Assignment

On

Corporate Governance

Submitted to
MAM. NIMRA SAQIB

Submitted by

Zahid Riaz MCF1702216

Saif Ul Raza MCF1702296

` Rehman Ashraf MCF1702198

Mohsin Waqas MCF1702217

MBA (1.5) MORNING

UNIVERSITY OF EDUCATION LAHORE

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MULTAN CAMPUS

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 Table of contents

Sr. Contents Page no.

1 Corporate Governance 4
2 Pillars Of Corporate Governance 5
3 Purpose 6
4 Pakistan Institute Of Corporate Governance 6
5 Objectives 7
6 Benefits 7
7 Impact 7
8 Principals 8
9 Elements 9
10 Advantages 9
11 Factors Effecting 9

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Corporate Governance

Corporate governance is the mechanisms, processes and relations by which corporations are
controlled and directed. Governance structures and principles identify the distribution of rights
and responsibilities among different participants in the corporation (such as the board of
directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and
includes the rules and procedures for making decisions in corporate affairs. Corporate
governance includes the processes through which corporations' objectives are set and pursued in
the context of the social, regulatory and market environment.

Corporate governance is the system by which companies are directed and controlled. Boards of
directors are responsible for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to satisfy themselves that an
appropriate governance structure is in place.

The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship.

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Pillars of Corporate Governance

The three pillars of corporate governance are: transparency, accountability, and security. All
three are critical in successfully running a company and forming solid professional relationships
among its stakeholders which include board directors, managers, employees, and most
importantly, shareholders.

Transparency

In simplest terms, transparency means having nothing to hide. For a company, this means it
allows its processes and transactions observable to outsiders. It also makes necessary disclosures,
informs everyone affected about its decisions, and complies with legal requirements. After
the financial scandals in the early 2000s, transparency has played a bigger role in preventing
fraud from happening again, especially at such a large scale. But aside from stopping the next
illegal moneymaking scheme, transparency also builds a good reputation of the company in
question. When shareholders feel they can trust a company, they are willing to invest more, and
this greatly helps in lowering cost of capital. Therefore, a company gets its ROI on the money it
spent on improving transparency.

Accountability

It takes more than transparency to build integrity as a company. It also takes accountability,
which can also mean answerability or liability. Shareholders are deeply interested in who will

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take the blame when something goes wrong in one of a company’s many processes. And even
when everything goes smoothly as expected, knowing that someone will be held accountable for
future mishaps increases shareholders’ confidence, which in turn increases their desire to invest
more. Again, this concern over accountability goes back to the financial scandals in the early
2000s, in which there had been a lot of money stolen, but not enough people to answer for the
crime.

Security

A company is expected to make their processes transparent and their people accountable while
keeping their enterprise data secure from unauthorized access. There is simply no compromise
for this. Companies that experience security breaches involving the exposure of their clients’
personal information quickly lose their credibility. To get back the public’s trust, extensive
damage control is called for — just look at what had to be done after Neiman
Marcus and Target suffered from data leak. age Thus, even with accountability and transparency,
a company without inadequate security measures will have a hard time attracting shareholders.
After all, any scandal — even a breach caused by third-party hackers — can have a negative
effect on a company’s stock market performance.

Purpose of the Corporate Governance

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent

management that can deliver the long-term success of the company. Corporate governance is the
system by which companies are directed and controlled. Boards of directors are responsible for
the governance of their companies.

Pakistan Institute of Corporate Governance

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The Pakistan Institute of Corporate Governance (PICG) is a not-for-profit company, limited by
guarantee and without share capital, setup under section 42 of the Companies Ordinance, 1984.
The Institute is charged with promoting good corporate governance practices in Pakistan.
Good corporate governance is an essential prerequisite for the integrity and credibility of
financial institutions, stock exchanges, incorporated companies and the whole market economy.
It builds greater confidence and trust by ensuring transparency, fairness and accountability with
respect to shareholders and other stakeholders. PICG is involved in training and education,
creating awareness, undertaking research, publishing guidelines and other resource material. It
provides a forum for discussion on corporate governance.

Objectives

 To make the markets safe and investor friendly

 To provide investor protection
 To empower the shareholders
 To provide greater value to their holding

Benefits of Corporate Governance

Good and proper corporate governance is considered imperative for the

e s t a b l i s h m e n t o f a Competitive market. There is empirical evidence to suggest that
countries that have implemented good corporate governance measures have generally
experienced robust growth of corporate sectors and higher ability to attract capital than
those which have not.

Impact of Corporate Governance

The positive effect of good corporate governance on different stakeholder

s ultimately is astrengthened economy, and hence good corporate governa
n c e i s a t o o l f o r s o c i o - e c o n o m i c development.

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After East Asian economies collapsed in the late 20th century, the
World Bank's president warned those countries, that for sustainable development, corporate
governance has to be good. Economic health of a nation depends substantially on how sound and
ethical businesses.

Principles of Corporate Governance

Commonly accepted principles of corporate governance include:

Rights and equitable treatment of shareholders: Organizations should respect the rights
of shareholders and help shareholders to exercise those rights. They can
help shareholders exercise their rights by effectively communicating information that is
understandable and accessible and encouraging shareholders to participate in general meetings.

Interests of other stakeholders: Organizations should recognize that they have

legal and other obligations to all legitimate stakeholders.

Role and responsibilities of the board:

T h e b o a r d n e e d s a r a n g e o f s k i l l s a n d understanding to be able to
d e a l w i t h v a r i o u s b u s i n e s s i s s u e s a n d h a v e t h e a b i l i t y t o review and challenge
management performance. It needs to be of sufficient size and have an appropriate level of
commitment to fulfill its responsibilities and duties. There are issues about the
appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO
should not be held by the same person.
Integrity and ethical behavior: Ethical and responsible decision making is not
only important for public relations, but it is also a necessary element in risk management and
avoiding lawsuits. Organizations should develop a code of conduct for their director’s and
executives that promotes ethical and responsible decision making. It is important to
understand, though, that reliance by a company on the integrity and ethics of individuals is
bound to eventual failure. Because of this, many organizations establish

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Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and
legal boundaries.
Disclosure and transparency: Organizations should clarify and make publicly known the roles
and responsibilities of board and management to provide shareholders with a level of
accountability. They should also implement procedures to independently verify
ands a f e g u a r d t h e i n t e g r i t y o f t h e c o m p a n y' s f i n a n c i a l r e p o r t i n g . D i s c l o s u r
e o f m a t e r i a l matters concerning the organization should be timely and balanced to
ensure that all investors have access to clear, factual information.

Elements Of Corporate Governance

– Good board practices

– well-defined shareholders rights
– Provide overall direction to the business
– Stakeholders relationship

Advantages

– Improve overall performance

– Easy access to outside capital
– Better standards/ quality in technology marketing
– Better talent utilization

Factors Affecting Corporate Governance

– Regulation and there enforcement

– Risk management and effective governance
– Management culture
– Role of professionals

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