What is Corporate

Governance?
Youchaa KHODR
 Corporate Governance
 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
 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

 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
 What relevance does it have to Africa
where there are few public listed
companies

 Most companies are non-listed, private

family owned businesses where the
shareholders and the managers are often
the same people
 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
 Sustainability
 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:
 Sustainability

‘development that meets the needs

of the present without compromising
the ability of future generations
to meet their own needs’
 Stakeholders
 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
 Business Ethics
 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

Elements of Corporate Governance
 Good Board practices

 Control Environment

 Transparent disclosure

 Well-defined shareholder rights

 Board commitment
 Good Board Practices
 Clearly defined roles and authorities

 Duties and responsibilities of Directors

understood

 Board is well structured

 Appropriate composition and mix of skills

 Good Board procedures
 Appropriate Board procedures

 Director Remuneration in line with best

practice

 Board self-evaluation and training

conducted
 Control Environment
 Internal control procedures

 Risk management framework present

 Disaster recovery systems in place

 Media management techniques in use

 Control Environment
 Business continuity procedures in place

 Independent external auditor conducts

audits

 Independent audit committee established

 Control Environment
 Internal Audit Function

 Management Information systems

established

 Compliance Function established

 Transparent Disclosure
 Financial Information disclosed

 Non-Financial Information disclosed

 Financials prepared according to

International Financial Reporting
Standards (IFRS)
 Transparent Disclosure
 Companies Registry filings up to date

 High-Quality annual report published

 Web-based disclosure
 Well-Defined Shareholder Rights
 Minority shareholder rights formalised

 Well-organised shareholder meetings

conducted

 Policy on related party transactions

 Well-Defined Shareholder Rights
 Policy on extraordinary transactions

 Clearly defined and explicit dividend policy

 Board Commitment
 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
 Board Commitment
 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
 Other Entities
 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
 Why Corporate Governance?
 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