 Contemporary corporate governance started in

1992 with the Cadbury report in the UK

 Cadbury was the result of several high profile
company collapses
 is concerned primarily with protecting weak
and widely dispersed shareholders against self-
interested Directors and managers
 Shareholders – those that own the company

 Directors – Guardians of the Company’s assets

for the Shareholders

 Managers who use the Company’s assets

 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
 Accountability

 Fairness

 Transparency

 Independence
 Ensure that management is accountable to the
Board

 Ensure that the Board is accountable to

shareholders
 Protect Shareholders rights

 Treat all shareholders including minorities,

equitably

 Provide effective redress for violations

Ensure timely, accurate disclosure on all
material matters, including the financial
situation, performance, ownership and
corporate governance
 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
 No generally accepted definition

 Most commonly used is from the Brundtland

Report for the World Commission on
Environment and Development 1987 which
defines it as:
 ‘development that meets the needs
of the present without compromising
the ability of future generations
to meet their own needs’
 Sustainability recognizes stakeholder rights i.e.
the rights of interested parties e.g. employees,
the community, suppliers, customers etc.

 Encourage co-operation between the company

and its stakeholders in creating wealth, jobs
and economic stability
 Established values and principles a company
uses to inform and conduct its activities

 Should permeate a company’s culture and

drive its strategy, business goals, policies and
activities

 Usually found in a code of ethics

 Good Board practices

 Control Environment

 Transparent disclosure

 Well-defined shareholder rights

 Board commitment
 Clearly defined roles and authorities

 Duties and responsibilities of Directors

understood

 Board is well structured

 Appropriate composition and mix of skills

 Appropriate Board procedures

 Director Remuneration in line with best

practice

 Board self-evaluation and training conducted

 Internal control procedures

 Risk management framework present

 Disaster recovery systems in place

 Media management techniques in use

 Business continuity procedures in place

 Independent external auditor conducts audits

 Independent audit committee established

 Internal Audit Function

 Management Information systems established

 Compliance Function established

 Financial Information disclosed

 Non-Financial Information disclosed

 Financials prepared according to International

Financial Reporting Standards (IFRS)
 Companies Registry filings up to date

 High-Quality annual report published

 Web-based disclosure
 Minority shareholder rights formalised

 Well-organised shareholder meetings

conducted

 Policy on related party transactions

 Policy on extraordinary transactions

 Clearly defined and explicit dividend policy

 The Board discusses corporate governance
issues and has created a corporate governance
committee
 The company has a corporate governance
champion
 A corporate governance improvement plan has
been created
 Appropriate resources are committed to
corporate governance initiatives
 Policies and procedures have been formalised
and distributed to relevant staff
 A corporate governance code has been
developed
 A code of ethics has been developed
 The company is recognised as a corporate
governance leader
 Corporate Governance applies to all types of
organisations not just companies in the private
sector but also in the not for profit and public
sectors

 Examples are NGOs, schools, hospitals,

pension funds, state-owned enterprises
 Corporate Governance is by way of legislation
or best practice Code
 US adopted legislation in 2002 - Sarbanes
Oxley Act
 Most other developed and emerging market
countries have adopted best practice Codes e.g.
Combined Code in the UK, Cromme Code in
Germany and the King II Code in South Africa
 These Codes are voluntary and are enforced by
shareholders
 Most of them operate on a ‘comply or explain’
approach
 The Media also play a part in highlighting
good or bad practices
 Better access to external finance
 Lower costs of capital – interest rates on loans
 Improved company performance –
sustainability
 Higher firm valuation and share performance
 Reduced risk of corporate crisis and scandals
To improve a company’s corporate governance has
proportionately greater impact in countries with weak
legal environments.

ompanies can partially compensate for ineffective laws

and enforcement by establishing good corporate
governance at the company level and providing
credible investor protection