Corporate Governance-Module Handbook

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Corporate Governance
Module Handbook




Muhammad Irfan
Faculty of Business Administration
Department of Management Sciences









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Table of Contents
1. Introduction………………………………………………………………….………..3
2. Objectives……………………………….……………………………………….……3
3. How to Contact Module Instructor……….…………………………………..……….4
4. Rationale Including Aims………………………………..…………………………….4
5. Participants understanding after studying this course…………………………………4
6. Teaching Methodology…………………………………………………………...…..4
7. Course Requirements and Expectations………………………………………….……5
8. Academic Dishonesty……………………………………………………………….…6
9. Final Project…………………………………………………………………...………6
10. Module Contents………………………………………………………………...…….8













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1. Introduction
“Corporate governance involves a set of relationships between a company’s management, its
board, its shareholders and other stakeholders. Corporate governance also provides the
structure through which the objectives of the company are set, and the means of attaining
those objectives and monitoring performances are determined.” This course explains the
relationship of owners (shareholders) and control (management), the issues involved and
providing track how to resolve it. Furthermore, the reader will understand the status and
remuneration related to executives and how they are compensated in terms of “incentives”
and “grants”. Further study will enhance the understanding of analysing the role of
accountants as well as auditors and their responsibilities in terms of creating favourable
environment between the share holders and management. Similarly, this course will flourish
your understanding about the Board of Directors (BODs), its strategic position in terms of
creating opportunities for businesses, various hiring of executives including CEO and
creating “Good Board” which will ensure that the shareholders money is safe and,
simultaneous, providing perks to its employees. Further study will give the understanding of
corporate takeovers as a governing mechanism while discussing its pros and cons as well as
considering corporations’ social responsibilities toward the economic and social welfare of
society.

2. Objective
The main objective of this module is to build up a clear understanding of two basic entities
i.e. owner (shareholders) and control (management), their relationships as well as conflicts. In
other words, 'good corporate governance' is simply 'good business'. It ensures:
 Adequate disclosures and effective decision making to achieve corporate objectives;
 Transparency in business transactions;
 Statutory and legal compliance;
 Protection of shareholder interests;
 Commitment to values and ethical conduct of business;
 Analysing and investment forecast about any company.
This is a 3 credit hour course, comprising 3 hours of teaching per week.


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3. How to Contact Module Instructor
You can contact the module instructor in the following prioritised ways:
1. Email: Muhammad_irfan@comsats.edu.pk
2. SMS: 0312-2263361 (Name, Module Name, Class, Registration No., Matter)
3. Call: 0312-2263361 (Better to get permission through sms to call to avoid any
inconvenience)
4. Office Meeting: By appointment only (Please do confirm your appointment either
through email or sms)

4. Rationale Including Aims
After studying this course, the attendants will be able to understand the corporate culture,
ethics and main issue related to shareholders and management. This course will also,
somehow, explore the understanding of SEC functions, how it works and some knowledge
about how to make investments.

5. Participants understanding after studying this course
 To understand the relationship of shareholders and management.
 To understand the issues raised with the separation of owner (shareholders) and
control (management)
 To understand the key position of CEO in the Board of Directors (BODs).
 To understand the analytical position of Auditors and Accountants.
 And above all, to understand the aspect of corporate social responsibility.

6. Teaching Methodology
Teaching methodology would be like two-way process i.e. participating with the course
instructor during the class. Spoon feeding would be highly discouraged. Being graduate
students you are asked to prepare your lecture before entering into the class which will
facilitate the mutual discussion environment rather than having one sided delivery. During
the semester you will be asked to have different quizzes and assignments which will,
definitely, be considered while having your assessment and evaluation.

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6.1.Assessment Scheme
Mid-term examination I after 04 week 10%
Mid-term examination II after 10 week 15%
Quiz/Assignments/Projects/Presentations 25%
Terminal Examination after 16 week 50%

6.2.Reading Materials

Core Texts:
1. Corporate Governance by Kenneth A.Kim & John R.Nofsinger (2
nd
ed), Pearson
Prentice hall
2. Corporare Governance by A.C. Fernando, Dorling Kinderseley (India) Pvt. Ltd,
Licensees of Pearson Education in South asia.
3. Corporate Governance by Safdar A. Butt, Azeem Academy.
4. Corporate Governance and Accountability by Jill Solomon (3
rd
ed), John Willey &
Sons Ltd.
5. Manual of Corporate Governance – Securities & Exchange Commission of Pakistan.

