Corporate

Governance
Principles & theories

Prepared By:
Adnan Mohamed Ibrahim 19121801
Hussein Reda Hussein 19121796
Bahaa Ahmed Mourad 19121135
Hazem Mahmoud Hamza 19121130
Mohamed Hassan Ahmed Fayed 19122271
Mohamed Adel Ibrahim Selim 18124764

Submitted to:
Prof. Farid Moharram
Corporate Governance

• Introduction
• Principles of Corporate Governance
• Role Of Corporate Governance
• 4Ps of Corporate Governance
• Benefits of Good Corporate Governance
• Models of Corporate Governance
What is corporate governance?

• Corporate is a special type of business that sells goods & services to

customers (ex Apple, Google, Amazon )
• Corporation is a special type of business in at least two respects
First the owners of a corporation = shareholders
Shareholders responsible for paying the debt of the business & making profit from the
success of the business.
The Corporation shareholders do not directly manage or participate in the day-to-day
activities of the business instead they vote for Board of directors to act on their behalf.
Board of directors appoints and oversees the management of the corporation for the
benefit of the shareholders.
Governance is a relationship between the shareholders , Board of
directors and management of the Corporation
What is corporate governance?

• So Corporate governance is a system by which the Corporation is

directed & controlled in the interest of shareholders &
stakeholders

Shleifer and Vishny (1997) define corporate governance as “the ways in which
suppliers of finance to corporations assure themselves of getting a return on
their investment (p.737)”

La Porta, Silanes and Shliefer (2000, 2002) [6, 7] view corporate governance as a
set of mechanisms through which outside investors (shareholders) protect
themselves from inside investors (managers)
Corporate Governance Definition
Corporate Governance Parties

Shareholders: Who
own the company

Stakeholders : who
Directors : Guardians
use the company
of the company assets
assets to achieve the
for the shareholders
company goal
Principles of Corporate Governance
Principles of Corporate Governance
Pillars of Corporate Governance
Role Of Corporate Governance

The role of corporate governance is to make sure that strategic decisions are
made to ensure successful outcomes. Some of the important roles of
corporate governance are described below
• Policy setting
• Establishing corporate strategy
• Assurance of actions supporting strategic positions
• Monitoring investment decisions 
4Ps of Corporate Governance
Benefits of Good Corporate Governance

• Corporate governance is needed for the following reasons-

• Improve company performance in terms of profitability
• Better access to the world market (Foreign investors more than often choose
companies with C.G. as an investment opportunity)
• Enhanced investor (due to qualities like transparency and disclosure, investors
are attracted to organizations with good corporate governance practices
• Dealing with corruption
• Higher market valuation
• Less corporate risk
• Reduce top management compensation
Models of corporate governance

• The structures and processes for corporate governance are not

universally same in all countries. The different countries have adopted
different structures and processes in governing their companies
depending on suitability of the social culture, economic environment,
government policy, capital and money market systems, etc. Corporate
governance principles and codes have been developed in various
countries based on different systems and situations.
• To date, researchers have identified three models of corporate
governance in developed capital markets
• Anglo-US model
• Japanese model
• German model
Anglo –American model

• The Anglo-US model is characterized by share ownership of

individual, and increasingly institutional, investors not affiliated
with the corporation known as outside shareholders or “outsiders”;
a well-developed legal framework defining the rights and
responsibilities of three key players, namely: management,
directors and shareholders; and a comparatively uncomplicated
procedure for interaction between shareholder and corporation as
well as among shareholders.
Anglo –American model

The board usually consist of executive

directors and few independent directors.
The board often has limited ownership
stake in the company
Single individual holds the position of
CEO and chairman of the board
The shareholders appoint directors who
in turn appoint the managers to manage
business. Thus there is separation of
ownership and control

Anglo –American
model

This model relies on effective It relies on a single-tiered Board of

communication between shareholders, Directors that is normally dominated by
board and management with all non-executive directors elected by
important decisions taken after getting shareholders
approval of shareholders by voting
Anglo –American Model
German Model

Usually a large majority of shareholders

A 2 tier board model that comprises of
supervisory board and the management
board
are banks and financial institutions
The shareholders can appoint only 50% of
members to constitute the supervisory
board
The rest is appointed by employees and
labor unions

German Model

USA
Germany UK
Holland Canada
France Australia
German Model
Japanese Model

A rejection of Japanese
Usually the shareholders are “Keiretsu” a form of cultural
relationship where cross shareholders
banks / financial institutions is common most of the directors are
large families shareholders heads of different divisions of the
corporate with cross- company
shareholders Outside directors or independent
directors are found rarely
Japanese Model

Focuses on the long-term interest of

the company instead of the short run
shareholder’s interest
A Business Network Model Members of the board generally
consist from the majority of
shareholders
Japanese Model
Challenges of Corporate Governance:

There are many conceptual challenges before the organizations

concerning corporate governance.
1. Differentiating the Roles of Board and Management.
2. Deciding the Board composition
3. Separating the Role of CEO and Chairperson
4. Re-electing the Board of Directors
5. Directors and Executives’ Remuneration
6. Protecting Shareholders Rights
7. Social Responsibility of the organization
THEORETICAL BASIS OF CORPORATE
GOVERNANCE

• There are four basic corporate governance theories, which are:

• Agency Theory
• The agency theory is built upon the presumption that the interests of managers often clash or
are divergent from that of shareholders.

• Stewardship Theory
• The stewardship theory supports the view that the managers are considerate about their
personal reputation and value their integrity.

• Stakeholder Theory
• The stakeholder theory supports the view that an organization should maximize stakeholders’
benefits and follow an ethical code of conduct.

• Sociological Theory
• The sociological theory mainly focuses on the distribution of wealth and power in the society.
Thank You