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CORPORATE GOVERNANCE
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TABLE OF CONTENTS
CHAPTER ONE: CORPORATE GOVERNANCE?
CHAPTER TWO: PRINCIPLES OF CORPORATE GOVERNANCE
CHAPTER THREE: CORPORATE GOVERNANCE STRUCTURE
CHAPTER FOUR: CORPOORATE ETHICS
CHAPTER FIVE: GLOBAL GOVERNANCE
CHAPTER SIX: MODELS OF CORPORATE GOVERNANCE
CHAPTER SEVEN: STAKEHOLDERS
CHAPTER EIGHT: AUDIT COMMITTEE
CHAPTER NINE: CORPORATE GOVERNANCE PRINCIPLES OF
BANK
CHAPTER TEN: PUBLIC DISCLOSURE
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CHAPTER ONE
CORPORATE GOVERNANCE
WHAT IS CORPORATE GOVERNANCE?
The purpose of corporate governance is to facilitate effective, entrepreneurial

and prudent management that can deliver the long-term success of the
company.
Corporate governance is the mechanisms, processes and relations by

which corporations are controlled and directed. Governance structures and
principles identify the distribution of rights and responsibilities among different
participants in the corporation (such as the board of directors, managers,
shareholders, creditors, auditors, regulators, and other stakeholders) and include
the rules and procedures for making decisions in corporate affairs.
Corporate governance includes the processes through which corporations'

objectives are set and pursued in the context of the social, regulatory and market
environment. Governance mechanisms include monitoring the actions, policies,
practices, and decisions of corporations, their agents, and affected stakeholders.
Corporate governance practices are affected by attempts to align the interests of
stakeholders. Interest in the corporate governance practices of modern
corporations, particularly in relation to accountability, increased following the
high-profile collapses of a number of large corporations during 2001–2002, most
of which involved accounting fraud; and then again after the recent financial
crisis in 2008.
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Corporate scandals of various forms have maintained public and political interest
in the regulation of corporate governance. In the U.S., these
include Enron and MCI Inc. (formerly WorldCom). Their demise led to the
enactment of the Sarbanes-Oxley Act in 2002, a U.S. federal law intended to
restore public confidence in corporate governance. Comparable failures in
Australia (HIH, One Tel) are associated with the eventual passage of the CLERP
9 reforms. Similar corporate failures in other countries stimulated increased
regulatory interest.
Corporate governance is "the system by which companies are directed and

controlled" (Cadbury Committee, 1992). Worldwide, the definition of corporate
governance may include regional nuances, but corporate governance in Canada
involves regulatory and market mechanisms, and reconciling the roles and
relationships between numerous corporate stakeholders within an organization
and the governance goals within a corporation.
“A set of relationships between a company’s management, its board, its

shareholders and other stakeholders; It also provides the structure through
which the objective and monitoring performance are determined” (OECD 2004)
Internal governance stakeholders include:
 Company management
 Executives
 Board of Directors
 Shareholders and other corporate stakeholders
 Employees
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External governance stakeholders include:
 Shareholders
 Debtholders
 Trade creditors
 Suppliers, customers and communities affected by a corporation's activities
CORPORATE GOVERNANCE DEFINITION

Corporate governance is most often viewed as both the structure and the
relationships which determine corporate direction and performance. The board
of directors is typically central to corporate governance. Its relationship to the
other primary participants, typically shareholders and management, is critical.
Additional participants include employees, customers, suppliers, and creditors.
The corporate governance framework also depends on the legal, regulatory,
institutional and ethical environment of the community. Whereas the 20th
century might be viewed as the age of management, the early 21st century is
predicted to be more focused on governance. Both terms address control of
corporations but governance has always required an examination of underlying
purpose and legitimacy. – – James McRitchie, 8/1999
CORPORATE GOVERNANCE: ACADEMIC DEFINITIONS
The act of steering, guiding and piloting—describes what boards [should] do

when in session. It does not describe and is not a proxy for the board itself, nor
any other party or activity outside the boardroom. Regulators (to set rules),
proxy advisers (lobbyists on behalf of shareholders and other interests), and
shareholder meetings (communications) are all important, but none is corporate
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governance. (Peter Crow, On ‘corporate governance‘: Is our understanding

flawed?, 9/12/2015)
… is “accountability to providers of capital.” — Bruce Weber, dean of the Lerner
College of Business at the University of Delaware, at the inaugural meeting in
November of the newly reconstituted advisory board for the John L. Weinberg
Center for Corporate Governance.
Corporate governance is the control of management in the best interests of the

company, including accountability to shareholders who elect directors and
auditors and vote on say on pay. How a company is governed influences rights
and relationships among organizational stakeholders, and ultimately how an
organization is managed, and whether it succeeds or fails. Companies do not fail:
boards do. – Dr. Richard Leblanc, Harvard University Summer 2015, MGMT S-
5018 – Corporate Governance “how investors get the managers to give them
back their money” (Shleifer & Vishny, “A Survey of Corporate Governance,”
Journal of Finance 52(2) 1997: 738)
[a] corporate governance system is the combination of mechanisms which
ensure that the management (the agent) runs the firm for the benefit of
one or several stakeholders (principals). Such stakeholders may cover
shareholders, creditors, suppliers, clients, employees and other parties
with whom the firm conducts its business. — Goergen and Renneboog,
2006
…. deals with the conflicts of interests between the providers of finance and the
managers; the shareholders and the stakeholders; different types of
shareholders (mainly the large shareholder and the minority shareholders); and
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the prevention or mitigation of these conflicts of interests. — Marc Goergen,

2012.
…. is about how companies are directed and controlled. Good governance is an
essential ingredient in corporate success and sustainable economic growth.
Research in governance requires an interdisciplinary analysis, drawing above all
on economics and law, and a close understanding of modern business practice of
the kind which comes from detailed empirical studies in a range of national
systems. – Simon Deakin, Robert Monks Professor of Corporate Governance
…. is about “the whole set of legal, cultural, and institutional arrangements that
determine what public corporations can do, who controls them, how that control
is exercised, and how the risks and return from the activities they undertake are
allocated.” – Margaret Blair, Ownership and Control: Rethinking Corporate
Governance for the Twenty-First Century, 1995.
CORPORATE GOVERNANCE: PRACTITIONER DEFINITIONS
… is gathering together a group of smart, accomplished people around a board

table to make good decisions on behalf of the company and its stakeholders. —
As We Start Anew, Jim Kristie, editor and associate publisher of Directors &
Boards.
… is what you do with something after you acquire it. It’s really that simple. Most
mammals do it. (Care for their property.) Unless they own stock. [She continues:]
… it is almost comical to suggest that corporate governance is a new or complex
or scary idea. When people own property they care for it: corporate governance
simply means caring for property in the corporate setting. – Sarah Teslik, former
Executive Director of the Council of Institutional Investors
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… is the relationship among various participants [chief executive officer,

management, shareholders, employees] in determining the direction and
performance of corporations” – Monks and Minow, Corporate Governance, from
1995 version.
…. is about how suppliers of capital get managers to return profits, make sure
managers do not misuse the capital by investing in bad projects, and how
shareholders and creditors monitor managers.
– American Management Association
…. is the relationship between corporate managers, directors and the providers

of equity, people and institutions who save and invest their capital to earn a
return. It ensures that the board of directors is accountable for the pursuit of
corporate objectives and that the corporation itself conforms to the law and
regulations. – International Chamber of Commerce
The relationship between the shareholders, directors and management of a

company, as defined by the corporate charter, bylaws, formal policy and rule of
law. – The Corporate Library
…. is the relationship among various participants in determining the direction and

performance of corporations. The primary participants are: shareholders;
company management (led by the chief executive officer); and the board of
directors. – CalPERS
… is the process carried out by the board of directors, and its related
committees, on behalf of and for the benefit of the company’s stakeholders, to
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provide direction, authority, and oversights to management. (Paul J.

Sobel, Auditor’s Risk Management Guide: Integrating Auditing and ERM (2007),
from 2005 edition.
How a corporation is governed. Who has the authority to make decisions for a
corporation within what guidelines? This is the corporation’s governance. In the
United States, the governance of corporations is largely determined by state laws
of incorporation. State laws typically say that each corporation must be
“managed by or under the direction of its boards of directors.” More specifically,
corporate boards of directors are responsible for certain decisions on behalf of
the corporation. At a minimum, as stated in most state statutes of incorporation,
director approval is usually required for amending corporation bylaws, issuing
shares, or declaring dividends. Also, the board alone can recommend that
shareholders vote to amend articles of incorporation, dissolve the corporation,
or sell the corporation. No other person or entity except the board can take
these actions. That is why discussions of “corporate governance” often focus on
boards. (NACD)
Governance is taken herein to mean the process of deliberating, establishing,
monitoring, and adjusting strategy, de ning and communicating the rules by
which strategy is implemented, and hiring, monitoring, and evaluating the senior
executive team. It is both the domain and fiduciary duty of the Board of
Directors. (Directors and Chief Risk Officers Guiding Principles for Compensation
Committees, 2018)
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CORPORATE GOVERNANCE: LEGAL DEFINITIONS
Generally, corporate governance refers to the host of legal and non-legal

principles and practices affecting control of publicly held business corporations.
Most broadly, corporate governance affects not only who controls publicly
traded corporations and for what purpose but also the allocation of risks and
returns from the firm’s activities among the various participants in the firm,
including stockholders and managers as well as creditors, employees, customers,
and even communities. However, American corporate governance doctrine
primarily describes the control rights and related responsibilities of three
principal groups:
1. the firm’s shareholders, who provide capital and must approve major firm
transactions,
2. the firm’s board of directors, who are elected by shareholders to oversee
the management of the corporation, and
3. the firm’s senior executives who are responsible for the day today’s
operations of the corporation.
As the Delaware Supreme Court has stated, “the most fundamental principles of
corporate governance are a function of the allocation of power within a
corporation between its stockholders and its board of directors.” (J. Robert
Brown, Jr. and Lisa L. Casey, Corporate Governance: Cases and Materials, 2012)
In broad terms, corporate governance refers to the way in which a corporations
is directed, administered, and controlled. Corporate governance also concerns
the relationships among the various internal and external stakeholders involved
as well as the governance processes designed to help a corporation achieve its
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goals. Of prime importance are those mechanisms and controls that are designed
to reduce or eliminate the principal-agent problem. (H. Kent Baker and Ronald
Anderson, Corporate Governance: A Synthesis of Theory, Research, and Practice,
2010).
… is a field in economics that investigates how to secure/motivate efficient
management of corporations by the use of incentive mechanisms, such as
contracts, organizational designs and legislation. This is often limited to the
question of improving financial performance, for example, how the corporate
owners can secure/motivate that the corporate managers will deliver a
competitive rate of return. (Mathiesen, 2002)
CORPORATE GOVERNANCE: COMMISSION DEFINITIONS
The system by which companies are directed and controlled, (Sir Adrian
Cadbury, The Committee on the Financial Aspects of Corporate Governance).
“Corporate Governance is concerned with holding the balance between
economic and social goals and between individual and communal goals. The
corporate governance framework is there to encourage the efficient use of
resources and equally to require accountability for the stewardship of those
resources. The aim is to align as nearly as possible the interests of individuals,
corporations and society” (Sir Adrian Cadbury in ‘Global Corporate Governance
Forum’, World Bank, 2000)
… is the method by which a corporation is directed, administered or controlled.