7. Course Requirements and Expectation
Grades: Grades will be assigned on the CIIT’s grading scale
Being Prepared for Class: You should be ready to discuss the undergoing concepts by
different perspectives
Attendance: Students are required to attend all the classes; minimum attendance requirement
by rule is 80% in CIIT.
Quizzes: Quizzes will be announced and there will be no make-up for missed quizzes.
Assignments: In fairness to students who complete assignments on time, late assignments
will not be accepted. You must turn in the assignments at the end of the lecture on the day
they are due.
Minimising disruptions: All cell phones should be turned off during class. Do not involve in
side conversations.
Report: Students are required to write a project report on the assigned topic and they have to
defend their work.
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Class Participation: Positive, healthy and constructive class participation will be monitored
for each class. Particular emphasis will be given during the presentation sessions. The manner
in which the question is asked or answered will also be noted. Your behaviour as business
executives in the class will contribute to the class participation marks.
8. Academic Dishonesty
Academic dishonesty is an offence that will not be tolerated in any form. Any student who is
involved in any such activity will be penalised according to the university regulations.
Plagiarism and Cheating: A student caught in plagiarism and cheating of documents would
be penalised according to the CIIT regulations.

9. Final Project
Each group has to select a company registered at ISE, making analysis with the following
points (not compulsory), come up with the answer why the chosen company is best for the
investment point of view and , if, you started your business/investment with the company
would be highly appreciated.
Part 1.
1. Introduction/brief history of the Corporation
2. Objectives
3. Vision and Mission Statement
4. Products manufactured or services offered by the organization
5. Board of Directors
a. Committees of the Board and its significances
6. Landmark Achievements of the corporation

Part 2.
1. CEOs of the Corporation since Corporations inceptions
2. The most important CEO
a. Contribution made by CEO
i. Shaping the company
ii. Promoting the Corporation

Part 3.
1. Corporation’s present scenario
2. Prospect for the future
3. Analyse current business challenges and future outlook
4. Increase in profit due to new product/services introduction
5. Achievements in regards to its competitors
6. Strategies for future growth (in the light of directors of the BODs & other
stakeholders)
Part 4.
1. Pattern of shareholding
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2. Major shareholders
3. Increase/decrease in the value of shares during the last five years
4. Earnings per share and payment of dividend to the shareholders
5. CEO/senior executive compensation pattern

Part 5.
1. Analysing corporation CSR (corporate social responsibility)
2. Corporate governance practices i.e.
a. Financial scam
b. Fraud
c. Corruption


3. Punishments (received by its executives) and its impact on;
a. Corporation’s profit
b. Corporation’s reputation

Part6.
1. Analysis
2. Recommendations
3. Conclusion
4. References/Bibliography



Some more information

1. Maximum number of members in each group is five (5) and the minimum number is
three (3).
2. Two groups can’t go for one (1) company.
3. So if you aren’t feeling comfort with any of your group member, just divide your
work that must be mentioned in the project. You will be marked individually for your
work.
4. But if the group members didn’t inform in advance about the project division, the
whole group will get the same marks.
5. The criterion for a company selection is on the basis of “first come first serve”. So
book your company to avoid in inconvenience.
6. Two similar company’s project will be marked “ZERO”.
7. Your project must look like “Project”, having proper page numbers, table of contents
and references.
8. Make it colourful with ideas, thoughts and understanding, not just colourful diagrams.
9. Last date for submission of project will be announced in the class.
10. Good luck.







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10. Module Content

Lectures Topics
1,2 Corporations and Corporate Governance
3,4 Executives Incentives
5,6 Accountants and Auditors
7, 8 Financial Reporting
9,10 Board of Directors
11,12 Investment Bank and Securities Analysts
13,14 Shareholders and shareholder Activism
15,16 Internal Control
17,18 Creditors and Credit Rating Agencies
19,20 Risk Management
21 ,22 Corporate Takeovers: A Governance Mechanism
23,24 Business Ethics
25,26 Corporate Citizenship
27,28 New Governance Rules-Sarbanes Oxley Act 2002
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29,30 Manual of Corporate Governance-SEC Pakistan
31,32 Final Project



