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Terms & Concepts CORPORATE GOVERNANCE

Terms & Concepts CORPORATE GOVERNANCE. Definition. Governance Corporate Body Companies Public Sector Social Sector. Important Issues. Accountability Stakeholders Transparency Governance/ Board Structures Monitoring Performance. CG in Public Sector. Seven Principles of Public Life

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Terms & Concepts CORPORATE GOVERNANCE

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  1. Terms & ConceptsCORPORATE GOVERNANCE

  2. Definition • Governance • Corporate Body • Companies • Public Sector • Social Sector

  3. Important Issues • Accountability • Stakeholders • Transparency • Governance/ Board Structures • Monitoring Performance

  4. CG in Public Sector Seven Principles of Public Life • Selflessness • Integrity • Objectivity • Accountability • Openness • Honesty • Leadership

  5. Dominant Personality Aspect • Principal cause of CG issues • Characteristics of a dominant leader • Charismatic • Powerful • Intolerant • Often seemingly sincere • Does not nurture subordinates

  6. Stakeholders • Board of Directors elected by shareholders • Controlling (Majority / Minority) • Non-controlling (individual / institutional) • Lenders (individual / institutional) • Management / Employees • Clients / Suppliers • Society (includes government)

  7. Key Persons • Mr Shareholder • Individual / Institutional Investor • Chairman • Board Members • Executive / Non-executive • Independent / Nominees • CEO • Other Managers / Employees

  8. Agency Problem • Minority Controller • Majority Controller • Cost of agency monitoring

  9. Key Issues of CG • Financial Reporting and Auditing • Directors Remuneration • Risk Taking • Effective Communication between: • Board and shareholders • Company and stakeholders • Corporate Social Responsibility

  10. Financial Reporting • Force of Law • Influence of professional bodies • Audit Report – how valid is it? • Does it work? • Role of Institutional Investor • Professional analysts • What is the real solution?

  11. Directors Remuneration • Big issue in West, not here • Who sets it? • Why do shareholders complain after approving? • Disunity in shareholders?

  12. Company-Stakeholders Relations • Structure of the Board • Is it representative? • Does it have sufficient Independents? • Articles of Association Contents? • Allocation of power to stakeholders • Actual use of powers

  13. Risk Management • WHO CARES: • To take risk or not to take risk? • How much risk to take? • How to minimize / manage risks? • NATURE OF RISKS • Operational • Takeovers

  14. Communication • What needs to be communicated? • Frequency • Set pattern, or need basis • Why communicate?

  15. Legislation for CG • Company Law • Regulations for listed companies • Specific CG related laws? • Social pressure can often have the same force as law.

  16. Questions asked when companies fail • Was it management incompetence? • Why was it not noticed before disaster? • Dishonesty • Did the dishonest person get away with it? • How? • Why? Eventually, this boils down to poor governance.

  17. Approaches to CG • Shareholder Value approach • Enlightened Shareholder Approach • Pluralist Approach • Ethical conduct and Code of ethics in CG Assignment of this week

  18. Shareholders Approach • Board cares for only shareholders • Shareholder means: • All shareholders, or • Majority shareholders only, or • Vocal shareholders only? • Balanced treatment • Between shareholders and others

  19. Enlightened ShareholdersApproach • Balance between the interest of all stakeholders, but basic attention to shareholders. • Issues: • Which shareholders • People who wear two or more caps

  20. Integrated/Pluralist Approach • Accountability • To shareholders, but also to others • Responsibility • To all stakeholders. • Means of enforcement

  21. The Corporate Sins • Sloth (unwillingness to take risk/initiative) • Greed • Fear

  22. What is the Best Approach? • Which • Why • Where

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