Corporate Governance

- Is a system by which a companies are directed and controlled.

- Involves a set of relationships between a company’s management, its board,
its shareholders and other stakeholders.
- The structure through which objectives of the company are set, and the means
of achieving those objectives and monitoring performance are determined.

Shareholders

Board of
Chairperson
Directors

Chief Operating Chief Executive Chief Financial

Officer Officer Officer

4 P’s of Corporate Governance

 People
 Purpose
 Process
 Performance
4 Pillars of Corporate Governance
 Accountability
 Transparency
 Fairness
 Responsibility
CONCEPT OF CORPORATE GOVERNANCE
Corporate Responsibility

- The concept of corporate responsibility is essentially about ensuring a better

conversation between business and society.
- Aside from the symbolic relation and consequent benefits derivable from the
conversation, the dialogue between business and society is underpinned by the
principle of accountability which purposes need periodic scrutiny by immediate
remote interest.
 MAJOR DISTINCTION BETWEEN CORPORATE GOVERNANCE AND SOCIAL
REPONSIBILITY
From Relationship to Accountability

Relationship

- While corporate responsibility strives to forge relationship, corporate

governance helps to define the basis of relationship s and sets the rules.

Accountability
- Corporate governance therefore is platform for ensuring that rules adopted in
pursuit of the need for an accountable enterprise are not only applied but also
made to govern business and social conversation.

PARTIES SUBJECT TO CORPORATE GOVERNANCE

 Creditors
 Participation in winding up a company
 Customer and Consumers
 Consumer protection law
 Employees
 Labor law
 Contractual mechanism
 Corporate Responsibility as an Accountable Investment
 The search for a goodwill platform for social and environmental
investments creating a sustainable enterprise.
 Corporate Governance as Accountable Actions
 Instances for corporate irresponsibility lead to colossal corporate and/or
national economic value attrition.
 Creating a Basis for a Sound Business
 Accountable decision making in the selection of corporate priorities.
ISSUES INVOLVING CORPORATE GOVERNANCE
 Internal controls and internal auditors.
 The independence and management risk
 Oversight of the preparation of the entity’s financial statement.
 Review of the compensation arrangements for the chief executive offices and
other senior executives.
 The resources are made available to the directors in carrying out their duties.
 The way in which individuals are nominated for the position on board.
Understanding Corporate Governance
- Governance refers specifically to the set of rules, controls, policies, and
resolutions put in place to dictate corporate behavior.
- A company’s corporate governance is important to investors since it shows a
company's direction and business integrity.
Good Corporate Governance
- Helps companies build trust
- Helps promote financial viability
Corporate Governance and the Board of Directors
- The board of directors is the primary direct stakeholder influencing corporate
governance.
- The board is tasked with making important decisions such as:
 corporate officer appointments
 executive compensation, and
 dividend policy
- In some instances, board obligations stretch beyond financial optimization, as
when shareholder resolutions call for certain social or environmental concerns
to be prioritized.
Board of Directors
- Are often made up of inside and independent members;
- Insiders are major shareholders, founders, and executives.
- Independent directors do not share the ties of the insiders, but they are chosen
because of their experience managing or directing other large companies.
Independents are considered helpful for governance because they dilute the
concentration of power and help align shareholder interests with those of
the insiders.
The Board of Directors must:
- Ensure that the company's corporate governance policies incorporate the
corporate strategy
- Risk management
- Accountability
- Transparency and
- Ethical business practices
Examples of Corporate Governance
 Volkswagen AG
o Bad Governance
o “Dieselgate”
o 90% of shareholder voting rights were controlled by the members of the
supervisory board.
 Enron and WorldCom
o Fraudulent Practice
o Lack of corporate governance
o Sarbanes-Oxley Act
 PepsiCo
o Good corporate governance
o “winning with purpose”
Pepsi took input from investors to focus on 6 areas
 Board composition, diversity, and refreshment, and
leadership structure
  Long-term strategy, corporate purpose, and sustainability
issues
 Good governance practices and ethical corporate culture
 Human capital management
 Compensation discussion and analysis
 Shareholder and stakeholder engagement
Special Considerations
- Disclosure Practices
- Executive Compensation Structure
- Risk Management
- Policies and Procedures on Reconciling Conflicts of Interest
- Board of Directors members
- Contractual Obligations and Social
- Relationship with Vendors
- Complaints and How to Address
- Audits
Types of Bad Governance Practices includes:
- Companies that do not cooperate sufficiently with auditors or do not select
auditors with the appropriate scale, resulting in the publication of spurious or
noncompliant financial documents
- Bad executive compensation packages that fail to create an optimal incentive
for corporate officers
- Poorly structured boards that make it too difficult for shareholders to oust
ineffective incumbents