A New Approach

To
Corporate Governance

Chapter # 09
 A New Approach to Corporate Governance; Chapter#09

Topics

Corporate Cultures & Visions

Principals of Good Corporate Governance
 A New Approach to Corporate Governance; Chapter#09

Good Corporate Governance must be in Bones &

Bloodstream that in turn replicated in the outlook of
the Organization that is Culture & Public Image.

Senior officer of Corporate Governance at IFC, Dr.

Garvey said “A firm with good Corporate Governance
can attract higher investment premiums, have cheaper
access to debt, can outperform its peers in the long run
and gain better access to multilateral investors.”
 A New Approach to Corporate Governance; Chapter#09

Pragmatic outcome of Good Corporate Governance

Personnel Administration established in 1943 by

Ernest Butten. After his retirement in 1973, the PA
had been running in so successfully that has
become in 2006 one of the top 10 management
consultancy around the world. Its operating in 35
different countries & have 3000 employees. Its
profit in 2005 stand around $13bl
(www.paconsulting.com).

While Robert Maxwell empire collapsed

immediately he is died.
 A New Approach to Corporate Governance; Chapter#09

Principles of Good Corporate Governance

Ethical Approach
Culture; Society; Organizational Paradigm

Balanced Objectives
Congruence of Goals
Responsibility
Role of Key players

Participative Decision-Making Process

A model where concerned party can add value

Equality & Weighting

Parties treated proportional importance without ignorance

Accountability & Transparency

To all stakeholders
 A New Approach to Corporate Governance; Chapter#09

Some Important Connotation

Running Business Successfully is not simply means about

market domination & enhancing shareholder value.

A good corporate Governance is not means always battle

between disloyal institutional shareholders & greedy directors.

External regulation can only play a limited role in ensuring

good corporate governance.
 A New Approach to Corporate Governance; Chapter#09

Topics

Stakeholder Analysis
Five Golden Rules
 A New Approach to Corporate Governance; Chapter#09

Stakeholder Analysis & Five Golden Rules

The five golden rules are the basis of the “Stakeholder

Analysis”, a holistic approach to ensure existence of good
corporate governance in an organization

Stakeholder Analysis recognizes:

1. All the stakeholders, though carry different weight, should be

treated with equal concern and respect.

2. Major stakeholders must be given greater importance while

formulating strategy.

3. Minor stakeholders should be allowed opportunity to express their

views.
 A New Approach to Corporate Governance; Chapter#09

Stakeholder Analysis & Five Golden Rules

Basic Assumptions of Stakeholder Analysis are:

1. The business morality permeating the entire

operation from top to bottom and embracing
all stakeholders.

2. Good Corporate governance is an integral

part of good management permeating the
entire operation.
 A New Approach to Corporate Governance; Chapter#09

Stakeholder Analysis & Five Golden Rules

Ethics
Different
Stakeholders
Weighting
Customers Goals
Employees
Owners Ability to Influence
Suppliers
Community Organization
Propensity to act

Reporting
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Guidelines that lead to good Corporate Governance via

Stakeholder Analysis:
1. Ethics: A clearly ethical basis to business.
2. Congruence of Goals: Appropriate goals, arrived at
through the creation of a suitable stakeholder decision-
making model.
3. Strategic Management: An Effective strategy process
which incorporates stakeholder value.
4. Organization: An organization suitably structured to
effect good corporate governance.
5. Reporting: reporting systems structured to provide
transparency and accountability.
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Ethics

Definition: A set of norms of standard behavior guiding the employees

to exercise honesty, loyalty and trust that have a significant value in
terms of the efficiency and effectiveness with which a business can
run effectively.

Sources of
Sources of Board Members’ Expectation
conflict
conflict Vs Stakeholders expectations

Ethical issues include, corporate social responsibility,

particularly:
Environmental/human right issues
Support for local community/ society in general.
Honesty/ transparency
Fair treatment of staff
Responsibility regarding pensions.
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Congruence of Goals:
Definition: Appropriate goals set properly reflecting the expectations of
all stakeholders, weighting different stakeholders’ claim and focusing
on their interest.

