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Corporate Governance: A n overview

Corporate Governance: A n overview. What is a Corporate Body?. Any Company is a corporate body. However, in a broader sense only public limited companies are taken to be the subject matter of CG. So far the thrust of CG is only on listed companies.

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Corporate Governance: A n overview

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  1. Corporate Governance:An overview

  2. What is a Corporate Body? • Any Company is a corporate body. However, in a broader sense only public limited companies are taken to be the subject matter of CG. • So far the thrust of CG is only on listed companies. • Greatest emphasis is on those that are controlled by closed groups. Corporate Governance: An Overview

  3. Stakeholders in a Company • Management and Employees • Lenders • Suppliers and Clients • Shareholders • Society at large (this includes government) Corporate Governance: An Overview

  4. Interests of Stakeholders Interests of various stakeholders differ: • Shareholders: Share Value & Profit • Management/Employees: Job Security & Good terms • Lenders: Debt security, low risk • Suppliers/Clients: Continued business on good terms • Society: Environmental/Economic Issues • Collective interest of all: • Profitable existence of the company Corporate Governance: An Overview

  5. The Important Questions • Who is in a position to protect his interest? • Who needs protection? • Who needs to be monitored? • Who should monitor? • If stakeholders’ interests conflict, who can ensure that a balance is maintained? Corporate Governance: An Overview

  6. Opportunity to protect individual interests • Managers and Employees have the greatest opportunity to protect their interest(s) • Suppliers and Clients essentially go by each transaction or contract. • Lenders and minority shareholders are very vulnerable. • Society depends entirely on law. Corporate Governance: An Overview

  7. Need for a System There is therefore a need for a system that would ensure that: • Individual interest of each stakeholder is protected and served. • Collective interest of all stakeholders is protected and served. • No one usurps any one else’s rights. Corporate Governance is that system. Corporate Governance: An Overview

  8. Definition According to OECD: Corporate Governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining these objectives and monitoring performance. Corporate Governance: An Overview

  9. Definition Corporate governance refers to the mechanism used to control and direct the affairs of a corporate body in order to serve and protect the individual and collective interests of all stakeholders. (Dr Safdar A Butt) Corporate Governance: An Overview

  10. Governance & Management • How do these terms differ? • Does Governance include Management? Or • Does Management include Governance? Corporate Governance: An Overview

  11. Governance & Management Corporate Governance: An Overview

  12. Governance • Strategic • Setting Objectives • Devising plans to achieve these objectives • Setting rules or parameters • Not directly concerned with routine affairs • Protection of Interests of all stakeholders Corporate Governance: An Overview

  13. Management • Current & Operational Affairs • Taking directions from the Board • Implementing the Plans • Developing Suggestions and Alternatives Corporate Governance: An Overview

  14. Tools of CG • The principal tool of enforcing good governance in a corporate entity is Board of Directors. • Law, regulators and professional associations have a role too. • Another potent influence is institutional investors. Sadly, not in Pakistan. Corporate Governance: An Overview

  15. Corporate Hierarchy • Shareholders (voting power) • They appoint the • Board of Directors (represents interests) • They appoint the • Management (delegated powers) • CEO / MD • Executive directors • Senior Managers • Other employees Corporate Governance: An Overview

  16. Key Objectives of CG • Accountability (Means, avenues) • Transparency (Accurate, adequate, timely disclosures) • Fairness (Equally fair to all, agency issues) • Collective Interest Vs Individual Interest • Risk Management (Who decides, how much?) • Corporate Social Responsibility (Ethics, Good citizenship) Corporate Governance: An Overview

  17. Pakistani Perspective • Lack of true corporate culture. • Ineffective Boards due to family control. • Ineffective Code of Governance. • Unwillingness of controlling shareholders to share power with independent directors. • Non-availability of good directors. Corporate Governance: An Overview

  18. Thank you Corporate Governance: An Overview

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