Corporate governance book summary

Group participants

1) Parvez ali
2) Hammad ahmad
3) Mazhar hussain
4) Hassnain khan

PART 1
WHAT IS CORPORATE GOVERNANCE
Corporate governance are the set of rules process and law through which we
operate company deals with company internal and external affairs .

Introduction : last financial crisis like enron world com and other create doubt
about the financial result generate from firms ,these factors lead towards the
new era of corporate governance .
This book contain reforms in corporate governance emergence in china usa
and other asain countries .
It underlines corporate governance as a major tool, authors of the book and
was personally in favour of own corporate governance of each countries based
on the culture related to the country .’
Organztion success depends upon the good governace he the organization
adopt .

MICRO THEORIES OF CORPORATE GOVERNANCE

Micro theories deals with different micro views that forms the micro approach
to the
Corporate governance
Different theories was presented in this regard
A) the shareholder model of corporate governance
B) the knowledge based approach
C) The dispiniary approach to the stakeholder model
1 )The mmain purpose to these micro approach is to improve the efficiency of
governance system

2) To improve the relationship between board of directors and managers

As we can say micro theories is all about to improve the efficiency in the business.

Macro theories of corporate governance

Macro theories highlights the importance of stakeholder value creation, and give
more importance to human capital .

Different theories was presented in this regard to show the importance of human
capital as asset. Aoki rajan and other scientists say that new corporate
governance model is different from the old one and hence new methods will
apply to it.

Corporate governance in usa

CG in the United States

Evolution of CG in us

Foreign practices Act 1997(to stop corruption )

US securities Exchange commission (1979)its mandatory ,a report of financial

control.

Trade way commission (1985) [corporate failure]

Control framework (1992)

 In companies establish committees ,

 Mandatory internal audit

 Independent board appointed for stopping fraud .

Enron disaster 2001) a top companies were included in it.

Surbane Oxley (July 2002)

  Independence audit should be must

 protect of all interest follow corporate responsibilities.

 Financial disclosure.


Experience with political organizations indicates that a good method for
avoiding abuses of power is their separation and balance. Some elements
of recent CG initiatives separate some powers at the level of corporate
boards of directors (e.g. creation of separate committees for nominating
officers and auditing financial statements) and at the level of corporate
officers (e.g. both the CEO and CFO signing certificates concerning the
annual report to shareholders). Yet, it seems that little consideration has
been given expressly and directly to introducing a “separation and
balance of powers” as a fundamental principle for CG. No modification to
securities regulation,

Member 2

When socialist planned economies were first being transformed into market
economies, a naive optimism ruled. The transition could be achieved, it was
thought, by simply privatizing state-owned enterprises and by introducing the
equity market as a means of corporate control. This textbook notion of the
capitalist system disregarded issues of political economy, as well as the historical
development of national institutions. Recommendations based on such beliefs
have proved either unrealistic or simplistic: no single model is appropriate for
every country. This volume presents the results of research on corporate
governance in transitional economies from the new perspective of comparative
institutional analysis. Under this approach, banks and other outside institutions
can play an important role in providing corporate governance. In the traditional
model, efficient governance is meant to enable stockholders to exercise corporate
control. The volume discusses: 1) theoretical foundations of corporate
governance structures; 2) comparative country experiences; and 3) the relevance
of lessons from Germany and Japan. By comparing and evaluating various systems
of governance, the authors seek to uncover the factors that support or impede
effective corporate control, including historical and socioeconomic conditions and
institutional environments. In designing corporate governance structures,
economists should identify the specific conditions under which each model of
corporate control (or combination of models) can work, the availability of these
conditions in the transitional economies, and the most efficient way of achieving
these conditions.the mena counties national system of corporate governance:

Corporate governance is also becoming an important issue in the Middle East and
North Africa. The region called Middle East and North Africa, or MENA is a very
disparate region, culturally unified however. MENA is also an economically
diverse region that includes both oil-rich economies like the Gulf States or Algeria
and also countries that are relatively resource-scarce such as Egypt, Jordan or
Tunisia. Many MENA countries suffer from well-known economic illnesses, due
significantly to factors expressing some weaknesses in corporate governance
(CG).The EU system of corporate governance: EU company law rules cover issues
such as the formation, capital and disclosure requirements, and operations
(mergers, divisions) of companies:

EU company law rules also address corporate governance issues, focusing on

relationships between a company’s management, board, shareholders and other
stakeholders, and therefore, on the ways the company is managed and
controlled.