Corporate governance includes the laws and customs affecting that direction, as
well as the goals for which the corporation is governed. The principal participants
are the shareholders, management and the board of directors. Other participants
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include regulators, employees, suppliers, partners, customers, constituents (for

elected bodies) and the general community. – Wikipedia
“Corporate governance is not an abstract goal, but exists to serve corporate

purposes by providing a structure within which stockholders, directors and
management can pursue most effectively the objectives of the corporation.” –
US Business Round Table White Paper on Corporate Governance September
1997
… by definition rests with the conduct of the board of directors, who are chosen
on behalf of the shareholders. – Corporate Governance Forum of Japan 1997
… is the system by which companies are directed and managed. It influences how
the objectives of the company are set and achieved, how risk is monitored and
assessed, and how performance is optimized. Good corporate governance
structures encourage companies to create value (through enterpreneurism,
innovation, development and exploration) and provide accountability and
control systems commensurate with the risks involved. (ASX Principles of Good
Corporate Governance and Best Practices Recommendations, 2003)
WHY IS CORPORATE GOVERNANCE IMPORTANT?
Corporate governance is the way a corporation polices itself. In short, it is a
method of governing the company like a sovereign state, instating its own
customs, policies and laws to its employees from the highest to the lowest levels.
Corporate governance is intended to increase the accountability of your
company and to avoid massive disasters before they occur. Failed energy giant
Enron, and its bankrupt employees and shareholders, is a prime argument for the
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importance of solid corporate governance. Well-executed corporate governance

should be similar to a police department's internal affairs unit, weeding out and
eliminating problems with extreme prejudice. A company can also hold meetings
with internal members, such as shareholders and debt holders - as well as
suppliers, customers and community leaders, to address the request and needs
of the affected parties.
Good corporate governance helps to prevent corporate scandals, fraud, and

potential civil and criminal liability of the organization. A good corporate
governance image enhances the reputation of the organization and makes it
more attractive to customers, investors, suppliers and in the case of non‐profit
organizations, contributors. Private companies that intend to seek capital from
financial institutions and institutional investors should also be sensitive to their
corporate governance image, since this image is an important factor in the
ultimate decision to provide capital to the organization. Family‐owned private
companies benefit from good corporate governance by avoiding the devastating
effects of sibling rivalry and expensive litigation between family members who
have different views concerning the business. Some investment and private
equity funds do not purchase the securities of public companies that have low
corporate governance ratings. Good corporate governance can be performed in a
cost‐efficient manner by focusing efforts on the significant risks facing the
organization rather than attempting to cover any possible theoretical risk, and by
installing the best cost‐efficient practices within the organization. The benefits of
good corporate governance, by avoiding governmental investigations, lawsuits,
and damage to the reputation to the organization, significantly outweigh the cost
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of good corporate governance. The benefits of good corporate governance are

longer term, whereas the costs of good corporate governance are incurred in the
short term.
THE GOALS OF CORPORATE GOVERNANCE
When corporate governance is done properly, it allows the corporation to work
smoothly due to the existence of a clear level of accountability and
communication amongst the organization, as well as people understanding
what their roles and responsibilities are.
To properly understand and utilize corporate governance it is important to

understand and follow its most important principles. These principles help
establish the roles and responsibilities of the key members of the corporation.
The general principles of all forms of corporate governance are generally
related to the shareholders, board members, and stakeholders. In addition to
this, corporate governance also places a strong emphasis on the behavior of the
corporation and how much the corporation discloses to the public.
Below you can find a detailed explanation of the principles that the corporate
governance follows and the people that these principles have an effect on.
 Keep the Interest of Stakeholders in Mind
Corporate governance acknowledges that the stakeholders in the company
must be recognized in all areas of society, the market, legality, and their
contracts. The stakeholders are important members of the corporation that
don’t hold any shares. Stakeholders include people such as investors, creditors,
customers, suppliers, and employees.
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 Treating Shareholders Equally
As a corporation, the business should not only respect shareholders and their
rights, but help the shareholders when it comes to exercising their rights. The
best way this is done is by allowing and encouraging shareholders to participate
in the activities in the company such as meetings.
 Identifying the Roles of the Board of Directors

The board of the directors is those that stand at the head of a corporation. The
responsibilities of the board are diverse and it requires people needing both
skill and knowledge to evaluate employee performance. In addition to this, the
corporate governance helps to make sure that the board has the level of
commitment and the size that it needs in order to properly run the business.
 Ethical Behavior
Ethics and integrity are also key principles of corporate governance. The
integrity of anyone placed in corporate office or in the board should have a high
level of integrity. They must also follow a code of conduct and exhibit ethical
behavior during the decision making process of the business.
 Transparency
The final principle of corporate governance is the concept of disclosure or
transparency. This is the idea that the corporation should always let it be
known what the responsibilities and duties are of those that work for the
corporation as well as who is management in order to keep stakeholders
accountable. Another aspect of transparency is disclosing material related to
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the corporation that should be given out in a way that promises anyone who is
invested in the company can have clear access to information.
A company’s corporate governance sets the stage for how it is run, as well as
what the roles and duties of those who work in the corporation may be. When
creating a business plan, it would be wise to consider how corporate
governance will be implemented into the business model. A company with a
poor business plan is essentially doomed to fail.
THE IMPORTANCE OF CORPORATE GOVERNANCE

Through seeing how corporate governance works, you can tell why it is
important. It helps streamline the process and gives people accountability. The
point of corporate governance is to help the decision making process. As
mentioned above in the principles of corporate governance, one of the main
goals is to clearly explain to the board, the stakeholders, and the shareholders
what their duties and responsibilities are within the company.
With knowing those roles and responsibilities, the people within the
corporation can understand what they are held accountable for. For example,
the board has the responsibility of properly evaluating the management in the
company. If the company has poor management, then it is the fault of the
board for not properly evaluating the manager. In this regard, the blame cannot
be placed on other members of the corporation. This prevents situations in
which there is no way to know who is accountable for what action.
Accountability is what helps people within the company make decisions,

whether it is finding out what person should be terminated from their position
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due to the mistakes that they’ve made or who should be acknowledged for
their good work due to doing something exceptional in their field. With good
corporate governance, it’s pretty simple to know what the key members of the
business are supposed to do.
LOWERING RISK
Another important aspect of corporate governance is mitigating or reducing the
amount of risk that is involved. Through corporate governance, scandals, fraud,
and criminal liability of the company can be prevented or avoided altogether.
Since the people involved in the organization know what they are accountable
for, the actions of one person doesn’t mean the downfall of the entire
corporation. Properly identifying what the roles in the corporation are
allows decisions to be made that won’t have a negative effect on the overall
corporation, and it means that the offender can be much more quickly
identified and punished instead.
Corporate governance is also great because it is a form of self-policing. Before

outside forces are able to do anything to a corporation, it’s possible for the
corporation to handle matters itself. With corporate governance, everyone is
held to a specific standard and communication is made easier due to their being
an established hierarchy and role that everyone involved in the corporation
plays. This level of handling business on its own instead of being forced into
making decisions outside of the company helps keep the corporation sustaining
itself.
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PUBLIC ACCEPTANCE
In terms of business, a company with corporate governance is widely accepted
by the public. This is mostly due to the idea of disclosure and transparency that
comes withcorporate governance. With full disclosure and the ability for people
who work in the business to get information, as well as the general public,
there is a higher level of trust. There’s also the fact that due to the way that
corporate governance is setup, there is a lower chance of fraud and company-
wide criminal activity, which helps gain the trust of the public as well.
PUBLIC IMAGE
Today many corporations hold a high level of corporate governance. This is
because a corporation has a public image to maintain. With corporate
governance, the corporation takes more responsibility for its actions, and also
allows it to keep tabs on what is going on as well as helps those in charge
remain more aware of the public image of the corporation.
With the way that businesses are run today, it can be difficult for a corporation
to become successful just by having a high level of profit. Due to the fact that a
corporation is also evaluated based on its image, corporate governance is
established to help ensure that image remains clean. Making sure there is a
high level of awareness, ethical behavior, and understanding of what the public
wants is all encompassed in corporate governance.
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CHAPTER TWO
PRINCIPLES OF CORPORATE GOVERNANCE
 Shareholder recognition is key to maintaining a company's stock price. More
often than not, however, small shareholders with little impact on the stock
price are brushed aside to make way for the interests of majority shareholders
and the executive board. Good corporate governance seeks to make sure that
all shareholders get a voice at general meetings and are allowed to
participate.
 Stakeholder interests should also be recognized by corporate governance. In

particular, taking the time to address non-shareholder stakeholders can help
your company establish a positive relationship with the community and the
press.
 Board responsibilities must be clearly outlined to majority shareholders. All

board members must be on the same page and share a similar vision for the
future of the company.
 Ethical behavior violations in favor of higher profits can cause massive civil
and legal problems down the road. Underpaying and abusing outsourced
employees or skirting around lax environmental regulations can come back
and bite the company hard if ignored. A code of conduct regarding ethical
decisions should be established for all members of the board.
 Business transparency is the key to promoting shareholder trust. Financial

records, earnings reports and forward guidance should all be clearly stated
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without exaggeration or "creative" accounting. Falsified financial records can

cause your company to become a Ponzi scheme, and will be dealt with
accordingly.
CORPORATE GOVERNANCE AS RISK MITIGATION

Corporate governance is of paramount importance to a company and is almost
as important as its primary business plan. When executed effectively, it can
prevent corporate scandals, fraud and the civil and criminal liability of the
company. It also enhances a company's image in the public eye as a self-policing
company that is responsible and worthy of shareholder and debt holder capital.
It dictates the shared philosophy, practices and culture of an organization and its
employees. A corporation without a system of corporate governance is often
regarded as a body without a soul or conscience. Corporate governance keeps a
company honest and out of trouble. If this shared philosophy breaks down, then
corners will be cut, products will be defective and management will grow
complacent and corrupt. The end result is a fall that will occur when gravity - in
the form of audited financial reports, criminal investigations and federal probes -
finally catches up, bankrupting the company overnight. Dishonest and unethical
dealings can cause shareholders to flee out of fear, distrust and disgust.
THE ROLE OF STAKEHOLDERS IN YOUR BUSINESS

In business, a stakeholder is usually an investor in your company whose actions
determine the outcome of your business decisions. Stakeholders don't have to
be equity shareholders. They can also be your employees, who have a stake in
your company's success and incentive for your products to succeed. They can be
business partners, who rely on your success to keep the supply chain going. Every
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business takes a different approach to stakeholders. The roles of stakeholders

differ between businesses, dependent on the rules and responsibilities laid out at
the founding of your company or as your business evolved over the years. The
most common definition of a stakeholder, however, is a large investor that has
the clout to hold a viable "stake" in your company.
DECISION MAKING
The most common gathering of stakeholders in a publicly traded company is the
board of directors, comprised of high-ranking executives and occasional
outsiders who hold large amounts of equity in the company. Any one of these
stakeholders has the power to disrupt decisions or introduce new ideas to the
company. The board of directors has the power to appoint all levels of senior
management - including the CEO - and remove them if necessary. Members of
the board dictate the future of the company and are involved in all major
business decisions.
DIRECT MANAGEMENT
While the board of directors is a more "hands off" approach to controlling a
company, some stakeholders prefer the "hands on" approach by directly
assuming management positions. Stakeholders can take over certain
departments - such as human resources or research and development - to
micromanage the business and insure success. In privately owned and publicly
traded companies, large investors often directly participate in business decisions
on the management level.
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INVESTORS
Stakeholders are regarded as large investors, who will either increase or
decrease their stakes in your company according to your financial performance.
Ideally, they act as guardian angels for everyday investors, poring over financial
reports and pressuring management to change tactics if necessary. Certain
stakeholders, known as activist investors, will make wildly unpredictable
investments and divestitures in order to move the share price and attract media
attention to a certain issue. Carl Icahn is well known for this high pressure tactic,
which is used to mold companies more to his liking.
CORPORATE CONSCIENCE
Large stakeholders are generally high profile investors, and would like to steer
clear of companies that trample human rights and environmental laws. They
monitor your company's outsourcing activities and globalization initiatives, and
may vote against your business decisions if they are deemed harmful to the
company's long-term goals.
OTHER RESPONSIBILITIES
Of course, this is only a broad description of stakeholder responsibilities. Ideally,
you'll have stakeholders who care about these four issues, but more often than
not, short-term profits take precedence over long-term sustainability. While
stakeholders may own your company, it's easier to control your investors when
your company is privately held than publicly traded. Often times, the large influx
of cash from a successful IPO turns out to be a deal with the devil when your
company is suddenly taken over by a board of directors that ousts you. On the
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flip side, however, stakeholders can keep your company grounded and focused
on its most profitable products and sustain your company's earnings growth.
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CHAPTER THREE
CORPORATE GOVERNANCE STRUCTURE
The established Corporate Governance Structure comprising the following
parties, provides a comprehensive framework to
(i) enhance accountability to shareholders and other stakeholders,
(ii) ensure timely and accurate disclosures of all material matters,
(iii) deal fairly with shareholders and other stakeholder interests, and (iv)
maintain high standards of business ethics and integrity.
It is specifically designed to enable company to discharge its statutory duty of

ensuring an orderly, informed and fair market and of ensuring risks are managed
prudently, while pursuing its business objectives, which helps reinforce Hong
Kong’s position as an international financial centre.
 Board of Directors – is responsible for providing leadership, either directly

or through its committees, and its subsidiaries (Group) in order to deliver
long-term value to shareholders and other stakeholders. It also leads and
supervises the Group’s management to act in the interest of the public as
well as its shareholders, but in case of conflict, the former shall prevail. It
establishes corporate policies, sets strategic direction, ensures that an
effective internal control environment is in place, and oversees the
management which is responsible for day-to-day operations. The Board
however, recognizes that delegating its functions and authorities to its
committees and the management does not absolve its overall
responsibility for the sound governance.
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 10 Board Committees – assist the Board in focusing on specific matters,

