Corporate Governance

1
 Corporate Governance
Agenda
• Introduction – What is Corporate Governance?
• The OECD principles of Corporate Governanc
e
• The Corporate Governance in practice

2
What is Corporate Governance?

3
Corporate Governance
– The cornerstone

The cornerstone of the modern

market-oriented economy

4
 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 h
ave internationally accepted standards of corpo
rate governance

5
 Corporate Governance
Why is it important?
• Proliferation of financial scandals and crisis
• Loss of trust of investors
• Globalization lead to increasing cross-border i
nvestment opportunities but investors may not
have knowledge about the regulatory framewo
rk of overseas investees

6
 Corporate Governance
• Investors are not willing to invest in countries/compani
es that are corrupt, prone to fraud, poorly managed and
lacking sufficient protection for investors’ rights
• Securities and company law protection may help, but n
ot enough
• Corporate Governance supplements the legal framewor
k

7
 Corporate Governance
• Corporate Governance also plays an important
role in maintaining corporate integrity and ma
naging the risk of corporate fraud, combating a
gainst management misconduct and corruption

8
 Corporate Governance - Definition
• the system by which business corporations are directed and co
ntrolled
• specifies the distribution of rights and responsibilities among d
ifferent participants in the corporation, such as the board, man
agers, shareholders and other stakeholders
• spells out the rules and procedures for making decisions on cor
porate affairs
• provides the structure through which the company objectives a
re set, and the means of attaining those objectives and monitor
ing performance
(Source: OECD April 1999)

9
 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 ensur
e the strategic guidance of the company, the effectiv
e monitoring of management by the board, and the
board’s accountability to the company and the share
holders.
10
 Corporate Governance in practice

What do the investors expect?

“the Code of Corporate Governance Practic

es”

11
 Board of Directors
• Assume responsibility of leadership and contro
l of the corporate
• Direct and supervise the corporate’s affairs
• Make decisions in the interests of the corporat
e

12
 Board of Directors
• Regular meetings
• Active participation
• Freedom to include items in agenda
• Sufficient notice for board meetings
• Access to advice and services of company secr
etary and independent professional advice

13
 Board of Directors
• Full record of board/committee minutes, and a
vailable for inspection
• Independent non-executive directors should be
present at board meetings to discuss matter inv
olving conflict of interest
• Abstain from voting if conflict of interest exist
s
• Insurance coverage in respect of legal action a
gainst directors

14
 Chairman and CEO
• Segregation of the management of the board a
nd the day-to-day management of the corporat
e’s business
• Balance of power at board level to avoid conce
ntration of power in a single individual

15
 Chairman and CEO
• Separation of Chairman and CEO
• Division of responsibilities between Chairman
and CEO clearly laid down in writing

16
 Chairman
• Provide leadership for the board
• Ensure the board works effectively and dischar
ges its responsibilities
• Ensure good corporate governance practices a
nd procedures are in place
• Ensure all directors are properly briefed on iss
ues arising at board meeting
• Responsible for ensuring appropriate informati
on received by directors
17
 Chairman
• Encourage full and active contribution to the b
oard’s affair
• Ensure effective communication between boar
d and the shareholders
• Hold annual meetings with non-executive dire
ctors
• Ensure constructive relationships between exe
cutive and non-executive directors

18
 Board Composition
• Balance of skills and experiences
• Balanced composition of executive and non-ex
ecutive directors
• Non-executive directors should be of sufficient
calibre
• Independent non-executive directors should be
expressly identified
• List of directors updated and their respective r
ole and function identified
19
Appointment, re-election and remov
al of directors
• Formal and transparent procedure for appoint
ment
• Succession plan
• Re-election at regular intervals
• Proper explanation for resignation/removal of
directors

20
Appointment, re-election and remov
al of directors
• Specific term for non-executive directors
• All directors subject to retirement by rotation a
t regular interval
• Nomination committee formed to make recom
mendation on appointment of directors and suc
cession planning for directors, chairman and C
EO