Course Outline Detail Based on Lectures________________________________________

1. Corporations and Corporate Governance
Lecture 1
 What is “Corporate Governance”?
 Defining different “Economic Systems” in the world
 Why Capitalism is considered for Corporations growth?
 How Companies can increase businesses?
 Main focus of Corporate Governance.
 Separation of “ownership” and “control”.
 Forms of Business Ownership
 Comparing corporations with sole proprietorship and partnership forms of
businesses.
 Main disadvantages of “Corporations”.
Lecture 2
 Running Corporations can be expensive.
 Can Investors Influence Managers?
 Forms of Proposals.
 How to “Monitor” the corporations?
 An Integrated System of Governance.
 Improving Governance Performance: Rules-Based vs. Principles-Based
Approaches
 Global Corporate Governance principles: Best practice and regulatory framework
for companies
2. Executive Compensation
Lecture 3
 What is “Executive Compensation”
 How “Incentives” can be a good solution.
 Potential Managerial temptations.
 Examples of self-serving managerial actions.
 Types of Executives’ Compensation:
 Does Incentives-Based Compensations work in general?
 Potential “Incentive” Problems with Incentive based Compensation
Lecture 4
 Expensive Executive Options: An Easy Solution
 Real World Examples
 Management’s Behaviour at Xerox
 Other Compensations
 Crime and Punishments
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 International perspective- CEO Compensation around the world
3. Accountants and Auditors
Lecture 5
 Define Accounting?
 Difference between Accountants and Auditors (A &A).
 Importance of Accountants and Auditors (A & A).
 Accounting for Inside use (management)
 Accounting for outside use (Investors, Banks, The Governments, other
stakeholders)
 Difference between Financial Accounting and Managerial Accounting.
 Advantages & Disadvantages of Financial Accounting.
 Advantages & Disadvantages of Managerial Accounting
Lecture 6
 Financial statement/position explanation.
 Accounting records are different for Managers and Public Financial Statement.
 Reasons for differences in Financial Accounting and Managerial Accounting.
 Problems that may occur in accounting.
 Who are Responsible
 Accountant or Manager
 What is “Auditing”?
 Types of Auditors
 The Changing Role of Accounting-Managing Earnings
 From manipulation to fraud
 Auditors as Accountants
 International Perspective
4. Financial Reporting
Lecture 7
 What is “Financial Report”?
 Notes to accounts
 Qualities of Financial Statement
 Functions of Financial Statement
 Investors interest in Financial Statement
 Keys issues related to fairness of Financial Statement
 Misleading statements
 Responsibility for health of Financial Statements
 Audit reports
 Auditors’ liability
Lecture 8
 Professional monitoring of External Auditors
 Guidelines to Audit firms
 Non-Audit work
 How to control non-audit work?
 Rotations of External Auditors
 Objectives of fixing Financial Statement
 Directors responsibilities
 Voluntary disclosures
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 Role of Audit committee
 External auditors and Audit committee
 Audit cycle
5. Board of Directors
Lecture 9
 What is Board of Directors (BODs)?
 Who elects the BODs for a corporation?
 Composition of BODs.
 Functions of BODs.
 Influence of corporate governance on directors’ power and duties
 Overview of the Board: Instituting corporate governance standards
 The Board Legal duties
 Board Committees.
 Historical Perspective- Is a Director simply a Figure-Head
Lecture 10
 More attention on Directors.
 Who are Directors (example)
 Is being a director worth it?
 Board structure in the US and around the World.
 Good for the Goose, Good for the Gander?
 Can Good Boards Lead to Better Firms Performance?
 Potential Problems with Today’s Board.
 Disneys’ Board during the 1990s.
 International Perspective – Boards in Western Europe.
6. Investment Banks and Securities Analysts
Lecture 11
 What is “Investment Bank” and “IPO”?
 What is “Security” and who are “Securities analysts”?
 Investment banking activities.
 Methods of Issuing Stocks and bonds.
 Criticism of Investment Banks.
 IPO problems
 Sell-side Analysts (Investment Bank)
 What is “Institutional Investors”?
Lecture 12
 Quality of Analysts’ Recommendations.
 Conservative predictions
 Under promise and over delivery is the name of this game
 Analysts working at Investment banks
7. Shareholders and Shareholders Activism
Lecture 13
 Shareholders are considered innocent and helpless. Why?
 To categories of investors
 Individual investors
 Institutional investors