fulfil their roles and responsibilities delegated by the Board, report to the
Board on decisions and actions taken, monitor the management’s
performance, and make any necessary recommendations.
o Audit Committee
o Environmental, Social and Governance Committee
o Executive Committee
o Investment Advisory Committee
o Nomination Committee
o Panel Member Nomination Committee
o Project Oversight Committee
o Remuneration Committee
o Risk Committee
o Risk Management Committee (statutory)
 Company Secretary – is responsible for facilitating the Board process, as
well as communications among Board members, with our shareholders and
the management, and advising the Board and its committees on all
governance and CSR matters.
 3 Consultative Panels – act as the advisory bodies to the Board and the
management to provide market expertise and advice relating to the Cash
Market.
 Management Committee – has delegated authority from the Board for
performing the day-to-day management functions of the business and
implementing all projects and initiatives as approved by the Board.
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 External auditor and Internal Audit Department – provide assurance on

financial reporting and/or internal controls to ensure accountability and
audit quality.
 Shareholders – elect their representatives as directors at general meetings
to oversee the Group’s business.
 Other stakeholders – interact with the Group on daily operations. They
include institutional investors, market regulators, government bodies,
listed/potential issuers and market intermediaries, Exchange/Clearing
Participants/Members, Information Vendors and market participants,
Mainland exchanges, overseas exchanges, investing public, media and
analysts, non-governmental organisations, industry associations, professional
bodies, market users, suppliers/business partners and employees.
THE ROLE AND BENEFITS OF A CORPORATE GOVERNANCE FRAMEWORK
Having a common governance framework can play an important role in helping

boards gain a better understanding of their oversight role. The framework should
have attributes that contribute to effective governance and tools for addressing
governance risk. A framework also provides a more cogent construct for
evaluating how management’s responsibilities fit with the board’s oversight
responsibilities.
Having a common governance framework can play an important role in helping
boards gain a better understanding of their oversight role. The framework should
have attributes that contribute to effective governance and tools for addressing
governance risk. A framework also provides a more cogent construct for
evaluating how management’s responsibilities fit with the board’s oversight
responsibilities.
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A TOOL FOR ADDRESSING GOVERNANCE RISK

Why do boards and management teams need a governance framework to
operate? A framework helps define the role of the board and management,
delineates duties and helps prevent duplicated efforts and the overlooking of
critical issues. It can also assist with the execution of the board’s core processes
by providing structure to policies and tools (e.g., annual calendar, meeting
agendas, committee charters and guidelines). This allows the board to focus on
the right issues and properly prioritize its limited time and resources. In addition,
a framework provides the board with a structured way to collaborate with
management on specific issues the company faces with minimal risk of confusion
and loss of productivity. Lastly, a framework can help clarify each board
committee’s roles in fulfilling the board’s objectives from a governance
perspective.
In developing the Governance Framework, consideration was given to a number

of questions with which boards often struggle, including:
 What should the board be doing in the critical areas of oversight, such as
strategy and risk?
 In dealing with legal and regulatory compliance, how can the board be
positioned as a strategic partner with management?
The framework offers an end-to-end view of corporate governance. It forms the

basis for the tools that help boards and executives identify opportunities to
improve effectiveness and efficiency.
THE BOARD’S UNIQUE ROLE
27
The Governance Framework proposes that there are at least five critical
elements of the organization’s governance program —those related to talent,
performance, strategy, governance and integrity— that the board cannot simply
delegate to management. In each of these respective elements, stakeholders
expect that the board is not solely serving as a monitor of management
programs. The board has a specific role to play, such as in the selection of the
CEO. Risk and culture sit at the core of the governance framework, as everything
the board and management do to create and maintain effective governance
programs is predicated on the existence of strong risk management and a culture
that supports “doing the right thing.”
The board has a set of key objectives and activities for each of these governance
elements, which could be described as:
 Governance: The board establishes structures and processes to fulfill

board responsibilities that consider the perspectives of investors,
regulators and management, among others. The board selects its
members and leader(s) via an inclusive and thoughtful process, aligned
with company strategy.
 Strategy: The board advises management in the development of strategic
priorities and plans that align with the mission of the organization and the
best interests of stakeholders, and that have an appropriate short-, mid-
and long-range focus. The board also actively monitors management’s
execution of approved strategic plans as well as the transparency and
adequacy of internal and external communication of strategic plans.
28
 Performance: The board reviews and approves company strategy, annual

operating plans and financial plans. It also monitors management
execution against established budgets as well as alignment with strategic
objectives of the organization.
 Integrity: The board sets the ethical tenor for the company, while
management adopts and implements policies and procedures designed to
promote both legal compliance and appropriate standards of honesty,
integrity and ethics throughout the organization.
 Talent: The board selects, evaluates and compensates the CEO and
oversees the talent programs of the company, particularly those related to
executive leadership and potential successors to the CEO. The board
communicates executive compensation and succession decisions in a clear
manner.
 Risk governance: The board understands and appropriately monitors the
company’s strategic, operational, financial and compliance risk exposures,
and it collaborates with management in setting risk appetite, tolerances
and alignment with strategic priorities.
For some elements, the board’s role could be thought of as one of active
monitor, with the board understanding the operating models that are in place,
determining such models are adequately developed and resourced, monitoring
the output and any issues identified in the process, and so forth.
ATTRIBUTES THAT CONTRIBUTE TO GOVERNANCE EFFECTIVENESS

There are four attributes that help assess the board’s performance level and put
the framework into action. A board can use these attributes to help identify its
29
strengths and opportunities for improvement within each of the governance

elements:
 Skills and knowledge: What are the skills that are needed for the board to
effectively execute its responsibilities?
 Process: What processes are necessary for the board to both understand
and properly oversee the activities of the organization?
 Information: Is the information received by the board adequate to support
effective oversight and decision-making?
 Behavior: Does the board’s behavior support and reinforce strong
oversight?
These very broad questions can help to start the process of identifying gaps and
opportunities for improvement within the overall framework. Once the broad
questions have been addressed, the board can get more tactical and drill down
to more analysis of development opportunities within the various elements. For
example, a board may find the quality and timeliness of information provided by
management with respect to performance to be quite adequate, while
determining that the information available related to the strategic planning
process needs work. This high-level prioritization helps to take the broad
concepts of board effectiveness and create manageable activities.
IMPACT OF CORPORATE GOVERNANCE ON CORPORATE REPUTATION

Corporate governance mechanisms seek to protect investors and maximization
of corporate value, as well as increasing confidence on capital markets. Previous
empirical research has investigated corporate governance relationship with
information quality, earnings management or internal controls (Klein, 2002;
30
Cohen et al., 2004; Davila & Peñalva, 2006; 2008). According to Monterrey
Mayoral & Sánchez Segura (2008), corporate governance practices are
appropriately designed. It will guarantee the integrity of the accounting function,
which is essential to avoid earnings management. Both academics and regulators
have claim for the need of improving corporate governance controls. The
corporate governance mechanisms seek to enhance confidence on capital
markets, companies will have incentives to improve them voluntarily. It is
expected that companies should have better governance practices, a better
image and are more valued in terms of reputation. Reputation builds competitive
advantage (Weigelt & Camerer, 1988; Fombrun & Shanley, 1990; Hall, 1993) and
improves financial performance (Roberts & Dowling, 2002; Fernández & Luna,
2007). Several authors have pointed out that the ultimate responsibility for the
achievement and maintenance of a good reputation lies on the Board of
Directors and the CEO (Kitchen & Laurence, 2003; Dowling, 2004; Tonello, 2007)
Reputation is the most important aspects of banks as a study intend to

understand the factors affect the reputation of the bank. The research intends to
study the some key factors of the corporate reputation. The objective of this
paper is to test the Impact of Corporate Governance on Corporate Reputation.
A company achieves its competitive advantage when it succeeds to implement

the strategy of value creation which is not possessed by its competitors on the
market or in the industry. The sustainable competitive advantage may be
achieved by disposing mechanisms that protect their competitive advantage
from imitation. The established sustainable competitive advantage is the basis
for the realization of superior organizational performance, survival and
31
development. The theory of strategic management suggests that positive

reputation may create competitive advantage and influence corporate
performance .Market efficiency determines the role of corporate reputation, and
on an efficient market, the reputation plays the role of strategic property. There
is a problem of identifying strategic resources in comparison to non-strategic
ones, therefore it is best to say that strategies resources are the ones that
significantly contribute to creating sustainable competitive advantages.
According to Fombrun corporate reputation consists of four characteristics
credibility, reliability, responsibility and trustworthiness (Fombrun 1996)
COMPETITION AND CORPORATE GOVERNANCE

The results show that competition had a positive impact on productivity
growth, however, its interaction effect with corporate governance had a
substitute but not significant impact on productivity growth. When
competition was interacted with an alternative corporate governance
mechanism – bank – a positive and significant impact was, however,
observed which shows that competition and bank loans are complementary
in stimulating productivity growth of firms in Nigeria.
The results demonstrate that corporate governance had no significant impact

on productivity growth even when it was interacted with competition.
However, competition on its own had a significant impact on productivity
which means that Nigeria should concentrate more on building a competitive
private sector, and in this regard, government should try and pursue policies
that will foster competition and eliminate monopolistic tendencies. Once,
there is effective competition, the corporate governance may be
32
strengthened. However, the interactive effect of competition and bank loans

was found with a positive and significant impact which indicates that banks
as alternate corporate governance mechanism can only be effective if
competition is strong. This goes to show that the financial sector may not be
able to effectively and positively impact the real sector in Nigeria if the
prevailing level of competition is low. In such a situation finance may not be
channelled to projects that have long-run implications on sustainable growth
and development.
Socially, if the environment for competition is not fostered in Nigeria, the

country may face an uphill task in combating the problem of poverty through
a private sector-led solution. Hence, there is a need for government to begin
to formulate comprehensive competition policies that will ensure that
resources are optimally utilized in Nigeria.
In governance studies, though it is imperative to examine the degree of influence

of different variables on firm performance, it is also necessary to study their
mutual interaction. Independently they can constrain the managerial discretion
or can induce mangers/insiders to align their interest with shareholders interest.
On the other hand, there may be some complementarity or substitutability
relation between different variables. Specifically, competition and corporate
governance indicators may move in a particular direction or in opposite direction
while affecting productivity. When they move together and in the same
direction, we say they are complementary. When they move in the opposite
direction, then they are substitutes. Product market competition restricts
managerial discretion and therefore acts as an alternate mechanism to other
33
corporate governance variables. Also, it can strengthen certain market forces.

For example, higher competition can dampen corporate profit thereby eroding
market value of shares. It may signal for a corporate takeover, thereby putting
pressure on managers to perform well (Roe, 2004). When the devices are
complementary, the impact of product market competition would be greater in
firms with efficient governance structure.
The substitution effect implies when corporate governance is weak; competition

plays an important role as a disciplinary device forcing mangers to improve
performance and reduce slack. If competition and corporate governance were
complements, product market competition might not alone be sufficient to
reduce productive inefficiencies in an environment with poor corporate
governance. A number of theoretical papers investigate the effects of
competition and corporate governance on firm performance. Aghion and Howitt
(1997) and Aghion et al. (1999) developed a model in which competition appears
as a substitute to good corporate governance which is measured by financial
pressure at the firm level. On the other hand, Holmström and Milogrom (1994)
analyze initiative and various incentive mechanisms as complementary in a
multitask principal-agent framework
The empirical evidence is not unambiguous in its findings. Nickell et al. (1997)
find that financial pressure and dominant shareholder control from the financial
sector act as a (weak) substitute for product market competition in case of UK
firms. They find rent to be negatively related to total factor productivity (TFP)
growth; whereas interest payment and dominant shareholder control are
positively related to total factor productivity growth. They confirm that the last
34
two factors can substitute for competition. The impact of competition on

productivity performance is lower when firms are under financial pressure or
when they have a dominant external shareholder. Januszewski et al. (1999) find
that firms in highly competitive industries have higher rates of productivity
growth. Furthermore, they confirm competition has a positive effect on
productivity growth for those firms which have concentrated ownership of their
shares (complementary effect). Grosfeld and Tressel (2001) have studied the
interaction effect of governance and competition for the Warsaw Stock Exchange
listed firms. They find competition to be positively affecting productivity. They
confirm that the impact of product market competition depends on the
ownership structure. Product market competition has significant impact on
productivity in companies whose ownership structure is more dispersed or more
concentrated.
With regard to China, Hu et al. (2004) find that ownership, corporate governance
and competition are important predictors of firm performance. When they have
examined joint effect of the above three variables, ownership and corporate
governance turned out to be more important than competition. They have also
found some substitutability between private ownership and competition. Li and
Niu (2006) find moderate concentrated ownership and product market
competition to be complementary, so also relative dispersed ownership and
competition. They find evidence for a substitution effect between high
concentrated ownership and competition i.e., firms with high concentrated
ownership in competitive environment to be producing less. Koke et al. (2001)
have found complementary effect between concentrated ownership and
competition for German firms. They found when owner control is tight,
35
competitive pressure boosts higher productivity growth. In a subsequent study,

