CORPORATE GOVERNANCE

• Primarily concerned with public listed companies i.e. those listed on a Stock
Exchange

• Focused on preventing corporate collapses such as Enron, Polly Peck and the
Maxwell companies
CORPORATE GOVERNANCE -
DEFINITION
• the system by which business corporations are directed and controlled
• specifies the distribution of rights and responsibilities among different
participants in the corporation, such as the board, managers, shareholders and
other stakeholders
• spells out the rules and procedures for making decisions on corporate affairs
• provides the structure through which the company objectives are set, and the
means of attaining those objectives and monitoring performance
(Source: OECD April 1999)

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CORPORATE GOVERNANCE PARTIES

• Shareholders – those that own the company

• Directors – Guardians of the Company’s assets for the Shareholders

• Managers who use the Company’s assets

MANAGEMENT VS. GOVERNANCE
Management deals with daily operations, while

Governance is about the underlying ethics of a corporation.

Poor management can affect governance

Weak governance undermines the financial and operational
performance of a corporation
Weak governance affects investors’ faith in the company.
 Corporate Governance Business Ethics

Structure of decision-making Guide for behavior

CORE VALUES
Transparency
Fairness
Accountability
CIPE © 2008 Responsibility 5
FOUR PILLARS
OF CORPORATE GOVERNANCE
• Accountability

• Fairness

• Transparency

• Independence
ACCOUNTABILITY

• Ensure that management is accountable to the Board

• Ensure that the Board is accountable to shareholders

FAIRNESS

• Protect Shareholders rights

• Treat all shareholders including minorities, equitably

• Provide effective redress for violations

TRANSPARENCY

Ensure timely, accurate disclosure on all material matters, including the

financial situation, performance, ownership and corporate governance
INDEPENDENCE

• Procedures and structures are in place so as to minimise, or avoid completely

conflicts of interest

• Independent Directors and Advisers i.e. free from the influence of others
CORPORATE GOVERNANCE

• Promote the efficient use of scarce resources

• Promote the trust of investors
• Good corporate governance has a positive link to economic development and
good corporate performance
• Funds will flow to entities which are seen to have internationally accepted
standards of corporate governance

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CORPORATE GOVERNANCE

Why is it important?
• Proliferation of financial scandals and crisis
• Loss of trust of investors
• Globalization lead to increasing cross-border investment opportunities but
investors may not have knowledge about the regulatory framework of
overseas investees

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CORPORATE GOVERNANCE
• Investors are not willing to invest in countries/companies that are
corrupt, prone to fraud, poorly managed and lacking sufficient
protection for investors’ rights
• Securities and company law protection may help, but not enough
• Corporate Governance supplements the legal framework

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CORPORATE GOVERNANCE

• Corporate Governance also plays an important role in maintaining corporate

integrity and managing the risk of corporate fraud, combating against
management misconduct and corruption

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THE OECD PRINCIPLES OF
CORPORATE GOVERNANCE
1. Ensuring the basis for an effective corporate governance
framework
2. The rights of shareholders and key ownership functions
3. The equitable treatment of shareholders
4. The role of stakeholders in corporate governance
5. Disclosure and transparency
6. The responsibilities of the board
- The corporate governance framework should ensure the
strategic guidance of the company, the effective monitoring
of management by the board, and the board’s accountability
to the company and the shareholders.

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WHAT IS REQUIRED OF COMPANIES?
Find out what information the company has actually submitted and ask
the following questions:

• Are the reports accurate?

• Are the reports adequate?

• How easy is it for shareholders to access information?

• What is the company’s attitude toward shareholders and other

stakeholders?
WHY DOES ETHICAL BEHAVIOR MATTER?
• Ethical business practices increase the ability to keep existing customers
and gain new ones

• Positive impact on employees

• Attracts foreign and domestic investment

• Improves the image of the company to the public

• Shows a commitment to playing a positive role in society and being a

good corporate citizen
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 CORPORATE GOVERNANCE AS AN
ANTIDOTE TO CORRUPTION
Effective corporate governance means that:
• Transparency values are present
• Investors receive timely and relevant information
• Decision-making is not done behind closed doors
• Decision-makers are held accountable for their actions
• Managers act in the interest of a company

CIPE © 2008 18
 CORPORATE GOVERNANCE AS AN
ANTIDOTE TO CORRUPTION

Effective corporate governance makes it hard for companies to

provide bribes or other company resources to government
officials in exchange for services.

CIPE © 2008 19