21
 Responsibilities of directors
• Keep abreast of the responsibilities as a director
• Exercise duties of care, skill, integrity and diligence e
xpected
• Ensure proper understanding of the operation, busines
s and the regulatory requirement
• Contribute sufficient time and resources to serve the c
orporate
• Attend AGMs to share the views of shareholders

22
 Non-executive directors
• Active participation in board meetings
• Bring in independent judgment
• Take lead if conflict of interest arise
• Serve on committees
• Monitor the corporate’s performance in achiev
ing pre-set goals

23
Information access by directors
Directors should be provided with accurate an
d appropriate information in order to make inf
ormed decision and to discharge their responsi
bilities

24
 Information access by directors
• Agenda and board papers should be sent in full
in a timely manner to directors
• Information supplied must be complete and rel
iable
• Directors should have access to the senior man
agement for information
• Information supplied should be of form and qu
ality to facilitate informed decision

25
Remuneration of directors and senio
r management
• Transparency of directors’ remuneration policy
• Remuneration should be sufficient but not exc
essive
• Each director not to involve in deciding his/her
own remuneration

26
 Remuneration Committee
• Remuneration committee to be formed, mainly from
non-executive directors
• Consult Chairman/CEO if needed
• Access to professional advice, market comparable inf
ormation
• Make recommendation on policy and structure of rem
uneration
• Determine specific remuneration packages of all exec
utive directors and senior management

27
 Remuneration Committee
• Review and approve performance-based remu
neration
• Review and approve compensation arrangeme
nt in connection with loss or termination of off
ice, dismissal or removal of directors for misco
nduct

28
 Accountability and Audit
– Financial Reporting
• Management provide explanation and information to t
he board to enable them to make informed assessment
of financial and other information
• The board should present comprehensive assessment
of the corporate’s performance, position and prospect
s in annual and interim reports, price-sensitive annou
ncements and other financial disclosures

29
 Accountability and Audit
– Internal Control
• Ensure the maintenance of sound and effective
internal controls to safeguard assets
• Conduct regular reviews of the effectiveness o
f the internal control system, covering financia
l, operational, compliance and risk manageme
nt control functions
• Prevent fraud, corruption, and malpractices

30
 Audit Committee
• Have clear terms of reference
• A formal and transparent arrangement to apply
the financial reporting and internal control prin
ciples and maintain appropriate relationship wi
th external auditors

31
 Audit Committee
• Full minutes of audit committee to be kept
• Provided with sufficient resources to discharge
its duties
• Independent from external auditors

32
 Audit Committee
• Make recommendation for appointment and re
moval of external auditors
• Monitor the effectiveness of the audit process,
ensuring auditor’s independence and objectivit
y
• Monitor the integrity of the financial disclosur
es
• Oversight of the financial reporting and interna
l control procedures

33
 Delegation by the Board
• Formal schedule of matters specifically reserv
ed to the board for decision
• Clear directions to management as to matters r
equiring board approval before decision made

34
 Delegation by the Board
• Clear directions to the delegation of the manag
ement and administration functions as well as t
he powers of management
• Review the arrangement for segregation of dut
ies between board and management regularly
• Board Committee to be formed, with specific t
erms of reference, as needed

35
 Communication with Shareholders
- Effective communication
• Maintain on-going dialogue with shareholders
and make use of annual general meetings or ot
her general meetings to communicate with sha
reholders
• Transparency in corporate governance practice
s and business performances through proper an
d adequate disclosures
• Encourage shareholders’ participation

36
 Communication with Shareholders
- Effective communication
• Separate resolution for each separate issue
• Chairman of the board and chairman of each board co
mmittees be present in general meetings to answer qu
estions at any general meeting
• Chairman of independent board committee be present
to answer any questions in any general meeting to ap
prove transaction requiring independent shareholders’
approval

37
 Communication with Shareholders
- Voting by Poll
• Inform shareholders about procedure for votin
g by poll
• Ensure proper compliance to regulatory requir
ement about voting by poll

38
 Corporate Governance

Corporate Governance is a dynamic proces

s and is continually evolving

AND

It has no boundaries or limits!

39
Thank you!

40