Koke and Renneboog (2005) found differential effect of competition and
ownership for U.K and German firms. In case of U.K, weak product market
competition has a negative impact on productivity growth of profitable, widely
held firms. Block holder control has no impact on the productivity growth in firms
which are subject to strong competition, but the presence of larger block holders
like insiders reduces the negative impact of weak competition. The relation
between strong block holder control and productivity growth is limited in case of
German profitable firms. However, controlling banks, insurance firms, and
government stakes are able to reduce the negative effects of weak product
market competition.
Some of the studies have examined the interaction of product market

competition and capital structure. Chevalier (1995a) finds that highly leveraged
firms are weak competitors in the product market. Kovencock and Philips (1997)
also presented the case that firm leverage and product market competition is
important in determining future firm performance.
36
CHAPTER FOUR
CORPORATE ETHICS
What is CORPORATE ETHICS?
The broad area dealing with the way in which a company behaves towards, and
conducts business with, its internal and external stakeholders, including
employees, investors, creditors, customers, and regulators. In certain national
systems minimum standards are required or recommended in order to eliminate
potential conflicts of interest or client/employee mistreatment.
BASIC PRINCIPLES OF CORPORATE ETHICS

These are the recommended principles of corporate ethics:
1. Complying with the laws and rules of the countries and regions where
business is conducted and engaging in fair practices in the light of social
ethics.
2. Aiming to become a sensible corporate citizen, and striving for harmony
with society.
3. Disclosing information in a timely fashion, and engaging in honest and
transparent communications.
4. Protecting the irreplaceable earth and contributing to the preservation of
the environment.
5. Respecting fundamental human rights and individuality, and building up a
corporate culture with a broad vision which fosters the spirit of corporate
ethics.
37
CORPORATE GOVERNANCE AND CORPORATE RESPONSIBILITY

Corporate Governance is ensuring that an organization is run in a responsible
manner by ensuring accountability, transparency and compliance with due
regard to its key stakeholders. It is the whole set of legal, cultural, and
institutional arrangements that determine what publicly traded corporations can
do, who controls them, how that control is exercised, and how the risks and
returns from the activities they undertake are allocated (Margaret Blair, 1995)
Corporate Social Responsibility (CSR) is corporate form of self-regulation

integrated into the business model to create a positive impact on the
stakeholders and the environment. CSR is a concept whereby companies
integrate social and environmental concerns in their business operations and in
their interactions with their stakeholders on a voluntary basis (European
Commission, 2001).
A traditional view suggested a contradiction between CSR and Corporate

Governance. Corporate Governance was related to profit maximization and
provided protection to shareholders who have provided capital to firm, while
CSR apparently was against profit maximization because it suggested a set of
actions beneficial for external stakeholders that may not be good for a
shareholder but not anymore. Corporate Governance is an umbrella term and
CSR is gradually getting fused into the company’s corporate governance
practices. Their relationship can be interpreted by abandoning the standard view
of the firm as a shareholder value maximizer and embracing the view of a firm as
a stakeholder value maximizer. This convergence paves the way for Corporate
Governance to be driven by ethical norms and the need for accountability, and it
38
enables CSR to adapt prevailing business practices. Today both Corporate

Governance and CSR focus on ethical practices in business and the
responsiveness of an organization to its stakeholders and the environment in
which it operates.
GLOBALIZATION AND CORPORATE GOVERNANCE

Globalization can be defined as the free movement of goods, services and
capital. Definition does not cover all the aspects of globalisation or global
changing. Globalisation also should be a process which integrates world
economies, culture, technology and governance. This is because globalisation
also involves the transfer of information between developed countries and
developing countries. Moreover globalisation has religious, environmental and
social dimensions. In order to encompass this broad impact area globalisation
covers all dimensions of the world economy, environment and society.
Moreover, it is apparent all over the world and the world is changing
dramatically. Every government has a responsibility to protect all of their
economy and domestic market from this rapid changing.
The question is how a company will adapt to this:
First of all, companies have to know different effects of globalisation.

Globalisation has some opportunities and threats. A company might have learnt
how to protect itself from some negative effects and how to get opportunities
from this situation. Globalization affects the economy, business life, society and
environment in different ways:
• Increasing competition,
39
• Technological development,
• Knowledge/Information transfer,
• Portfolio investment,
• Regulation/deregulation, International standards,
• Market integration,
• Intellectual capital mobility,
• Financial crisis-contagion effect-global crisis.
COMPETITION
Globalisation leads to increased competition and therefore increased

competition is a consequence of globalisation. This competition can be related to
product and service cost and price, target market, technological adaptation,
quick response and quick production by companies, in addition to such things as
quality and customer satisfaction. When a company produces with less cost and
sells cheaper, it will be able to increase its market share. Customers have too
many choices in the market and they want to acquire goods and services quickly
and in a more efficient way. Also they are expecting high quality and a cheap
price which they are willing to pay.
All these expectations need a response from the company, otherwise the sales of
the company will decrease and they will lose profit and market share. A company
must be always ready for price competitions for product and service and for
changes in customer preferences because all of these are global market
requirements
40
EXCHANGE OF TECHNOLOGY
One of the most striking manifestations of globalization is the use of new

technologies by entrepreneurial and internationally oriented firms to exploit new
business opportunities. Internet and e-commerce procedures hold particular
potential for SME’s seeking to broaden their involvement into new international
markets. Technology is also one of the main tools of competition and for
enhancing the quality of goods and services. On the other hand it necessitates
quite a lot of cost for the company. The company has to use the latest
technology for increasing their sales and product quality. Globalisation has
increased the speed of technology transfer and technological improvement.
Customer expectations are directing markets. Mostly companies in capital
intensive markets are at risk and that is why they need rapid adapting concerning
customer and market expectations. These companies have to have efficient
technology management and efficient R&D management.
A. Knowledge/Information Transfer
Information is a most expensive and valuable production factor in the current

environment. Information can be easily transferred and exchanged from one
country to another. If a company has a chance to use knowledge and information
then it means that it can adapt to this global changing. This issue is similar with
the technology transfer issue in global markets. The rapid changing of the market
requires also quick transfer of knowledge and efficient using of that knowledge
and information.
41
B. Portfolio Investment (Financial Fund Flows)
Globalisation encourages increased international portfolio investment.

Additionally, financial markets have become increasingly open to international
capital flows. For this reason, portfolio investment is one of the major problems
of developing economies. It is almost the only way to increase liquidity of the
markets and economies for emerging countries through attracting foreign funds.
Significantly, this short term investment can dramatically impact on the financial
markets. When the emerging economies have some problem in their country or
investors make enough profit from their investment then these investors might
leave the market. This would mean that market liquidity decreased and financial
markets indicators plummet immediately.
C. Regulation/Deregulation and International Standards
Globalisation needs more regulation of the markets and economy. There are
many new and complicated financial instruments and methods in the market and
such instruments easily transfer and trade in other countries because of the
globalisation effect Every new system, instrument or tool requires new rules and
regulations to determine its impact area. These regulations are also necessary to
protect countries against global risks and crises. When the crisis comes out of
one country then it influences other countries with trade channels and fund
transfers, which we call the contagion effect. On the other hand, during
globalisation the shares of big companies are trading in international stock
markets and these companies have shareholders and stakeholders in many
different countries. International rules and regulations offer protection
particularly to small investors against the big scandals and other problems in
42
companies, examples of which we have seen during the recent financial crisis.
International standards also regulate markets and economies by means of
international principles and rules such as international accounting standards,
international auditing standards. These aim to make corporate reporting
standardized and comparable. So that is why the globalized world has more rules
and more regulations and international standards than before.
D. Market Integration
In fact globalisation leads to the conversion of many markets and economies into
one market and economy. The aim of international standards and regulations is
also to deregulate all these markets. The economy needs financial structures
capable of handling the higher level of risk in the new economy. For this reason
financial markets must be broad, deep, and liquid and at present only the U.S.
financial markets are large enough to provide this financial structure in the world
market. Global stock market projection and Pan-European stock market
projection are part of this changing. There are many similar examples in the
current situation for market integration which are also the result of increasing
competition in the economy. Integration examples are prominent in company
mergers and acquisitions as well
E. Qualitative Intellectual Capital Mobility
Another effect of globalisation is human capital mobility through knowledge and

information transfers. One of the reasons is that international/multinational
companies have subsidiaries, partners and agencies in different countries. They
need skilled and experienced international employees and rotation from country
to country to provide appropriate international business practice. This changing
43
also requires more skilled, well-educated and movable employees who can adapt
quickly to different market conditions.
F. Financial Crisis-Contagion Effect-Global Crisis
Financial crises are mostly determined through globalisation and as a result of

the globalisation impact. The financial world has witnessed a number of crises in
recent years. Generally financial crises come out from international funds/capital
flows (portfolio investments), lack of proper regulations and standards, complex
financial instruments, rapid development of financial markets, asymmetric
information and information transfers. One country crisis can turn into a global
crisis with. Systemic risk refers to a spreading4systemic risk effect financial
crisis from one country to another country. In some cases, crises spread even
between countries which do not appear to have any common economic
fundamentals/problems. Previous global crises have also shown that one of the
reasons for the crisis is unregulated markets.
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CHAPTER FIVE
GLOBAL GOVERNANCE
THE CONCEPT OF GLOBAL GOVERNANCE
All systems of governance are concerned primarily with managing the governing
of associations and therefore with political authority, institutions, and,
ultimately, control. Governance in this particular sense denotes formal political
institutions that aim to coordinate and control interdependent social relations
and that have the ability to enforce decisions. Increasingly however, in a
globalised world, the concept of governance is being used to describe the
regulation of interdependent relations in the absence of overarching political
authority, such as in the international system. Thus, global governance can be
considered as the management of global processes in the absence of any form of
global government. There are some international bodies which seek to address
these issues and prominent among these are the United Nations and the World
Trade Organisation Each of these has met with mixed success in instituting some
form of governance in international relations but is part of recognition of the
problem and an attempt to address worldwide problems that go beyond the
capacity of individual states to solve. To use the term global governance is not of
course to imply that such a system actually exists, let alone to consider the
effectiveness of its operations. It is merely to recognise that in this increasingly
globalised world there is a need for some form of governance to deal with
multinational and global issues. The term global governance therefore is a
descriptive term, recognising the issue and referring to concrete cooperative
problem-solving arrangements. These may be formal, taking the shape of laws or
45
formally constituted institutions to manage collective affairs by a variety of

actors – including states, intergovernmental organisations, non-governmental
organisations (NGOs), other civil society actors, private sector organisations,
pressure groups and individuals. The system also includes of course informal (as
in the case of practices or guidelines) or temporary units (as in the case of
coalitions). Thus global governance can be considered to be the complex of
formal and informal institutions, mechanisms, relationships, and processes
between and among states, markets, citizens and organizations, both inter- and
non-governmental, through which collective interests on the global plane are
articulated, rights and obligations are established, and differences are mediated
CONCEPTUALISING GLOBALISATION AND CORPORATE GOVERNANCE

Many scholars around the world have been expressing different view concerning
globalisation and its effect on live of the people, particularly the developing
economies. While some would rather view it from its merit, others were concern
about its presume negative impact. Hence, globalisation has been defined by
many scholars from different perception. For example, Obadan (2006) define
globalization as a process which integrates world economies, culture, technology
and governance, while Snyder (2002) conceptualizes globalization as an
aggregate of multifaceted uneven, often contradictory economic, political, social
and cultural processes, which are characteristic of our time. To Jacob (2007),
globalization refers to the process and a web of increasing integration of
countries into the world economy which allows for a free flow of ideas, people,
capital and contacts among enterprises, institutions and people across national
borders. While globalization may not alter the corporate structure, it influences
46
corporate governance practices in several ways especially through the strategies

it makes available on corporate finance, production and management.
According to Iskander and Chamlou (2000) as cited in Chiejine (2010), corporate

governance can be viewed from two perspectives, that is, the private sector and
public sector. From a private sector’s perspective, corporate governance is about
maximizing value subject to meeting the corporation’s financial and other legal
and contractual obligations. And this involves the board of directors’ balancing
the interests of shareholders with those of other stakeholders. On the other
hand, corporative governance from the perspective of public policy is about
nurturing enterprises while ensuring accountability in the exercise of power and
patronage by firms. Parkinson (1994), however view corporate governance as the
process of supervision and control (of governing) intended to ensure that the
company’s management act in accordance with the interest of the shareholders.
In their own opinions, Copeland and Weston (1992) consider corporate
governance to enclose the legal rules, institutional arrangements, and practices
that determine who controls business corporations and who gets the benefits
that flow from them. And Adams (2006) considers it as a function of direction
and leadership, risk management, control, transparency and accountability.
Regardless what view of the corporate objective is taken, according to Gregory
(2000), effective governance ensures that boards and managers are accountable
for pursuing it. Effective corporate governance thus:
i. Promotes the efficient use of resources both within the company and the
larger economy
ii. Helps ensure that the company is in compliance with the laws, regulations,
and expectations of society.
47
iii. Provides managers with oversight of their use of corporate assets.
iv. Supports effort to reduce corruption in business dealings and;
v. Assists companies and economies in attracting lower-cost investment

capital by improving both domestic and international investor confidence
that assets will be used as agreed.
HOW GLOBALISATION AFFECTS GOVERNANCE

