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Corporate Governance Overview and Key Concepts

This document defines corporate governance and outlines key concepts. Corporate governance is defined as the system by which companies are directed and controlled in the interest of shareholders and stakeholders. The purpose of corporate governance is to monitor those within a company who control resources owned by investors. Key concepts discussed include integrity, probity, accountability, independence, responsibility, fairness, openness, reputation, and judgement. Stakeholders are also outlined, including internal stakeholders like directors, management, and employees, and external stakeholders like auditors, regulators, government, stock exchanges, investors, and pressure groups.

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Jeremiah Krishna
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17 views3 pages

Corporate Governance Overview and Key Concepts

This document defines corporate governance and outlines key concepts. Corporate governance is defined as the system by which companies are directed and controlled in the interest of shareholders and stakeholders. The purpose of corporate governance is to monitor those within a company who control resources owned by investors. Key concepts discussed include integrity, probity, accountability, independence, responsibility, fairness, openness, reputation, and judgement. Stakeholders are also outlined, including internal stakeholders like directors, management, and employees, and external stakeholders like auditors, regulators, government, stock exchanges, investors, and pressure groups.

Uploaded by

Jeremiah Krishna
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 1 - Corporate Governance

Definition – Cadbury Report

The system by which companies are directed and controlled.

Described as

The system by which companies are directed and controlled in the interest of shareholders
and other stakeholders.

Coverage of Governance

➢ Direction from within – BOD


➢ Control from outside – Laws, rules, regulations, listing requirement, EA

Purpose

Monitor those parties within a company who control the resources owned by investors.

Objectives

Contribute to improved corporate performance and accountability in creating long-term


shareholder value.

Business Case

1. Governance dividend.
2. CSR – Prevent stakeholders from hindering activities.
3. I.I. – Easier to secure loans.

Key Concepts

Integrity
Steadfast adherence to a strict moral or ethical code, high moral virtue.

Probity/honesty
Honesty in financial/positional reporting.

Accountability
Accounting of business position as a result of acceptance of responsibility.

Independence
Independence from personal influence of senior management for NED.
Independence of board from operational involvement.
Independence of directorship from overt personal motivation – run for benefit of owners.

Responsibility
Willingness to accept liability for the outcome of governance decisions.
Clarity in the definition of roles and responsibilities for action.
Conscientious business and personal behaviour.

Fairness
Sense of equality in dealing with internal stakeholders.
Sense of even-handedness in dealing with external stakeholders.
Ability to reach an equitable judgement in a given ethical situation.

Openness/transparency
Creation of a transparent relationship with shareholders to reduce agency costs.
Development of accounting systems and standards to facilitate this openness.

Reputation
Developing and sustaining personal reputation through other moral virtues.
Developing and sustaining moral stance of the organisation.
Developing and sustaining moral stance of the accounting profession.

Judgement
Ability to reach and communicate meaningful conclusions.
Ability to weigh numerous issues and give each due consideration.
Development of a non-judgemental approach to business and personal. relationship –
biased judgement.
Objective – accountants.
Subjective – lawyers.

Stakeholders

Internal

Directors
Responsible for actions of the company.

Company secretary
Ensure compliance with company law and regulation.

Sub-board management
Run business operations | Implement board policies.

Employees
Carry out orders of management.

Employee rep – Trade union


Protect employee interest.
External

Auditor
Independent review of company’s reported financial position.

Regulators
Implementing and monitoring regulations.
Government
Implementing and maintaining laws with which all companies. must comply.

Stock exchange
Implementing and maintaining rules and regulations for listed companies.

Small investor
None – limited power.

Institutional investor
Can and should beneficially influence corporate policy.

Pressure groups
Protecting the rights of those who do not have a voice.

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