Shareholders rights Directive 2007/36/EC sets out certain rights for shareholders
in listed companies

This Directive was amended by Directive (EU) 2017/828, which aims to encourage
more long-term engagement of shareholders.
Furthermore, the 2018 Commission Implementing Regulation (EU) 2018/1212 lays
down minimum requirements as regards shareholder identification, the
transmission of information and the facilitation of the exercise of shareholders
rights.

Takeover bids Directive 2004/25/EC sets out minimum standards for takeover
bids (or changes of control) involving securities of EU companies.

III. In line with the overall Commission objective of a just transition to a

sustainable economy and a sustainable recovery after the COVID crisis, the
European Green Deal Communication and Commission’s Recovery Plan confirmed
the importance of embedding sustainability into corporate governance.

The study shows that despite similarities in legal framework for shareholders
rights across the Member States, there still exist numerous differences in both
regulation and enforcement. In some areas the EU law has a moderate
contribution towards the proper functioning of the internal market as well as a
limited impact on legal certainty and foreseeability.

Member 3

The Canadian national system of corporate governance:

Geographically situated next to the US, yet initially populated by founding
immigrants from the UK and continental Europe, Canada faces a constant
tension among these competing cultures. The US has adopted a “rules-based”
approach to governance, The UK has adopted a “comply or explain” approach to
governance.

Canada has chosen to adopt a principle-based governance framework, where a

consensus is reached among diverse players (including regulators, investors,
corporations and governments) on the overarching principles that CG aims to
achieve.

A key advantage to principle-based governance is that it helps organizations

address difficult choices posed by competing governance values or viewpoints.
This is especially true in Canada where governance choices are influenced by a
diverse group of corporate leaders, or governance “players”.

Main players in CG in Canada WHO effect on governance practice

◦ Canada’s executives, Canada's boards of directors, Canada's investors,

Canada's auditors, Canada's stock exchanges and SROs,Canada’s analysts,
Canada's regulators and government

CG practices and performance in Canada

◦ Leadership and stewardship, Strategic planning and risk management,

Board and CEO selection and succession, Empowerment and
accountability, Allocating responsibilities, Independence and committees,
Communications and disclosure, Service and fairness, Accomplishment
and measurement, Corporate performance measurement, Performance
evaluations

◦ Canada’s corporations generally have not yet mastered the principle

areas of communication and disclosure, and accomplishment and
measurement.

◦ Who selects Canada’s board members?

◦ (Rating of degree of influence in selecting board members of

corporations).

◦ Board committee,Board,Shareholder(s),Management,Outside firm.

◦ How are Canada’s board members selected?

◦ (Rating of top criteria used in selecting board members of corporations).

◦ Specific skill,Financial knowledge,Character/Qualities,Industry

experience,High profile.

◦ CONCLUSION:

◦ In Chapter 5, David Brown of the Conference Board of Canada, indicates

that away from stereotypes, the Canadian national CG system is far from
being a copy of the American system. The Canadian landscape of
governance is characterized by the point of view of those, which to an
extreme defend vigorously the system of governance containing
principles, and those, to the other extreme, suggesting that Canada will
be better served by the adopting SOX provisions. The Canadian CG model
is interesting in the sense that it embodies a constructive reflective of a
contemporary tension between, the Anglo-Saxon traditional model on
one side, and the continental Europe model on other side.