The question might be how globalisation affects governance. But the answer to
this question is not only related to the last quarter of the 20th century but also
related to previous centuries. John Maynard Keynes calculated that the standard
of living had increased 100 percent over four thousand years. Adam Smith had a
seminal idea about the wealth of communities and in 1776. He described
conditions which would lead to increasing income and prosperity.
Similarly, there is much evidence from economic history to demonstrate the
benefit of moral behaviour; for example, Robert Owen in New Lanark, and
Jedediah Strutt in Derbyshire – both in the UK – showed the economic benefits of
caring for stakeholders.
More recently, Friedman has paid attention to the moral impact of the economic
growth and development of society.
It is clear that there is nothing new about economic growth, development and
globalisation. Economic growth generally brings out some consequences for the
community. This is becoming a world phenomenon.
One of the most important reasons is that we are not taking into account the
moral, ethical and social aspects of this process. Some theorists indicated the
48
effect of this rapid changing more than a hundred years ago. Economic growth
and economic development might not be without social and moral consequences
and implications.
Another question is who is responsible for this ongoing process and for ensuring
the wellbeing of people and safeguarding their prosperity. Is this the
responsibility of governments, the business world, consumers, shareholders, or
of all people?
Government is part of the system and the regulator of markets and lawmakers.
Managers, businessmen and the business world take actions concerning the
market structure, consumer behaviour or commercial conditions.
Moreover, they are responsible to the shareholders for making more profit to
keep their interest long term in the company. Therefore they are taking risk for
their benefit/profit. This risk is not opposed to the social or moral/ethical
principles which they have to apply in the company. There are many reasons for
ethical and socially-responsible behaviour of the company. However, there are
many cases of misbehaviour and some illegal operations of some companies.
Increasing competition makes business more difficult than before in the
globalised world. The good news and our expectations are that competition will
not have any longer bad influence on company behaviour.
According to international norms, (practice) and expectations, companies have

to take into account social, ethical and environmental issues more than during
the last two decades. One of the reasons is more competition and not always
more profit; another reason is consumer expectation is not only related to the
49
cost of products but also related to quality, proper production process and
environmental sensitivity.
Moreover shareholders are more interested in long term benefit and profit from
the company. The key word of this concept is long term which represents also a
sustainable company. Shareholders want to get long term benefit with a
sustainable company instead of only short term profit.
This is not only related to the company profit but also related to the social and
environmental performance of the company. Thus, managers have to make
strategic plans for the company concerning all stakeholder expectations which
are sustainable and provide long term benefit for the companies with their
investments.
However, Sustainability can be seen as including the requirement that whatever

justice is about – fair distribution of goods, fair procedures, respect for rights and
social justice, and is capable of being sustained into the future indefinitely.
Globalisation has had a very sharp effect on company behaviour and still we can
see many problems particularly in developing countries. This is one of the
realities of the globalisation process. However, we are hoping to see some
different approaches and improvements to this process with some of them
naturally related to some international principles, rules and norms. But, most of
them are related to the end of this flawed system and the problems of
capitalization.
50
The challenge of governance in a globalizing world is to engage in a process of

political deliberation which aims at setting and resetting the standards of global
business behaviour.
While stakeholder management deals with the idea of internalizing the demands,
values and interests of those actors that affect or are affected by corporate
decision-making,
Scherer & Palazzo, 2000, argue that political CSR3 can be understood as a
movement of the corporation into environmental and social challenges such as
human rights, global warming, or deforestation.
A. Globalisation, Corporate Failures and Corporate Governance

Enron, WorldCom, Parmalat, and various other failures of global corporations
bring out some governance issues and 3 Corporate social responsibility - CSR,
also called corporate conscience, corporate citizenship, social performance, or
sustainable responsible business. Responsible Business is a form of corporate
self-regulation, integrated into a business model have increased attention to the
role of business ethics.
Managers and CEOs of these companies must be considered responsible for all of
these failures and these are cases of
― corporate irresponsibility. Many people have the opinion that if
corporations were to behave responsibly, most probably corporate
scandals would stop.
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Corporate governance protects firms against some long term loss. When
corporations have social responsibilities, they calculate their risk and the cost of
failure.
Firstly, a company has to have responsibility to shareholders and also all

stakeholders which means that it has responsibility to all society. Corporate
failures have an important impact on all society also. In particular, big scandals
such as Enron have sharply affected the market and the economy. Various
stakeholders as well as shareholders and regulators of the firm have a
responsibility to ensure good performance.
Therefore, corporate governance is not only related to firms but also related to
all society. So, changing the role of corporate responsibility shifts the focus from
the real problem that society needs to address. One of the reasons for this result
is increasing competition between the company and the market. Managers tend
to become much more ambitious than before in their behaviour and status in the
globalised world.
The question is how to behave as a socially responsible manager and how to

solve this vital problem in business life and in society. In the business world there
are always some rules, principles and norms as well as regulations and some
legal requirements.
However, to be socially responsible one must be more than simply being a law
abiding person who has to be capable of acting and being held accountable for
decisions and actions.
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The problem is the implication for all of these directions for company and
managerial behaviour.
On the other hand, one perspective is that a corporation is a

―legal person‖ and has the rights and duties that go with that status—including
social responsibility.
In the case of Enron, managers were aware of all regulations, even though they
have known all irresponsible and unethical problems in the company
management; they did not change their approach and behaviour.
The conclusion is that it is not always possible to control behaviour and

corporate activity with regulations, rules and norms. So another question arises
in this situation, that if people do not know their responsibility and socially
responsible things to do and if they do not behave socially responsibly then, who
will control this problem in business life and in the market.
The concern is that the social responsibility implication of the company cannot
be controlled through legal means. This is the only social contract between
mangers and society and stakeholders of the company and for responsible and
accountable behaviour. Firms will consciously need to focus on creating value not
only in financial terms, but also in ecological and social terms.
The challenge facing the business sector is how to set about meeting these
expectations. Firms will need to change not only in themselves, but also in the
way they interact with their environment.
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EFFECT OF GLOBALISATION ON CORPORATE GOVERNANCE in NIGERIA

The interconnection of sovereign nations through trade, capital flows, and
harmonization of the economic rules, brought about by globalization encourages
the presence of giant public corporations with subsidiaries and off-shoots in
various countries. Nigeria is very much affected by the influence of the
multinational and transnational corporations which are major players in her
economy. They include nearly all major global oil and gas companies like Shell,
ExxonMobil, Chevron, Texaco, Total, Agip and other multinational corporations
like Unilever, Paterson and Zochonis (PZ Cussons), Nestle, and Cadbury. The
corporate governance structure and practices of these companies must meet a
minimum standard wherever the companies operate, which dictate the need for
certain measure of uniformity and consistency in corporate governance
strategies and rules all over the globe.
Liberalization is a major plank of globalization; hence the liberalization of capital

markets has made foreign capital more accessible and attractive in some cases to
the corporation. According to Onyema (2012), the Nigerian capital market in
2011 was driven by the activities of foreign investors, who accounted for 70
percent of the total market activities. Accessibility of foreign capital sometime
entails the adoption of practices that the foreign investors bring. For instance,
some foreign investors, particularly American investors, demands for improved
disclosure of financial results, and reforms to improve the independence of the
Board of Directors (Jacob, 2007).
The Nigerian banking sector has also experienced the impact of globalization, in
the aspect of corporate governance. For instance, the Central Bank of Nigeria’s
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recapitalization policy, which led to consolidation of banks, through mergers &

acquisitions; the introduction of new products & services; change of top
management teams; and consistent training of staff on industry’s best practices
are all issues bothering on Corporate Governance (Aanuoluwapo, 2009).
Globalisation has been found to affect most sectors in developing economies like
Nigeria, resulting in the benchmarking of processes across firms and industries,
particularly in the formulation of corporate governance regulatory framework and
rating of countries corporate governance performance
CORPORATE GOVERNANCE REGULATORY FRAMEWORK IN NIGERIA

In line with the new wave of issuing corporate governance-specific codes and
standards, the United Nations gave the guidance on good practices in corporate
governance disclosure. Both the guidelines on corporate governance issued in
September 1999 by the Basel Committee under the Bank for International
Settlements (BIS) and in particular the OECD Principles of Corporate Governance
have become widely accepted as benchmarks for measuring good corporate
governance (Nwadioke, 2009). Although a survey by the Securities and Exchange
Commission (SEC) showed that corporate governance is at a rudimentary stage in
Nigeria, however, Nigeria’s SEC in 2003 released the Code of Best Practices for
Public Companies in Nigeria. The Central Bank of Nigeria also issued the Code of
Corporate Governance for Banks in Nigeria post-Consolidation. Other
principal/legislations/codes in Nigeria designed to promote good governance
include:
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i. The Companies and Allied Matters Act No. 46 of 1991 (CAMA), which is the
main legislation governing mandatory corporate governance standards
among companies
ii. Investment and Securities Act No. 45 of 1997 (ISA)
iii. Banks and Other Financial Institutions Act No. 24 of 1991 (BOFIA)
iv. Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act
No. 18 of 1994.
v. Insurance Act No. 2 of 1997
vi. The National Insurance Commission Act No.1 of 1997
vii. The Nigerian Accounting Standards Board Act No. 22 of 2003
viii. Code of Best Practices on corporate governance in Nigeria
ix. International Standards of auditing
x. CBN Code of corporate governance for banks in Nigeria post consolidation
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CHAPTER SIX
MODELS OF CORPORATE GOVERNANCE
Corporate governance is the set of company tools, rules, relations, processes and
systems designed for the fair and efficient management of the enterprise, meant
as a compensation system among the potentially divergent interests of the
minority shareholders, the controlling shareholders, and the directors of a
company. Hence the corporate governance structure expresses the rules and
processes for company decision-making, the procedures for setting the
company's objectives, and the means for attaining and measuring the results
achieved.
There several different governance models, depending on the degree of

capitalism in which the company operates. The liberal model, typical of the
English-speaking countries, gives priority to shareholders’ interests. The model
prevalent in continental Europe and Japan also recognizes the interests of the
workers, managers, suppliers, customers, and society.
The rules of corporate governance are based on both the laws and regulations in
the legal framework of the country in which the company operates, and its own
bylaws. Relations include those among the actors involved in the company: the
owners (shareholders), the managers, the directors, the regulatory authorities,
the employees, and the company in the wide sense. The processes and systems
refer to mechanisms of delegation of powers, performance measuring, security,
reporting, and accounting.
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Usually three different corporate governance systems are distinguished for joint-
stock companies.
The ordinary system, typical of the Italian tradition, is applied in the absence of a
different selection as per the bylaws. This system calls for the presence of an
administrative body (a Sole Director or a Board of Directors whose number of
members is determined by the shareholders’ meeting, unless set in the bylaws)
and a Control Body (the Board of Statutory Auditors).
The two-tier system, typical of the German tradition (and the only direction and
control system for joint-stock companies) and later adopted by other European
countries such as France, the Netherlands, and Finland (where, however, it is
optional), by which the company’s administration is divided into two different
bodies, the management board and the supervisory board.
There must be at least two members of the management board, whose terms of
office may not exceed three financial years and they may be removed at any
time by the supervisory board. They are subject to the same responsibilities as
directors.
There must be at least three members of the supervisory board, they are
appointed by the shareholders’ meeting for three financial years (the
shareholders’ meeting also appoints its chairman) and their terms are
renewable. The shareholders’ meeting may remove them at any time.
The one-tier system, typical of the English-speaking country tradition, where

