Corporate Governance 4e

Christine A. Mallin

Chapter 1
Introduction
 Financial scandals and collapses

• Barings Bank
• Enron
• Parmalat
• Satyam
• Royal Bank of Scotland
• Securency
• China Forestry
• Olympus Corporation

Mallin: Corporate Governance 4e

 Some key questions

• Why have such scandals and collapses

occurred?
• What might be done to prevent them
happening again?
• How can investor confidence be restored?

Mallin: Corporate Governance 4e

 The answers?

• The answers to these questions are all linked

to corporate governance
• So what is corporate governance and how
might it improve corporate accountability?

Mallin: Corporate Governance 4e

 Definition

• Sir Adrian Cadbury (1999) “Corporate

governance is concerned with holding the
balance between economic and social goals
and between individual and communal
goals….the aim is to align as nearly as
possible the interests of individuals,
corporations, and society”.

Mallin: Corporate Governance 4e

 Definition

• OECD (1999) ‘a set of relationships between

a company’s board, its shareholders and
other stakeholders. It also provides the
structure through which the objectives of the
company are set, and the means of attaining
those objectives, and monitoring performance
are determined’.

Mallin: Corporate Governance 4e

 Important features of corporate
governance

• Adequate and appropriate system of internal

controls in place
• No single individual should have too much
power
• Relationship between company’s
management, the board of directors,
shareholders and other stakeholders

Mallin: Corporate Governance 4e

 Important features of corporate
governance

• Company managed in best interests of

shareholders and other stakeholders
• Encourages transparency and accountability

Mallin: Corporate Governance 4e

 Global financial crisis

• Corporate governance failings contributed to

the global financial crisis:
- boards did not fully understand risk and
therefore did not manage it appropriately
- excessive risk-taking
- inadequate monitoring of risk
- executive remuneration not linked effectively
to corporate performance

Mallin: Corporate Governance 4e