Sources of Company’s agreed goal Vs

conflict Stakeholders goal

Customers

General Suppliers
Public Chief Executive
Board of
Officer
Directors
Employees Debt
holders 1. Perception
Share
holders 2. Filtering
3. Communication
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Strategic Management:

Definition: A Strategic Management can be defined as

an process having a clear and achievable goal, a
feasible strategy to achieve it, creating an
organization appropriate to deliver, a sound reporting
system.

Sources of conflict: Failure to manage conflicts

among various interested groups in strategic
management process.
Managing the conflict: Using stakeholder analysis,
value chain analysis, competitive environment
analysis, a balanced strategy can be adapted or
changed completely.
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Organization:

Definition: An appropriate organization means the

adoption of a proper structure, effective communication
channel, defining responsibility, leadership role,
management ability etc

Sources of conflict: Failure to ensure proper blend of

interests of various stakeholders within an organization
and maintain open channel of communication with all of
them.
Managing the conflict: Using appropriate organization,
proper communication channel, delegation of authority,
strong leadership, a desired organization to ensure
good corporate governance can be achieved.
 A New Approach to Corporate Governance; Chapter#09

Five Golden Rules

Reporting System:
Definition: A system ensuring that information being passed through
communication channels is sufficient and accurate enough to satisfy all
stakeholders thereby confirming accountability and transparency.

Source of conflict
Window dressing

Board disclosure Material Misstatement Stakeholders’ Inference

Information Asymmetry

Managing the conflict: Using financial standard in reporting, maintaining

ethical behavior, avoiding material misrepresentation can ensure sound
reporting system.
 A New Approach to Corporate Governance; Chapter#09

Topics

Good Corporate Governance is Good Management

Corporate Governance & the Strategic Management process
 A New Approach to Corporate Governance; Chapter#09

Good corporate governance is good management

The regulatory approach would regard governance as

Ensuring a balance between the various interested

parties in a company’s affairs, or a way of making
sure that the chairman or CEO is under control
Producing transparency in reporting
Curbing over- generous remuneration packages

This indeed what the Cadbury recommendations and

Greenbury Report are all about and a limited view of
governance.
 A New Approach to Corporate Governance; Chapter#09

The essence of success in business is:

Having a clear and achievable goal

Having a feasible strategy to achieve it
Creating an organization appropriate to deliver
Having in place a reporting system to guide progress

This is what is described as good management.

Good corporate governance must entail a holistic

application of good management. To demonstrate it
the next diagram shows the pressure on large
organization.
 A New Approach to Corporate Governance; Chapter#09

The Business environment

European Government
Commission
The stakeholders
The
environment Employees
Main
Trade
Board
unions
Lenders
Internal Organization
The And Management
media

Subsidiary Board Owners

The financial
world Good
Business Practice
partners Customer

Suppliers
Local
communities Trade association

Fig: The Pressures on a Company

 A New Approach to Corporate Governance; Chapter#09

Corporate Governance and The Strategic Management Process

The governance, the goals and the strategy of a business must

be compatible. There must be congruence between the
expectations of the various interested parties.
Clearly this means that:
Common view as to the ethic by which the business is
conducted
The views of all interested parties are taken into account when
deciding goal
Appropriate weighting given to those views to arrive at a
conclusion as to how to achieve greatest good
Formulation of strategy to attain the chosen goal
Implementation programme drawn up to make necessary
organizational arrangements to fulfill the strategy
Implementation programme includes reporting systems which
ensure transparency and regular feedback
 A New Approach to Corporate Governance; Chapter#09

Corporate Governance and The Strategic Management Process

Strategy Position Formulation

Implementation Monitor
Process Analysis Strategy

Methodology Check Modify Monitor

Golden
Ethics Goal Organization Reporting
Rules
 A New Approach to Corporate Governance; Chapter#09

Topics

The Whole picture

 Government Employees

CORPORATE SOCIAL RESPONSIBILITY- STRUCTURE – does it protect the interests of the

does the company behave responsibly towards all various stakeholders and have open channels of
communication with all of them?
its stakeholders?
Trade unions

The media
Ethics Organization
Strategy Process
Goal Reporting

CONGRUENCE OF GOALS – does the INFORMATION – is there sufficient

company’s goal reflect the expectations information being passed through
Owners

The environment
of all the stakeholders? these channels and accurate enough
to satisfy all the stakeholders?
Using:
Internal analysis
External analysis
Stakeholder analysis

Business partners Financial World