management is assigned to a single board, the board of directors, among whose
members a control committee is appointed.
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On the other hand, Corporate governance is the process by which large

companies are run. There are various different models that are applied across
the world. There is disagreement over which is the best or most effective model
as there are different advantages and disadvantages with each model. Methods
are developed according to the laws and other factors specific to the country of
origin.
ANGLO-US MODEL
The Anglo-US model is based on a system of individual or institutional

shareholders that are outsiders of the corporation. The other key players that
make up the three sides of the corporate governance triangle in the Anglo-US
model are management and the board of directors. This model is designed to
separate the control and ownership of any corporation. Therefore the board of
most companies contains both insiders (executive directors) and outsiders (non-
executive or independent directors). Traditionally, though, one person holds the
position of CEO and chairman of the board of directors. This concentration of
power has led many companies to include more outside directors now. The
Anglo-US system relies on effective communication between shareholders,
management and the board with important decisions being put to the vote of
the shareholders.
JAPANESE MODEL
The Japanese model involves a high level of ownership by banks and other
affiliated companies and "keiretsu," industrial groups linked by trading
relationships and cross-shareholding. The key players in the Japanese system are
the bank, the keiretsu (both major inside shareholders), management and the
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government. Outside shareholders have little or no voice and there are few truly
independent or outside directors. The board of directors is usually made up
entirely of insiders, often the heads of the different divisions of the company.
However, remaining on the board of directors is conditional on the company's
continuing profits, therefore the bank or keiretsu may remove directors and
appoint its own candidates if a company's profits continue to fall. Government is
also traditionally influential in the management of corporations through policy
and regulations.
GERMAN MODEL
As in Japan, banks hold long-term stakes in corporations and their

representatives serve on boards. However they serve on boards continuously,
not just during times of financial difficulty as in Japan. In the German model,
there is a two-tiered board system consisting of a management board and a
supervisory board. The management board is made up of inside executives of the
company and the supervisory board is made up of outsiders such as labor
representatives and shareholder representatives. The two boards are completely
separate, and the size of the supervisory board is set by law and cannot be
changed by the shareholders. Also in the German model, there are voting right
restrictions on the shareholders. They can only vote a certain share percentage
regardless of their share ownership.
MECHANISMS OF CORPORATE GOVERNANCE
Corporate governance is the policies and procedures a company implements to

control and protect the interests of internal and external business stakeholders.
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It often represents the framework of policies and guidelines for each individual in
the business. Larger organizations often use corporate governance mechanisms
to manage their businesses because of their size and complexity. Publicly held
corporations are also primary users of corporate governance mechanisms
BOARD OF DIRECTORS
A board of directors protects the interests of a company’s shareholders. The

shareholders use the board to bridge the gap between them and company
owners, directors and managers. The board is often responsible for reviewing
company management and removing individuals who don't improve the
company’s overall financial performance. Shareholders often elect individual
board members at the corporation’s annual shareholder meeting or conference.
Large private organizations may use a board of directors, but their influence in
the absence of shareholders may diminish.
AUDITS
Audits are an independent review of a company’s business and financial

operations. These corporate governance mechanisms ensure that businesses or
organizations follow national accounting standards, regulations or other external
guidelines. Shareholders, investors, banks and the general public rely on this
information to provide an objective assessment of an organization. Audits also
can improve an organization’s standing in the business environment. Other
companies may be more willing to work with a company that has a strong track
record of operations.
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BALANCE OF POWER
Balancing power in an organization ensures that no one individual has the ability
to overextend resources. Segregating duties between board members, directors,
managers and other individuals ensures that each individual’s responsibility is
well within reason for the organization. Corporate governance also can separate
the number of functions that one division or department completes within an
organization. Creating well-defined roles also keep the organization flexible,
ensuring that operational changes or new hires can be made without
interrupting current operations.
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CHAPTER SEVEN
SHAREHOLDERS
WHO IS A SHAREHOLDER?
When an individual or a group or persons purchase shares (whether in small or
large sum) of a company, they become shareholders of that particular company.
In Nigeria, there are over twenty million shareholders who own share in public
and private companies. Who then is a shareholder? What are his or her rights
and responsibilities? A shareholder is a part owner of a company and is entitled
to take part in making decisions for the running of the company. He is also
entitled to access information regarding the performance or otherwise of the
company as contained in its annual report at the end of every year. He can vote
on company issues at shareholders’ Annual General Meetings (AGMs) and other
meetings. A shareholder benefits immensely whenever the company is doing
well (i.e. making profit), then his shares would be worth more than when he
bought them (capital appreciation); and he may receive an income called
dividend; as well as participate in the rights issued by the company.
WHAT IS 'SHAREHOLDER'?
A shareholder, commonly referred to as a stockholder, is any person, company,
or institution that owns at least one share of a company’s stock. Because
shareholders are a company's owners, they reap the benefits of the company's
successes in the form of increased stock valuation. If the company does poorly
and the price of its stock declines, however, shareholders can lose money.
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A shareholder or stockholder is an individual or institution (including

a corporation) that legally owns one or more shares of stock in a public or private
corporation. Shareholders may be referred to as members of a corporation.
Legally, a person is not a shareholder in a corporation until his or her name and
other details are entered in the corporation‘s register of shareholders or
members.[1] A beneficial shareholder is the person that has the economic benefit
of ownership of the shares, while a nominee shareholder is the person who is on
the corporation’s register as the owner while being in fact acting for the benefit
and at the direction of the beneficiary, whether disclosed or not. The corporation
is not required to record the beneficial ownership of a shareholding, only the
owner as recorded on the register. When more than one person are on the
record as owners of a shareholding, the first one on the record is taken to have
control of the shareholding, and all correspondence etc by the company will be
with that person.
Shareholders of a corporation are legally separate from the corporation itself.

They are generally not liable for the debts of the corporation; and the
shareholders' liability for company debts are said to be limited to the unpaid
share price, unless if a shareholder has offered guarantees.
SHAREHOLDER RIGHTS
Shareholders enjoy certain rights, which are defined in the corporation's charter
and bylaws. Shareholders have the following rights:
 to inspect the company's books and records

 to sue the corporation for misdeeds of the directors and officers
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 Common shareholders are entitled to vote on major corporate matters,

such as who sits on the board of directors and whether a
proposed merger should occur.
 If a company liquidates its assets, its shareholders have a right to a
proportionate allocation of the proceeds.
However, creditors, bondholders, and preferred stockholders have
precedence over common stockholders.
 to receive a portion of any dividends the company declares.
 to attend, in person or via conference call, the corporation's annual
meeting to learn about the company's performance
 Common shareholders who do not attend the voting meeting have the
right to vote by proxy through the mail or online.
The specific rights allocated to both common and preferred shareholders are
outlined in each company's corporate governance policy.
Shareholders may be granted special privileges depending on a share class.

The board of directors of a corporation generally governs a corporation for the
benefit of shareholders.
Subject to the applicable laws, the rules of the corporation and any shareholders’
agreement, shareholders may have the right:
 to sell their shares.

 to vote on the directors nominated by the board of directors.
 to nominate directors (although this is very difficult in practice because of
minority protections) and propose shareholder resolutions.
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 to vote on mergers and changes to the corporate charter.

 to dividends if they are declared.
 to access certain information; for publicly-traded companies, this information
is normally publicly available.
 to sue the company for violation of fiduciary duty.
 to purchase new shares issued by the company.
 to what assets remain after a liquidation.
Shareholders are considered by some to be a subset of stakeholders, which may

include anyone who has a direct or indirect interest in the business entity. For
example, employees, suppliers, customers, the community, etc., are typically
considered stakeholders because they contribute value and/or are impacted by
the corporation.
Shareholders may have acquired their shares in the primary market by

subscribing to the IPOs and thus provided capital to the corporation. However,
most shareholders acquire shares in the secondary market and provided no
capital directly to the corporation.
RIGHTS OF SHAREHOLDERS
The Companies & Allied Matters Act of 1990 (CAMA) provides for shareholders
several basic rights relating to general meetings, which are as follows:
• Subject to section 228 of CAMA of 1990, every shareholder shall have the right
to attend any general meeting of the company in accordance with the provisions
of section 81 (CAMA)
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• Shareholders have the right to speak and vote or any resolution before the
meeting in accordance with the provision of section 81 of the CAMA of 1990
• Shareholders have the right to vote in person or in absentia, and equal effect
shall be given to votes whether cast in person or in absentia
• Shareholders should be furnished with sufficient and timely information

concerning the date, location and agenda of the general meetings, as well as full
and timely information regarding the issues to be decided at the meeting
• They shall be given the opportunity to ask questions from the board and to
place items on the agenda at the general meetings, subject to reasonable
limitations
• They have the right to be informed of any resolution appointing or approving

the appointment of a director for the purpose of section 256 of the CAMA of
1990.
• Shareholders have the right to sue for dividends in accordance with section 385
of CAMA of 1990
• Right to a copy of the memorandum and articles, if any, and a copy of any
enactment which alters the memorandum in accordance with section 42 of
CAMA of 1990
Right of a preference share to more than one vote in accordance with section
143, sub-section (1) (3) of CAMA of 1990
• Right of conveying or transferring shares
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• Rights of sharing in the residual profits of the company
• Shareholders have right to bonus and rights issue of the company
• Shareholders have rights to inspect the register of members of the company
• Shareholders have the right to be issue within three months without any
payment a certificate after the close of offer (S. 146 (1&2).
• Right of shareholders vis-à-vis a prospectus that is being issued in an offer for

subscription of shares by an Issuer
• Right of the shareholders to be represented in the audit committee of the

company
• Aggrieved shareholders have the right to seek redress. The Investment and
Securities Tribunal (IST) and the Administrative Proceedings Committee (APC) of
the Securities and Exchange Commission mechanism that can be used to address
such grievances
SHAREHOLDERS DUTIES
A shareholder doesn’t manage the day to day business of the company as this is
handled by the board of directors.
However, decisions in relation to the company’s goals and overall performance

often require shareholder approval, which include (but are not limited to) the
following:
 Changes to the constitution of the company

 Declaring a dividend
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 Approving the financial statements of the company

 Winding up of the company by way of voluntary liquidation
Shareholder decisions can be made by resolution or at general meetings, where
shareholders discuss the company’s performance and vote on relevant
resolutions. There are two types of general meetings, annual (AGM), which are
held once a year and extraordinary (EGM), which take place when required.
When a shareholder is unable to attend a general meeting it is possible for them

to appoint a proxy in their place.
Though it is not possible for shareholders to amend decisions made by directors

or interfere with the running of the company, they can convene a general
meeting and raise a motion to remove a director, or the full board, or they can
amend the articles to restrict the director’s powers.
SHAREHOLDER DECISIONS
There are two types of shareholder resolutions, ordinary and special, and both
have distinct rules and requirements.
An ordinary resolution requires a simple majority of the members present to

vote in favour of the resolution and this is acceptable for the majority of
shareholder decisions.
For UK and Irish private limited companies, special resolutions require the
approval of 75% or more of its members
Votes at general meetings can be cast either by way of a show of hands or by

poll. A show of hands results in every shareholder or proxy present having one
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vote only, while a poll allows each shareholder to have one vote for each share
they hold.
SHAREHOLDER LIABILITY
A shareholder’s liability is limited as the company’s debts are the responsibility of
the company itself. The shareholder is liable only for the price they paid for the
shares however it should be noted that if the shares are partially paid, the
shareholder will be required to pay the remaining balance, either when the
directors or an administrator (if the company is in financial difficulty) call up the
unpaid amount.
MINORITY SHAREHOLDER PROTECTION
A minority shareholder in a company does not have much power to influence its
management and, therefore, sometimes their interests are disregarded. Should
they need to protect their position, a minority shareholder can do so in a number
of ways, eg, they may bring an unfair prejudice claim, pursue a derivative action
or seek a winding-up petition.
PROTECTION OF MINORITY SHAREHOLDERS
In company law, a minority shareholder has little, if any, power over the
management of the company or the distribution of its profits. However there
are ways in which a minority shareholder might be protected, either by
agreement with the other shareholders or by taking action through the courts in
certain circumstances
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SHAREHOLDERS AGREEMENTS:
Very often these are used when a business is started. Several shareholders put
money into the project and want to make sure they can get a proper reward for
their commitment of time and/or money in it setting up, managing and
developing the business. The agreement will often include controls on the
appointment of Directors, profit distribution, major expenditure, borrowing and
exit mechanisms. This gives minority shareholders a say in the business and
some security, where they would otherwise have no influence in decisions
affecting their interests. Please note, however, that in most things relating to
companies, when it comes to a vote the majority rules.
If you are starting a business using a limited company please come and speak to
us about putting an agreement into lace before you take the plunge. It is much
easier and cheaper to get these things sorted out beforehand than risk the
expense and risk of going to court later. Also, everyone knows where they stand
if you have an agreement and it reduces the risk of major conflicts arising.
There is nothing to stop existing businesses from entering into a shareholders’

agreement long after they have been trading and this sometimes happens when
one of the main shareholders is considering retiring or has retired.
Another advantage of having such an agreement is that it sits behind the

company’s public face and is a private document between the shareholders. It
does not have to be filed at Companies House.
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Shareholder application to court – unfair prejudice – S.994 Companies Act

