OVERVIEW TO CORPORATE GOVERNANCE
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Transcript OVERVIEW TO CORPORATE GOVERNANCE
1.0 Corporate Governance
Definition
Corporate Governance is a system of structures and
processes to direct and control companies
It specifies the distribution of responsibilities
among companies’ stakeholders including
shareowners, directors, and managers
It articulates the rules and procedures for making
decisions on corporate affairs
Corporate Governance Definition
(Contd)
It provides the structure for defining,
implementing, and monitoring a company ‘s / an
institution’s or an organisation’s goals and
objectives, and ensuring accountability to
appropriate stakeholders
Corporate Governance Definition
(Contd)
Corporate Governance as defined by Sir Adrian
Cadbury, UK 1992:
“The system by which companies / institutions are
directed and controlled”
2.0. Hence Corporate Governance
Means Leadership
For efficiency
For probity (complete honesty)
With responsibility
Both transparent and accountable
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3.0. The 4 Pillars Corporate
Governance
Transparency: Directors should clarify to shareowners
and other key stakeholders why every material decision
has been made
Accountability: Directors should be held accountable
for their decisions and actions to shareholders (private or
public / govt) and, in certain cases, key stakeholders
(management, staff etc), submitting themselves to rigorous
scrutiny
Fairness: All share owners should receive equal, just and
unbiased consideration by the directors and management
Responsibility: Directors should carry out their duties
with honesty and integrity
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4.0. Agency And Stewardship
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5.0. Competing Tensions
“If management is
about running business,
governance is about
seeing that it is run
properly. All companies
need governing as well as
managing.”
Prof. Bob Tricker, 1984
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5.1. Corporate Governance
Tensions
“An effective system of corporate governance must strive to
channel the self-interest of managers, directors and the advisors
upon whom they rely into alignment with the corporate, shareholder
and public interest.”
Ira Millstein
Senior Partner, Weil Gotshal & Menges, LLP
Senior Associate Dean, Corporate Governance,
Yale School of Management
Chair Emeritus, the Forum’s Private Sector Advisory Group
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6.0. Five Key Examples of Good
Corporate Governance Practice
Good Board Practices
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
Transparent Disclosure
Financial information disclosed
Non-financial information disclosed
Financials prepared according to IFRS
High-quality annual report published
Web-based disclosure
Control Environment
Independent audit committee established
Risk-management framework present
Internal control procedures
Internal audit function
Independent external auditor conducts audits
Management information systems established
Compliance function established
Well Defined Shareowner rights
Minority shareowner rights are formalized
Well-organized general assembly conducted
Policy on related-party transactions
Policy on extraordinary transactions
Clearly defined and explicit dividend policy
Board Commitment
The board discusses corporate governance issues and has created corporate governance committee
The company has a corporate governance champion
A corporate governance improvement plan has been created
Appropriate resources are committed
Policies and procedures have been formalized and distributed to relevant staff
A corporate governance code has been developed
The company is publicly recognized as a corporate governance leader
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6.1. Good (Sound) Corporate
Governance Practice Attracts
Investors
“Sound Corporate Governance practices inspire
investor and lender confidence, spur domestic and
foreign investment, and improve corporate
competitiveness. Key to this are well informed
Boards and Directors fully aware of their
responsibilities and functions”
Philip Armstrong, Head, Global Corporate Governance
Forum, Washington
7.0. Board’s Over – Riding Role
“The Board’s role is to provide entrepreneurial
leadership of the company / organisation within
a framework of prudent and effective controls….”
United Kingdom Combined Code (2006)
8.0 Board Responsibilities
Develop the company’s / institution’s purpose, vision,
values
Guide strategy
Oversee management
Monitor corporate governance
Ensure that controls are in place
Oversee disclosure, communications
9.0 Differences Between Directing And
Managing
Directing
Managing
Collective decision-making
Individual decision-making
Duties and responsibilities to
Specific to department
shareowners, company
Directors report regularly to
shareowners
Leadership vision, strategy
Approve, abide by ethics code
Signoff of financial
statements, etc.
Joint and several liability
Report to board
Implement vision, strategy
Abide by ethics code
Preparation of financial
statements, etc.
Several liabilities
10.0 Chairman, CEO Role
Separation
Board Chairman
Provide overall leadership to the Board
Responsible for Board Agenda, Work Plan
Work with Chairmen of Board Committees
Informal link between Board and CEO/Management
Participate in selection, induction of NEDs
Counsel individual Directors, Performance Evaluation
Relations with Shareowners, Investors, Key
Stakeholders
Chairman, CEO Role Separation
(cont.)
Chief Executive Officer (Managing Director)
Work closely with Board / Council Chairman
Formulate strategy, business plan, gain board budget
approval
Responsible for financial, corporate objectives
Formulate major corporate policies, supervise
management
Ensure effective management succession planning
Ensure continuous improvement in services, products
Relations with investors, major customers, business
partners
Ensure company’s long-term sustainability
11.0 Director’s Role
Decision-maker
Challenger
Supervisor
Reflective Listener
Process Manager
Knowledge Provider
Company Representative
Status Provider
Innovator
Developer
12.0 Directors’ Duties
12.1 Duty to Act Within Powers
• Act only within their powers as defined by the
constitution or approved by shareowners
12.2 Duty of Care
Legal obligation imposed on directors requiring that
they adhere to a reasonable standard of care while
performing any acts that could potentially harm others
Directors are normally expected to discharge their
duties in:
Company’s best interests
Compliance with company’s code of conduct
Director’s Duties (cont.)
12.3 Fiduciary Duties
Directors must act in a faithful, trustful manner
towards or on the company’s behalf, putting their
duty before personal interests.
Considerations include:
Good faith
Proper purpose
Not to make secret profits
Avoiding conflicts of interest
Confidentiality
13.0 Directors’ Rights
Access to information
Reimbursement for expenses incurred
Discharge their duties without interference
from co-Directors
Attend and participate in Board Meetings
Notice of Meetings
Advice
Delegation
14.0 Corporate Governance: Local
Examples
The “Good”
The “Bad”
The “Ugly
15.0. Conclusion: Action Ideas
I plan to take the following actions upon my return to
my company:
Obstacles that may prevent me from implementing CG
in my Company:
Actions to overcome such anticipated problems are:
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Thank you!