)te 02
D. VA7ATION IMP7ICATION" O3 CORPORATE
GOVERNANCE
5ene%its %rom a stron-
'or&orate -o,ernan'e
Ris+s o% 8ea+
'or&orate -o,ernan'e
Co&yri-ht / 0112 C3A Instit)te 0=
RI"E" O3 !EAE CORPORATE GOVERNANCE
A''o)ntin- ris+

The ris+ that a

'om&anys
%inan'ial
statement
re'o-nition and
related
dis'los)res are
in'om&lete(
misleadin-( or
materially
misstated.
Asset ris+

The ris+ that the

%irms assets
may *e
misa&&ro&riated
*y mana-ers or
dire'tors.
7ia*ility ris+

The ris+ that

mana-ement
8ill enter into
eA'essi,e
o*li-ations that
destroy the
,al)e o%
shareholders
e.)ity.
"trate-i'
&oli'y ris+

The ris+ that

mana-ers may
enter into
transa'tions or
in')r other
*)siness ris+s
that are sel%:
ser,in- and may
not *e in the
*est lon-:term
interest o%
shareholders.
Co&yri-ht / 0112 C3A Instit)te 0>
5ENE3IT" 3ROM "TRONG GOVERNANCE
E,iden'e s)--ests that4

'om&anies 8ith stron- -o,ernan'e had -reater in,estment &er%orman'e.

'om&anies 8ith stron- shareholders ri-hts o)t&er%ormed those 8ith 8ea+

&rote'tions.
Co&yri-ht / 0112 C3A Instit)te 0B
H. "MMAR<

Cor&orate -o,ernan'e is the system o% &rin'i&les( &oli'ies( &ro'ed)res( and

'learly de%ined res&onsi*ilities and a''o)nta*ilities.

The o*9e'ti,es o% a 'or&orate -o,ernan'e system are ?1@ to eliminate or

miti-ate 'on%li'ts o% interest amon- sta+eholders( &arti')larly *et8een
mana-ers and shareholders( and ?0@ to ens)re that the assets o% the
'om&any are )sed e%%i'iently and &rod)'ti,ely and in the *est interests o% the
in,estors and other sta+eholders.

The %ail)re o% a 'om&any to esta*lish an e%%e'ti,e system o% 'or&orate

-o,ernan'e re&resents a ma9or o&erational ris+ to the 'om&any and its
in,estors.
Co&yri-ht / 0112 C3A Instit)te 0D
$ The s&e'i%i' so)r'es o% 'on%li't in 'or&orate a-en'y relationshi&s are mana-er:
shareholder.
$ The res&onsi*ilities o% *oard mem*ers( *oth indi,id)ally and as a -ro)&( are to
esta*lish 'or&orate ,al)es and e%%e'ti,e -o,ernan'e str)'t)res %or the
'om&any.
Co&yri-ht / 0112 C3A Instit)te 0H
"MMAR< ?CONTINED@
$ Com&anies 'ommitted to 'or&orate -o,ernan'e o%ten &ro,ide a statement o%
'or&orate -o,ernan'e &oli'ies. Analysts sho)ld assess4

the 'ode o% ethi's; statements o% the o,ersi-ht( monitorin-( and re,ie8

res&onsi*ilities o% dire'tors;

statements o% mana-ements res&onsi*ilities 8ith res&e't to in%ormation and

a''ess o% dire'tors to internal 'om&any %)n'tions;

re&orts o% dire'tors eAaminations( e,al)ations( and %indin-s;

*oard and 'ommittee sel%:assessments; mana-ement sel%:assessments; and

trainin- &oli'ies %or dire'tors.

$ !ea+ 'or&orate -o,ernan'e systems -i,e rise to ris+s in'l)din- a''o)ntin-
ris+( asset ris+( lia*ility ris+( and strate-i' &oli'y ris+.
Co&yri-ht / 0112 C3A Instit)te 0I
"MMAR< ?CONTINED@