2006:
A shareholder who thinks that the company is being run in a way which is
unfairly prejudicial to some of the shareholders (they may even be the majority)
may make an application to the Companies Court to correct that behaviour. For
example, failing to pay declared dividends, undertaking activities which are not
permitted under the company’s Articles or doing something which might result in
the company’s insolvency, are all things which might justify an application.
It is important to act quickly because the court will reject an application where
the shareholder has allowed things to run on, as the court will regard this as
acquiescence in the action taken by the Director/s.
If an application is made, the shareholder may be required to sell his/her shares

to the remaining shareholders by the court as a way of resolving the matter if
this is practical. There are other issues for the court to consider when dealing
with the application and these include the shareholder’s own conduct.
These applications are rarely straightforward and are often settled by

negotiation before the court is asked to make a final decision. Quite often, one
or more of the shareholders leave with a package.
The so-called ‘derivative action’ – S.260 of the Companies Act 2006:
For example if the company were to enter into a contract with another company
which was owned by one of the Directors and this would be much less favourable
than a similar contract with another, unconnected, business, then the company
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will suffer as its profits will be reduced. The director in question would make a
personal profit at the expense of the company.
These claims are rare because although the shareholder can issue the court
proceedings to get things going, the court must give permission for the claim to
continue to trial. Permission is not easy to obtain.
The shareholder will get no direct benefit by going to court but the company will
be protected and that helps the shareholder in the long run, as it protects the
shareholder’s interest in the company.
S.122 of the Insolvency Act 1996:
This is the nuclear option in shareholder disputes and involves the aggrieved
shareholder asking the court to wind up the company and bring it to an
end. Usually the shareholders’ differences have become irreconcilable and a
‘commercial divorce’ is the only to way to deal with it. The company will be
wound up and if there is anything left after the creditors and liquidator have
been paid, it will be distributed between the shareholders. They will go their
separate ways.
Not every aggrieved shareholder will be able to justify a winding up petition to

the court and there will have to be strong reasons for believing that the company
can no longer continue. The shareholder must demonstrate that there will be a
tangible benefit in making a winding up order. If there is some alternative
remedy, which would allow the company to continue, the shareholder may find
that the court refuses to make the order.
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An example which might justify a petition could be that two shareholders with
different but complimentary skills or expertise have formed a company to offer
those combined skills in the market place. They fall out and the company cannot
continue with only one of them, as the vital skills of the other will no longer be
available and the underlying basis of the company has gone. Alternatively, there
may be deadlock between the shareholders which cannot be resolved in any
other way.
However if the company is in financial difficulties a creditor may issue a petition

under S.122 anyway, whatever the shareholders may want.
Mediation:
It is increasingly common for internal company disputes to be dealt with by the

parties choosing to appoint a mediator, who will normally be someone who is
experienced in this area of law. If agreement is reached with the help of the
mediator, the compromise can be recorded in a legally binding document which
can be enforced in the court, if one of the parties breaks it.
The advantages of mediation include its relative cheapness compared to going to

court, privacy (there is no public record) and speed.
5 WAYS TO PROTECT MINORITY SHAREHOLDERS
A minority shareholder is an investor in a business corporation that owns less

than 50% of the outstanding voting shares. This shareholder may be a true
investor, who provides capital and had little day-to-day involvement in the
company, a founder partner or even a key employee who has been given shares
incident to employment. In any case, if you are a minority shareholder, you are
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at significant risk in any dispute with the majority owner under standard
corporate governance rules. Those rules allow for majority rule in all or almost
all matters, and you could find yourself without meaningful access to control,
influence or even information. To avoid this predictable result, you should ask
for certain changes to the standard governance rules, in the bylaws, in a
shareholder management agreement, and in the employment agreements of the
key shareholders.
If you are currently considering becoming a minority shareholder in a closely held

business corporation, here are five important ways to protect yourself and your
investment:
 Directorship: One of the most important ways to ensure you have access
to influence and information in the long-term is to negotiate a shareholder
management agreement that gives you the absolute right to elect or
appoint at least one director. Ideally, this provision would also include
provisions that limit the size of the board and mandate the company hold
a certain minimum number of meetings each year (more than the one
required annual meeting). A complete provisions could even require each
officer present a report in person at each meeting, and expand on the
Director’s right to access company documents and information. This
provision in important even if the minority-appointed director will be
outvoted at the directors’ meetings because directors have greater rights
to access information than mere shareholders. You might also want to
consider a provision requiring the appointment of at least one outside
director as well.
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 Buy-Sell Rights. Sometimes business marriages just don’t work. A

thoughtful agreement has to provide for this. Your agreement, either in
the bylaws or a separate management agreement, needs detailed rules on
when and how you can sell your shares back to the company. There are
dozens of ways to handle this, but the provisions need to be consistent
and workable. In small businesses, avoid provisions that require an
appraisal – it’s likely to be too expensive relative to the value of the shares.
Also, make sure that if you use a to-be-determined value, it is “fair value”,
and not “fair market value”. Fair market value allows the buyer to steeply
discount the shares for lack of control and lack of marketability. Fair value
does not generally permit these discounts. If there is a formula for
determining value, make sure a good business accountant reviews it for
you, and that the majority shareholder cannot easily manipulate the
numbers used in the formula. Finally, the provision should not only
address when you can sell and for how much but also the terms (lump
sum, over time, interest rates, security for payment, etc.).
 Stock Rights. There are several important stock rights you need to protect
you. First, there are the pre-emptive rights. A pre-emptive right is the
right for you to buy your percentage share of any new stock offering. If you
invest in a company and get 10% of the shares, and the company later
takes in another investor and sells them shares, your percentage of the
whole will drop. Rather than complicated formulas or fights over whether
those future offerings are correctly priced, negotiate a pre-emptive
right. Then, if you think a future offering is underpriced, you can buy your
right to stay at 10%. You may also want a right of first refusal, which says
76
that the other shareholders cannot sell their shares to anyone else without
offering them to you first. If you pass after adequate time to consider the
offer, they have a limited amount of time to sell the shares on the identical
terms they were offered to you for. Finally, there are tag-along
rights. These are the rights of a minority to have their shares included in
any share sale by the majority, under the same terms. For example, if the
company has 1,000 outstanding shares, and the majority shareholder
owns 800, and the minority shareholder owns 200, and the majority
negotiates a deal to sell 400 of his shares to a new investor, the minority
shareholder can demand that sale be 320 shares of the majority
shareholder and 8 shares of the minority shareholder, with the purchase
price to be divided by the same ratio.
 Majority Shareholder Employment Agreements. Non-compete and no
solicitation clauses are often seen in employment agreements for key
employees, but what about for majority owners? As a minority investor,
you do not want the majority to be able to abandon the company and his
obligations to you and simply start a new business doing the same thing,
without you. To that end, the minority shareholder will want to insist on
an employment agreement for the majority shareholder that significantly
limits the majority shareholder’s ability to close-and-compete. This
agreement could spell out critical concepts like the majority’s duties to the
company, and for the rights of the minority to an interest in any new
business in the same line of business. This employment agreement should
also cover other important areas, like conflict of interest
transactions (does the majority owner own the building the business is
77
located in, or own related companies that are vendors or customers of the
primary business? Make sure any such deals are required to be at
demonstrably arm's-length terms), the rights of the company to business
opportunities, the majority shareholder's duty of loyalty, the amount of
time the majority will be expected to devote the company, etc.
 Intellectual and Intangible Property: These days, intellectual property is
the heart and soul of many businesses. The business name and logo,
customer lists, recipes, computer programs and code, menus, domain
names, telephone numbers – the list goes on and on. In addition, business
lawyers and accountants often advise business owners to separate these
types of assets from the business itself, setting up separate intellectual
property holding companies to own these important assets. Worse yet,
often the ownership of important things like copyrights to computer
source code are never discussed or defined. As a minority shareholder,
you will want to make certain that you identify the key intellectual and
intangible property of the business, determine how it is owned, and then
make sure your investment has a secured interest in those assets, and
that they are protected.
Perhaps, the most important thing to realize about investing as a minority owner
in a small business is that these protections are complicated and that one size
does not fit all. If you are investing more money than you can easily stand to
lose, you do not want to do it without taking these types of protections, and you
do not want just to use some document you found on the internet. Hire a
qualified business attorney, get an accountant, and perhaps even talk to a
business consultant, before you invest your money.
78
BOARD OR DIRECTORS
A board of directors is a recognized group of people who jointly oversee the

activities of an organization, which can be either a for-profit business, nonprofit
organization, or a government agency. Such a board's powers, duties, and
responsibilities are determined by government regulations (including the
jurisdiction's corporations law) and the organization's
own constitution and bylaws. These authorities may specify the number of
members of the board, how they are to be chosen, and how often they are to
meet.
In an organization with voting members, the board is accountable to, and might
be subordinate to, the organization's full membership, which usually vote for the
members of the board. In a stock corporation, non-executive directors are voted
for by the shareholders and the board is the highest authority in the
management of the corporation. The board of directors appoints the chief
executive officer of the corporation and sets out the overall strategic direction. In
corporations with dispersed ownership, the identification and nomination of
directors (that shareholders vote for or against) are often done by the board
itself, leading to a high degree of self-perpetuation. In a non-stock
corporation with no general voting membership, the board is the supreme
governing body of the institution;[1] its members are sometimes chosen by the
board itself.
TERMINOLOGY
 Director – a person appointed to serve on the board of an organization, such
as an institution or business.
79
 Inside director – a director who, in addition to serving on the board, has a

meaningful connection to the organization
 Outside director – a director who, other than serving on the board, has no
meaningful connections to the organization
 Executive director – an inside director who is also an executive with the
organization. The term is also used, in a completely different sense, to refer
to a CEO
 Non-executive director – an inside director who is not an executive with the
organization
 Shadow or de facto director – an individual who is not a named director but
who nevertheless directs or controls the organization
 Nominee director – an individual who is appointed by a shareholder, creditor
or interest group (whether contractually or by resolution at a company
meeting) and who has a continuing loyalty to the appoint or/s or other
interest in the appointing company
Individual directors often serve on more than one board.[11] This practice results
in an interlocking directorate, where a relatively small number of individuals
have significant influence over a large number of important entities. This
situation can have important corporate, social, economic, and legal
consequences, and has been the subject of significant research
The board of directors is appointed to act on behalf of the shareholders to run

the day to day affairs of the business. The board is directly accountable to the
shareholders and each year the company will hold an annual general meeting
(AGM) at which the directors must provide a report to shareholders on the
80
performance of the company, what its future plans and strategies are and also
submit themselves for re-election to the board.
The objects of the company are defined in the Memorandum of Association and
regulations are laid out in the Articles of Association.
The board of directors' key purpose is to ensure the company's prosperity by

collectively directing the company's affairs, whilst meeting the appropriate
interests of its shareholders and stakeholders. In addition to business and
financial issues, boards of directors must deal with challenges and issues relating
to corporate governance, corporate social responsibility and corporate ethics.
It is important that board meetings are held periodically so that directors can
discharge their responsibility to control the company's overall situation, strategy
and policy, and to monitor the exercise of any delegated authority, and so that
individual directors can report on their particular areas of responsibility.
Every meeting must have a chair, whose duties are to ensure that the meeting is
conducted in such a way that the business for which it was convened is properly
attended to, and that all those entitled to may express their views and that the
decisions taken by the meeting adequately reflect the views of the meeting as a
whole. The chair will also very often decide upon the agenda and might sign off
the minutes on his or her own authority.
Individual directors have only those powers which have been given to them by
the board. Such authority need not be specific or in writing and may be inferred
from past practice. However, the board as a whole remains responsible for
actions carried out by its authority and it should therefore ensure that executive
81
authority is only granted to appropriate persons and that adequate reporting

systems enable it to maintain overall control.
The chairman of the board is often seen as the spokesperson for the board and
the company.
APPOINTMENT OF DIRECTORS
The ultimate control as to the composition of the board of directors, rests with
the shareholders, who can always appoint, and – more importantly, sometimes –
dismiss a director. The shareholders can also fix the minimum and maximum
number of directors. However, the board can usually appoint (but not dismiss) a
director to his office as well. A director may be dismissed from office by a
majority vote of the shareholders, provided that a special procedure is followed.
The procedure is complex, and legal advice will always be required.
ROLES OF THE BOARD OF DIRECTORS
The roles of the board of directors include:-
Establish vision, mission and values

 Determine the company's vision and mission to guide and set the pace for
its current operations and future development.
 Determine the values to be promoted throughout the company.
 Determine and review company goals.
 Determine company policies
Brefi Group facilitates corporate retreats to help boards review strategy or

develop vision, mission and values statements.
82
Set strategy and structure

 Review and evaluate present and future opportunities, threats and risks in
the external environment and current and future strengths, weaknesses
and risks relating to the company.
 Determine strategic options, select those to be pursued, and decide the
means to implement and support them.
 Determine the business strategies and plans that underpin the corporate
strategy.
 Ensure that the company's organisational structure and capability are
appropriate for implementing the chosen strategies.
Brefi Group's free e-course includes modules to help you set strategy:
 PEST and SWOT analyses

 Determining strategic options
 Strategies and plans
Delegate to management
 Delegate authority to management, and monitor and evaluate the
implementation of policies, strategies and business plans.
 Determine monitoring criteria to be used by the board.
 Ensure that internal controls are effective.
 Communicate with senior management.
Brefi Group's free e-course includes a module on delegation to management.