 What is “Shareholders Activism”?
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 What is Mutual Funds?
 Benefits of Mutual Funds
 The advantage of professional investment management.
 Funds managers have real access and information about the market.
Lecture 14
 Individual shareholders activism
 Monitoring by large shareholders
 Institutional Shareholders: An Overview
 Does Institution Shareholders activism works?
 Potential roadblocks to effective shareholders
 International perspective of disclosure of information
8. Internal Control
Lecture 15
 What is Internal Control?
 Objective of Internal Control
 Tools of Internal Control
 What is Internal Auditor?
 Advantages of Internal Audit
 Types of Internal Audit
 Limitations of Internal Audit
Lecture 16
 What is External Auditor?
 Internal vs. External Auditor
 Board’s statement of Internal Control
 Different aspects of Monitoring
 What is Whistleblowing?
 Classification of Whistleblowers
 Types of Whistleblowers
9. Creditors and Credit Rating Agencies
Lecture 17
 Introduction
 Who care about the firm 1. Stockholders 2. Creditors
 Two types of lenders
 Commercial Banks
 Individual (bondholders)
 How did CRAs start?
 High credit rating vs. Low credit rating
 Another view of credit rating
 New company vs. Mature company
 The BIG 3
Lecture 18
 PACRA
 The Ratings
 Criticisms
 Consulting firms
 First Amendment Right to CRAs
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 International Perspective
10. Risk Management
Lecture 19
 What is Risk?
 Why take risks?
 Risk management process
 Risk identification
 Classification of Risk
 Risk Assessment
 Risk management techniques
 Risk transfer modes
 Hedging
 Options
 Interest rate risk
 Exchange rate risk
 Financial assets risk
Lecture 20
 Is risk management a Corporate Governance Issue?
 Risk management reporting
 Audit committee’s reports
 Board’s statement on Internal Control
 Turnbull report
 Risk assessment
 Disaster recovery plan
11. Corporate Takeover: A governance Mechanism
Lecture 21
 Definition
 What are mergers and acquisitions?
 Importance of discussing M & A in corporate governance.
 General process: Acquisition
 General process: Merger
 Characteristics of M & A
 Brief overview of M & A.
Lecture 22
 Strategic reason (to reduce cost, to get new business)
 Synergistic reason (combined effort)
 Acquiree firm’s shareholders perspective
 Is it appropriate to acquire successful as well as unsuccessful firm
 Takeover Defenses
 Assessment of takeover Defenses
12. Business ethics
Lecture 23
 What is Ethics
 Business ethics
 Evolution of Business Ethics,
 Why business is being ethical now?
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 How to enforce ethics?
 Advantages of Business Ethics
 Difference between ethical codes and contracts
 Impact of laws, regulations and codes of business on ethics
 Professional accountants contribution of ethical behavior to public interest
 Influence of ethics on business and accountants
Lecture 24
 Characteristics of an ethical organizations and personal growth
 Ethics: composition of integrity, objectivity, professional competence and due
care, confidentiality, and professional behavior
 Different dimensions of corporate unethical behavior
 How to eliminate unethical practices in a corporation?
 Ethical practices in developing as well as developed economies.
 Corporate governance, ethics and the law
13. Corporate Citizenship
Lecture 25
 Introduction
 Stakeholders of the firm and their benefits
 Legal Foundation
 Corporate Social Responsibilities
Lecture 26
 Drivers of Corporate Citizenship
 Benefits of CSR to firms
 Governance and Stakeholders Theory
 Criticism
14. New Governance Rules-SARBANES Oxley Act 2002
Lecture 27
 Introduction
 SOX
 Public Company Accounting Oversight Board
 Auditors independence
 Corporate Responsibilities
 Enhanced Financial Disclosure
 Analysts conflicts of Interests
 SEC Resources and Authority
 Corporate and criminal fraud, accountability and penalties
 Different sentences and penalties were introduces
Lecture 28
 Will the act be beneficial?
 The NYSE
 NASDAQ
 Corporate Governance Globally: UK (codes), Europe, South Africa, USA
15. Manual of Corporate Governance-SEC Pakistan
Lecture 29
 Introduction
 What is corporate governance: Pakistan’s perspectives
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 The need for corporate governance
 The stakeholders
Lecture 30
 Promoting reforms and shareholder activism
 Role and responsibilities of directors and managers
 Scrutinizing financial statement-what every directors should know
Lecture 31 & 32: Final Project