◦ The beginning of the 1990s in reaction to the various financial frauds and
the arrival of foreign shareholders in the capital of major listed
companies, pension funds and the organization of minority shareholders
in defense associations, to such a degree that a certain number of general
meetings of listed companies have been quite stormy.

◦ Taken together, these three elements have led legislators, practitioners,

academics and politicians to raise questions as to the reiteration of
critiques on how listed French companies are operated, both in terms of
management and in terms of financial transparency.

◦ This chapter is a reflection on the impact of CG on the evolution of French

law and practices. “Corporate Governance,” has and in France which have
marked this period managed to make a spectacular breakthrough in
French law since the middle of the 1990s. This sudden appearance of CG
 in French law partially originated with financial scandals, both
internationally which have marked this period.

◦ CONCLUSION

◦ in Chapter 6, to the French national CG system by Délga et al. (ESSEC-

Paris, University of Montpellier and IAE-Aix-en Provence). The authors
underline that the Anglo-Saxon model of CG has recently made a
spectacular breakthrough in French law. They strongly regret the fact that
businesses practices evolution has been made at the expense of a
cultural legal heritage disavowing.

◦ Corporate governance (CG) has become one of the most popular

management issues in Japan since the beginning of the 1990s when the
economic bubble burst and Japan went into the decade of economic
downfall. An endless series of corporate scandals, illegal behavior of top
executives and bankruptcies of once well-reputed firms have suddenly
made the Japanese keenly aware of the deep-rooted flaws of their CG
system. CG is now not only an economic but a social issue.

◦ The conceptual framework Perhaps the shortest and one of the most
appropriate definitions of CG is that of Blair. For her, CG is about
allocation of control and reward among stakeholders, As this is too
abstract for the purpose of this chapter.

◦ CONCLUSION:

◦ The Japanese national CG system is introduced to us in Chapter 7 by

Yochimori (National University of Yokohama). The author underlines that
although the Japanese CG is converging toward the American model, such
convergence is confined to the structure and functions of the Board of
Directors, aiming at the improvement of its supervision effectiveness.
With regard, however, to corporation concept itself, another component
of governance, namely the specific ideology to the country remains the
determining factor. The author notes that even highly profitable Japanese
 companies, leaders of their sector, like Toyota, continue supporting,
strongly, the traditional Japanese CG model, centered on the employee.

◦ Hong Kong companies were considered the best companies in Asia due to
its stable legal law system, independent judiciary, active advocacy of
improved CG by regulators , IAS etc.

◦ There are still some weakness observed in it’s system

◦ 1. Lack of independent directors and disclosure regarding connected

party transactions and remuneration

◦ 2. (75%) of it’s companies are domicile outside hong Kong

◦ 3. Manipulation of controlling shareholders

◦ 4. Weak legal protection for minority shareholders

◦ 5. Highly concentrated ownership

◦ 6. Weak enforcement of rules

legal regulatory framework: there are certain regulatory bodies that Governed
and Gave guidelines regarding companies, banks , business operations including
( sfc,HkCO, SEHK, SSCCLR , HKMA) etc.

• HKMA issued guidelines that board of directors should be separate from

CEO and company has a minimum of 3 directors

• Codes regarding protection of minority shareholders rights , timely

accurate disclosure and directors independency has been issued to
improve CG

• Here new SFO allows individual shareholders to sue on mangers for

providing inappropriate info and also ask for loss compensation

Introduction of total assets test and code of best practice revised to contain two
tier of recommendation.
To improve the quality of newly listed companies under SFO the SFC launched
dual filing scheme in 2003.

Some other measures also include tighter supervision of market intermediaries,

greater legal protection for investors freezing the shareholding of controlling
shareholders and restricting the number of genuine outside shareholders.

• Estawner directors and conflicts of minority shareholders:

• Fsmily based controlling ownership through complicated structure

( pyramidal structure)

• Causing large separation of voting from cash flow rights

• Expropriate firms assets and no benefit for minority shareholders

increasing conflicts.

