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    1 - 9. The Nature of Corporate Governance

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    This document discusses the nature of corporate governance. It defines corporate governance as the process by which organizations are directed and controlled, and how boards oversee company managers who are accountable to shareholders. It notes corporate governance provides accountability, oversight and control to limit unethical decisions. The document outlines key corporate governance issues and describes two common models: the shareholder model that maximizes wealth, and the stakeholder model that considers employees, suppliers and communities. It also provides details on what effective corporate governance entails, including trust, open debate, accountability and self-evaluation.

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    1 - 9. The Nature of Corporate Governance

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    yesbud
    179 views13 pages
    This document discusses the nature of corporate governance. It defines corporate governance as the process by which organizations are directed and controlled, and how boards oversee company managers who are accountable to shareholders. It notes corporate governance provides accountability, oversight and control to limit unethical decisions. The document outlines key corporate governance issues and describes two common models: the shareholder model that maximizes wealth, and the stakeholder model that considers employees, suppliers and communities. It also provides details on what effective corporate governance entails, including trust, open debate, accountability and self-evaluation.

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    Corporate Governance

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    20160615150652_243617_1_9. the Nature of Corporate Governance

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    This document discusses the nature of corporate governance. It defines corporate governance as the process by which organizations are directed and controlled, and how boards oversee company managers who are accountable to shareholders. It notes corporate governance provides accountability, oversight and control to limit unethical decisions. The document outlines key corporate governance issues and describes two common models: the shareholder model that maximizes wealth, and the stakeholder model that considers employees, suppliers and communities. It also provides details on what effective corporate governance entails, including trust, open debate, accountability and self-evaluation.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    179 views13 pages

    1 - 9. The Nature of Corporate Governance

    Uploaded by

    yesbud
    This document discusses the nature of corporate governance. It defines corporate governance as the process by which organizations are directed and controlled, and how boards oversee company managers who are accountable to shareholders. It notes corporate governance provides accountability, oversight and control to limit unethical decisions. The document outlines key corporate governance issues and describes two common models: the shareholder model that maximizes wealth, and the stakeholder model that considers employees, suppliers and communities. It also provides details on what effective corporate governance entails, including trust, open debate, accountability and self-evaluation.

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    of 13

    THE NATURE OF

    CORPORATE GOVERNANCE
    GITTA PUSPARINI

    OUTLINE

    What is Corporate Governance?


    Why Corporate Governance?
    Corporate Governance Issues
    Governance of the Modern Corporation
    What Does Corporate Governance Look Like?
    Two Model of Corporate Governance
    Effective Corporate Governance

    WHAT IS CORPORATE GOVERNANCE?

    Corporate gvernace is the process by which


    organizations are directed and controlled.[1]
    Corporate governance is about the way in which
    boards oversee the running of a company by its
    managers, and how board members are in turn
    accountable to shareholders and the
    company.[1]

    WHAT IS CORPORATE GOVERNANCE?


    To remove the opportunity for employees to make
    unethical decisions, most companies have developed
    formal systems of accountability, oversight, and control
    (corporate governance)[2]:
    Accountability refers to how closely workplace decisions
    are aligned with a firms stated strategic direction and its
    compliance with ethical and legal considerations
    Oversight provides a system of checks and balances
    that limit employees and managers opportunities to
    deviate from policies and strategies and that prevent
    unethical and illegal activites
    Control is the process of auditing and improving
    organizational decisions and actions.

    WHY CORPORATE GOVERNANCE?


    Corporate governance is also part of a firms
    corporate culture. A governance system that does
    not provide checks and balances creates
    opportunities for top managers to put their own selfinterests before those of important stakeholders.[2]

    WHY CORPORATE GOVERNANCE?


    In addition to the interest of their owners, some argue
    that managers are accountable to the public interest
    or, more specifically, to their stakehoders: their
    customers, their vendor partners, state and local entities,
    and the communities in which tjey conduct their
    business operations.[1]
    So, corporate governance is concerned with how well
    organizations meet their obligations to all these people.
    Ideally, mechanisms are in place to hold them
    accountable for that performance and to introduce
    corrective action if they fail to live up to that
    performance expectation.[1]

    CORPORATE GOVERNANCE ISSUES


    Corporate Governance Issues [1]
    Executive compensation
    Composition and structure of the board of directors
    Auditing and control

    Risk management
    CEO selection and termination decisions
    Integrity of financial reporting
    Stakeholder participation and input into decisions
    Compliance with corporate governance reform
    Role of the CEO in board decisions
    Organizational ethics programs

    GOVERNANCE OF
    Owners
    Public shareholders
    THE MODERN
    Institutional investors
    Other corporations
    CORPORATION
    Audit
    committee

    Compensati
    on
    committee

    Board of
    Directors

    Corporate
    governance
    committee

    CEO, CFO,
    COO
    Managers
    and
    employees

    Source: Adapted from Fred R. Kaen,


    A Blueprint for Corporate
    Governance, New York: AMACOM,
    2003

    Creditors
    Financial
    Institutions
    Bondholders

    Stakeholders
    Customers, vendor partners, state
    and local entities, community
    partners

    WHAT DOES CORPORATE


    GOVERNANCE LOOK LIKE? [1]
    The owner of the corporation supply equity or risk capital to the
    company by purchasing shares in the corporation.
    The board of directors, is elected by the owners to represent their
    interest in the effective running of the corporation. The board is
    typically made up of inside and outside members inside members
    hold management positions in the company, whereas outside
    members do not.
    The audit committee is staffed by members of he board of directors
    plus independent or outside directors. The committee is responsible
    for monitoring the financial policies and procedures of the
    organization specifically the accounting policies, internal controls,
    and the hiring of external auditors.
    The compensation committee is also staffed by members of the
    board of directors. The primary responsibility of the compensation
    committee is to oversee compensation packages for the senior
    executives of the corporations.

    TWO MODEL OF CORPORATE


    GOVERNANCE [2]
    Shareholder model of corporate governance
    Founded in classic economic precepts, including the goal of
    maximizing wealth for investors and owners. A shareholder
    orientation should drive a firms decisions toward serving the best
    interests of investors.

    Stakeholder model of corporate governance


    Adopts a broader view of the purpose of business. Although a
    company has a responsibility for economic success and viability
    to satisfy its stockholders, it also must answer to other
    stakeholders, including employees, suppliers, government
    regulators, communities, and special interest groups with which it
    interacts.

    EFFECTIVE CORPORATE GOVERNANCE


    To be truly effective, boards should follow these six steps [1]:
    Create a climate of trust and candor, BoD and senior
    executives should be working in partnership
    Foster a culture of open dissent, propossals should be open
    for discussion and review
    Mix up roles, rotation of assignments can avoid typecasting
    and ensure positive debate of all key proposals
    Ensure individual accountability
    Let the board assess leadership talent, the board members
    should actively meet with future leaders in their current
    positions
    Evaluate the boards performance, effective corporate
    governance demands superior performance involved in the
    process

    REFFERENCE
    1. Ghillyer, Andrew W. 2010. Buseiness Ethics : A Real
    World Approach.
    2. Ferrel, O.C. 2005. Business Ethics : Ethical Decision
    Making and Cases.

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