TOPIC { CORPORATE GOVERNANCE

What is Corporate Governance

CORPORATE GOVERNANCE is a formal system of oversight, accountability and control of corporate decision, operations, and actions has to be in place to earn the Corporations much-needed commodity: stakeholders continuous trust.
(Ferrell, 2011; Thorne, 2010)

Phenomenon of greater governance is a direct consequence of societal progression, the availability of information, and shareholder activism.

3 COMPONENTS OF CORPORTE GOVERNANCE

CORPORATE GOVERNANCE

1. OVERSIGHT

2. ACCOUNTABILITY

3. CONTROL

Means: Check and balance - Allows Management decisions to be questioned and challenged, thereby reducing the risk of mismanagement. - Main objective: to minimise top managements abuse of power e.g. To invest in a new project abroad

Means: How the decisions taken by Management align with the firms stated strategic decision. - Did Management act based on their stated mission or vision? - Management has to be accountable or else they will lose publics trust. e.g. Corporation promises to reduce its carbon emissions.

Means: A process of auditing and improving Organisations decisions and actions. - Actual performance is compared with certain budget or goal. - Aims to balance power, address mistakes, reduce risks and avoid misconduct in order to achieve integrity.
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THE CORPORATE GOVERNANCE PERSPECTIVE

SHAREHOLDER STAKEHOLDER

CORPORATE GOVERNANCE

ALL discussions, decisions and actions are made based on these perspectives.
TOP Management needs to be extremely clear of the perspective of Corporate Governance that they hold on to. Shareholders perspective: spirit of practicing good Corporate Governance is in the interest of the shareholders. Shareholders are owners of Corporations, therefore, Corporation should be responsible and accountable to its shareholders.
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 Example: If shareholders are pleased with Top Managements decision and action to clear a piece of land for development, top Management will proceed with the process. Stakeholders perspective: the spirit of Corporate Governance is in the interest of the stakeholders as stakeholders also invest in the success of the Corporation. All Corporate decisions and actions can affect its stakeholders, can affect the Corporations decisions and actions.

Example: If a Corporation is involved in an insider trading, the following situations might happen: (1) Shareholders might suffer losses. (2) Employees might lose their jobs. (3) Customers might decline the customer service they deserve.
Loyal employees will leave the Corporation Loyal customers might discontinue purchasing products or services
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CORPORATE GOVERNANCE DEALING WITH THE TOP MANAGEMENT

Corporate decisions, actions and operations responsibility of top management. Corporate Governance deals mostly with top management, specifically the Board of Directors. Board of Directors and Top Management are fiduciaries (trustees) to shareholders. They are placed in a position of trust who use due care and loyalty in acting on behalf of the Organisations best interest. Decision based on the best outcome for the Corporation. 6

WHY STUDY CORPORATE GOVERNANCE

To observe appropriate practices. To be responsible and accountable. To avoid malpractices. Dont jeopardise reputation.
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THE CODE OF CORPORATE GOVERNANCE

The Malaysian Code of Corporate Governance (Code) - formulated and governed by the Securities Commission, 2010 SC established on 1 March 1993 under the Securities Commission Act 1993, a self-funding Statutory Body with investigative and enforcement power Reports to the Minister of Finance Its accounts are tabled in Parliament annually SC protects stockholders right by making sure that the stock markets are conducted fairly and that investment formation is fully disclosed

Regulatory Functions of the Securities Commission Supervising exchanges and clearing houses and central depositories
Registering authority for prospectuses of corporations other than unlisted recreational clubs

Approving authority for corporate bond issues Regulating all matters related to securities and future contracts Regulating the take-over and mergers of companies Regulating all matters relating to unit trust schemes Licensing and supervising all licensed persons Encouraging self-regulation Ensuring proper conduct of market institutions and licensed persons
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The Malaysian Code of Corporate Governance (The Code) First issued in 2000. Covers three main areas: (1) Directors - appointments, formality and transparency. (2) Shareholders - emphasise on information for investment decisions and Annual General Meetings. (3) Accountability and Audit - refers to internal control and auditor relations. To optimise governance framework, the Code is divided into:(1) The principles of Corporate Governance. (2) The best practices of Corporate Governance.
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MICG and MAICSA

Two (2) other Organisations support the best practices of Corporate Governance: (1) The Malaysian Institute of Corporate Governance (MICG); and (2) The Malaysian Institute of Chartered Secretaries and Administrators (MAICSA). 11

MICG
Established in 1998, a non-profit public company. Objective: to be a leading establishment for promotion of best practices and corporate governance development for Company Directors, CEOs, Company Secretaries, Company Advisers, Company Auditors, Accountants, Lawyers, Audit Committees and Investors. 12

MISSION of MICG
1. To facilitate business and Corporate Governance development in the country. 2. To improve Corporate Governance best practices. 3. To fine-tune Corporate Governance concepts and best practices in order to suit the needs of our own nation. 4. To achieve satisfactory level of Corporate Governance best practices and compliance. 5. To promote voluntary disclosure of Corporate Governance best practices. 6. To strengthen Corporate Governance 13 principle and compliance effort.

MAICSA
Established in 1958. To produce qualified Company Secretaries. Ensure the professionalism of its members. Maintain the highest standard of integrity and ethics. Aims to act as a Change Catalyst. Champion the best practices in Corporate Governance. Educate Malaysian Corporate sectors.

MISSION of MAICSA
1. To provide education and training in good Corporate Governance, ethical practices and Corporate administration. 2. To undertake research, development and publication of Corporate Governance guides and standards. 3. To commit Chartered Secretaries to uphold and advocate good Corporate Governance principles and practices.
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THE FUTURE OF CORPORATE GOVERNANCE

Benefits of practicing good Corporate Governance: 1. Involvement of Board of Directors - responsible in Corporations Mission and Vision (BoD need to be alert and do not operate in isolation). 2. Perform Self-Assessments - to reflect how effective in governing the Corporation (able to realise how relevant they are in decision-making process). 3. Enhanced Role of Nomination Committee - to play a more active role in nominating qualified Board Members (ensure BoD perform effectively as a team). 4. Well-elaborated Explanation - explain decisions and justify actions (report not only accomplishments but also weaknesses and failures).
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5. Shift of the Model - a shift to the stakeholder model as opposed to the shareholder model will be more apparent. 6. Conduct Training and Seminar - organised to realise the importance of broader view whom they are accountable for. 7. Greater Management Support - realise the importance of good Corporate Governance practices. 8. Well-informed Shareholders and Stakeholders now more well-informed and educated (more sensitive towards current happenings in the business world). 9.Greater Government Involvement - promote good Corporate Governance (in light of economic reform efforts). Also ensure continuous support - to strengthen nations economy.
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SUMMARY OF TOPIC {
CORPORATE GOVERNANCE
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Corporate Governance is a formal system of oversight, accountability and control of corporate decisions, operations and actions.
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There are three components in the definition of Corporate Governance: Oversight; Control; and Accountability
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There are two perspectives of Corporate Governance and they are: (1) The Shareholder perspective; and (2) The Stakeholder perspective.
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Board of Directors (BoD) and Top Management are fiduciaries to shareholders. They are persons placed in positions of TRUST who use due care and loyalty in acting on behalf of the Organisations best interest.
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In Malaysia, besides Securities Commission, there are other Organisations which support the best practices of Corporate Governance such as the Malaysian Institute of Corporate Governance (MICG) and the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA).
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THE END OF
TOPIC {
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