• Directors duties and board practices

• According to the survey hong Kong lack professional certification courses

or training for it’s directors .

• Independent directors should be directly elext by minority shareholders

to provide equal benefits to all shareholders.

• Establishment of nomination and remuneration committee for effective

directors performance

• Directors remuneration, executive pay should be diclose accurately in

order to increase transparency.

• Member 4

• A transition economy or transitional economy is an economy which is

changing from a centrally planned economy to a market economy. These
include economic liberalization, where prices are set by market forces
rather than by a central planning organization .
• Mass Privatization phase

• Mas privatization is know as voucher privatization. It means that

transfer government institution in private or given owner to public in called
mass privatization. It improve the economy , management and efficiency of
work.

• Advantages

• Efficiency

• Competition

• Better management

• More customer care

• Financial improvement etc.

• Rising unemployment

• Rising inflation

• Lack of entrepreneurship and skills

• Corruption

• Inequality

• MENA, refers to a grouping of countries situated in and around the Middle

East and North Africa. As a regional identifier, MENA is often used
in academia, military planning, disaster relief, media planning (as a
broadcast region), and business writing. Moreover, the region shares a
number of cultural, economic, and environmental similarities across its
comprising countries

• Supports public sector reforms in view of unlocking social and economic

development and of meeting citizens growing expectations in terms of
 quality services, inclusive policy making and transparency. The Governance
Programme is a strategic partnership to share knowledge and expertise
with a view to disseminating standards and principles of good governance
and promoting trust and inclusive growth. Its regional and country-specific
activities focus on open and inclusive government, efficient machinery of
government, gender equality, local government and rule of law. Those
activities tackle youth inclusion as a cross-cutting theme. The Governance
Programme engages policy makers, civil society, independent institutions
and parliaments. It also contributes to multilateral initiatives such as the
Governance Pillar of the Deauville Partnership for Arab Countries in
Transition and the Open Government Partnership.

• aThe main conclusion is that without accepting the principle of free trade in
goods, services and factors of production, the Arab MENA countries will
become more vulnerable to their own excess supply of labour and the
resulting political instability. The empirical observations presented make it
patently obvious that Arab MENA countries are already crowded out in
manufacturing in both labour-intensive and skill intensive products because
of intense competition from countries with greater comparative
advantages in these areas in the non-Arab MENA, South East Asia and
China. The only way to reverse these outcomes is by increasing investment
in human capital and by introducing knowledge economy-friendly policies.
Improvements in human capital formation and broader improvements in
governance and gender equality will be essential to enable shifts to more
knowledge-based activities.

• Phase 3: 1998 to now The Securities Law was promulgated in 1998 which
marked another milestone in the history of China’s CG development. In late
1999, the Ministry of Finance revised the Accounting Law. In October 2000,
the State Economic and Trade Committee issued the “Basic Rules on
Establishing the Modern Enterprise System and Enhancing Management of
Large and Medium SOEs.” The CSRC issued the “Guidelines on Listed
Companies’ Establishment of Independent Directors System (Consultation
Draft)” in 2000 and the “Code of Corporate Governance for Listed
 Companies” in 2001. All these regulations enhanced the regulatory
framework significantly. Major problems that still remain are the insider
control and the continuing expropriation of listed firms’ assets by their
holding parent companies via connected-party transaction. The 16th
National Peoples’ Congress Meeting held in 2002 resolved to further reform
the national asset management scheme which provides a new route to the
above problems.

• More than 20 years of economic reform in China has created a large

number of joint stock limited companies characterized by separation of
ownership and managerial control. As a result, this has created a new
agency relationship, with the potential for conflicts of interest among
different stakeholders, it is vital to understand the governance mechanisms
of Chinese firms, particularly since virtually all SOEs in China are subject to
different degrees of privatization and CG reform.