You could subscribe to the e-course, or access the module here.
83
Exercise accountability to shareholders and be responsible to relevant

stakeholders
 Ensure that communications both to and from shareholders and relevant
stakeholders are effective.
 Understand and take into account the interests of shareholders and
relevant stakeholders.
 Monitor relations with shareholders and relevant stakeholders by
gathering and evaluation of appropriate information.
 Promote the goodwill and support of shareholders and relevant
stakeholders.
RESPONSIBILITIES OF DIRECTORS
Directors look after the affairs of the company, and are in a position of trust.
They might abuse their position in order to profit at the expense of their
company, and, therefore, at the expense of the shareholders of the company.
Consequently, the law imposes a number of duties, burdens and responsibilities

upon directors, to prevent abuse. Much of company law can be seen as a balance
between allowing directors to manage the company's business so as to make a
profit, and preventing them from abusing this freedom.
Directors are responsible for ensuring that proper books of account are kept.
In some circumstances, a director can be required to help pay the debts of his
company, even though it is a separate legal person. For example, directors of a
company who try to 'trade out of difficulty' and fail may be found guilty of
84
'wrongful trading' and can be made personally liable. Directors are particularly
vulnerable if they have acted in a way which benefit themselves.
 The directors must always exercise their powers for a 'proper purpose' –
that is, in furtherance of the reason for which they were given those
powers by the shareholders.
 Directors must act in good faith in what they honestly believe to be the
best interests of the company, and not for any collateral purpose. This
means that, particularly in the event of a conflict of interest between the
company's interests and their own, the directors must always favour the
company.
 Directors must act with due skill and care.
 Directors must consider the interests of employees of the company.
Brefi Group provides a range of customised director development and

training services.
CALLING A DIRECTORS' MEETING
A director, or the secretary at the request of a director, may call a directors'

meeting. A secretary may not call a meeting unless requested to do so by a
director or the directors. Each director must be given reasonable notice of the
meeting, stating its date, time and place. Commonly, seven days is given but
what is 'reasonable' depends in the last resort on the circumstances
NON-EXECUTIVE DIRECTORS
Legally speaking, there is no distinction between an executive and non-executive

director. Yet there is inescapably a sense that the non-executive's role can be
85
seen as balancing that of the executive director, so as to ensure the board as a

whole functions effectively. Where the executive director has an intimate
knowledge of the company, the non-executive director may be expected to have
a wider perspective of the world at large.
THE CHAIRMAN OF THE BOARD
The articles usually provide for the election of a chairman of the board. They
empower the directors to appoint one of their own number as chairman and to
determine the period for which he is to hold office. If no chairman is elected, or
the elected chairman is not present within five minutes of the time fixed for the
meeting or is unwilling to preside, those directors in attendance may usually
elect one of their number as chairman of the meeting.
The chairman will usually have a second or casting vote in the case of equality of
votes. Unless the articles confer such a vote upon him, however, a chairman has
no casting vote merely by virtue of his office.
Since the chairman's position is of great importance, it is vital that his election is
clearly in accordance with any special procedure laid down by the articles and
that it is unambiguously minuted; this is especially important to avoid disputes as
to his period in office. Usually there is no special procedure for resignation. As for
removal, articles usually empower the board to remove the chairman from office
at any time. Proper and clear minutes are important in order to avoid disputes.
ROLE OF THE CHAIRMAN
The chairman's role includes managing the board's business and acting as its
facilitator and guide. This can include:
86
 Determining board composition and organisation;

 Clarifying board and management responsibilities;
 Planning and managing board and board committee meetings;
 Developing the effectiveness of the board.
EVALUATING THE BOARD OF DIRECTORS

In theory, the board is responsible to the shareholders and is supposed to govern
a company's management. (For more, see "How Do a Corporation's Shareholders
Influence Its Board of Directors?"). But in many instances, the board has become
a servant of the chief executive officer (CEO), who is typically also the chair of the
board.
The role of the board of directors has increasingly come under scrutiny in light of
corporate scandals such as those at Enron, WorldCom and HealthSouth, in which
the directors failed to act in investors' best interests. Although the Sarbanes-
Oxley Act of 2002 made corporations more accountable, investors should still
pay attention to what a corporation's board of directors is up to. Here we'll show
you what the board of directors can tell you about how a company is being run.
The Checklist
According to an October 27, 2003, Wall Street Journal article, a checklist was
developed by the Corporate Library to help investors evaluate the objectivity and
effectiveness of a board. According to this checklist, investors should examine:
1. Size of the Board

There is no universal agreement on the optimum size of a board of directors. A
large number of members represents a challenge in terms of using them
87
effectively and/or having any kind of meaningful individual participation.

According to the Corporate Library's study, the average board size is 9.2
members, and most boards range from 3 to 31 members. Some analysts think
the ideal size is seven.
In addition, there are two critical board committees that must be made up of
independent members:
 The compensation committee

 The audit committee
The minimum number for each committee is three. This means that a minimum
of six board members is needed so that no one is on more than one committee.
Having members doing double duty may compromise the important wall
between audit and compensation, which helps avoid any conflicts of interest.
Members serving on a number of other boards may not devote adequate time to
their responsibilities.
The seventh member is the chairperson of the board. It's the responsibility of the
chairperson to make sure the board is functioning properly and the CEO is
fulfilling his or her duty and following the directives of the board. A conflict of
interest is created if the CEO is also the chairperson of the board.
To staff any additional committees, such as nominating or governance, additional

people may be necessary. However, having more than nine members may make
the board too big to function effectively. (For background reading, see "The
Basics of Corporate Structure.")
88
2. The Degree of Independence: Insiders and Outsiders

A key attribute of an effective board is that it is comprised of a majority of
independent outsiders. While not necessarily true, a board with a majority of
insiders is often viewed as being stacked with sycophants, especially in cases
where the CEO also chairs of the board.
An outsider is someone who has never worked at the company, is not related to
any of the key employees and has never worked for a major supplier, customer
or service provider of the firm, such as lawyers, accountants,
consultants, investment bankers, etc. While this definition of independent
outsiders is clear, you'd be surprised at the number of times it is misapplied. Too
often, the "outsider" label is given to the retired CEO or a relative when that
person is actually an insider with conflicts of interest.
The Wall Street Journal article found that independent outside directors made up
66% of all boards and 72% of Standard & Poor's (S&P) boards. The larger the
number of outside board members, the better. This makes the board more
independent and allows it to provide a higher level of corporate governance to
shareholders, particularly if the position of chair of the board is separated from
the CEO and is held by an outsider.
3. Committees
There are four important board committees: executive, audit, compensation
and nominating. There may be more committees depending on corporate
philosophy, which is determined by an ethics committee and special
89
circumstances relating to a particular company's line of business. Let's take a

closer look at the four main committees:
 The Executive Committee is made up of a small number of board members
that are readily accessible and easily convened, to decide on matters
subject to board consideration that must be decided on expeditiously,
such as a quarterly meeting. Executive committee proceedings are always
reported to and reviewed by the full board. Just as with the full board,
investors should prefer that independent directors make up the majority
of an executive committee.
 The Audit Committee works with the auditors to make sure that the books
are correct and that there are no conflicts of interest between the auditors
and the other consulting firms employed by the company. Ideally, the chair
of the audit committee is a Certified Public Accountant (CPA). Often, a CPA
is not on the audit committee, let alone on the board. The New York Stock
Exchange (NYSE) requires that the audit committee include a financial
expert, but this qualification is typically met by a retired banker, even
though that person's ability to catch fraud may be questionable. The audit
committee should meet at least four times a year in order to review the
most recent audit. An additional meeting should be held if there are other
issues that need to be addressed.
 The Compensation Committee is responsible for setting the pay of top
executives. It seems obvious that the CEO or other people with conflicts of
interest should not be on this committee, but you'd be surprised at the
number of companies that allow just that. It is important to check if the
members of the compensation board are also on the compensation
90
committees of other firms because of the potential conflict of interest. The

compensation committee should meet at least twice a year. Having only
one meeting may be a sign that the committee meets just to approve a
pay package that was created by the CEO or a consultant without much
debate. (To learn more, read "Evaluating Executive Compensation.")
 The Nominating Committee is responsible for nominating people to the
board. The nomination process should aim to bring on people with
independence and a skill set currently lacking on the board.
4. Other Commitments and Time Constraints
The number of boards and committees a board member is on is a key
consideration when judging the effectiveness of a member.
The following chart from the survey shows the time commitments of board
members of the 1,700 largest U.S. public companies according to the study's
2003 data. This indicates that the majority of board members sit on no more
than three boards. What this data does not specify is the number of committees
to which these people belong.
You'll often find that independent board members serve on both the audit and
compensation committees and are also on three or more other boards. You have
to wonder how much time a board member can devote to a company's business
if the person is on multiple boards. This situation also raises questions about the
supply of independent outside directors. Are these people pulling double duty
because there's a lack of qualified outsiders?
91
5. Related Transactions
Companies must disclose any transactions with executives and directors in
a financial note entitled "Related Transactions." This discloses actions or
relationships that cause conflicts of interest, such as doing business with a
director's company or having relatives of the CEO receiving
professional fees from the company. For related reading, see "An Investor's
Checklist to Financial Footnotes" and "Footnotes: Early Warning Signs for
Investors."
THE BOTTOM LINE

The composition and performance of a board of directors says a lot about its
responsibilities to a company's shareholders. A board loses credibility if its
objectivity and independence are compromised by material shortcomings in this
checklist. Investors are poorly served by substandard governance practices.
AUDIT COMMITTEE
An audit committee is an operating committee of the board of directors charged

with oversight of financial reporting and disclosure. Committee members are
drawn from members of the company's board of directors, with
a Chairperson selected from among the committee members. A qualifying (cf.
paragraph "Composition" below) audit committee is required for a U.S. publicly
traded company to be listed on a stock exchange. Audit committees are typically
empowered to acquire the consulting resources and expertise deemed necessary
to perform their responsibilities.
92
The role of audit committees continues to evolve as a result of the passage of

the Sarbanes-Oxley Act of 2002. Many audit committees also have oversight of
regulatory compliance and risk management activities.
Not for profit entities may also have an audit committee.
93

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WHAT IS CORPORATE GOVERNANCE?

The purpose of corporate governance is to facilitate effective, entrepreneurial

Corporate governance is the mechanisms, processes and relations by

Corporate governance includes the processes through which corporations'

Corporate governance is "the system by which companies are directed and

“A set of relationships between a company’s management, its board, its

Internal governance stakeholders include:

External governance stakeholders include:

CORPORATE GOVERNANCE DEFINITION

CORPORATE GOVERNANCE: ACADEMIC DEFINITIONS

The act of steering, guiding and piloting—describes what boards [should] do

governance. (Peter Crow, On ‘corporate governance‘: Is our understanding

Corporate governance is the control of management in the best interests of the

the prevention or mitigation of these conflicts of interests. — Marc Goergen,

CORPORATE GOVERNANCE: PRACTITIONER DEFINITIONS

… is gathering together a group of smart, accomplished people around a board

… is the relationship among various participants [chief executive officer,

…. is the relationship between corporate managers, directors and the providers

The relationship between the shareholders, directors and management of a

…. is the relationship among various participants in determining the direction and

provide direction, authority, and oversights to management. (Paul J.

CORPORATE GOVERNANCE: LEGAL DEFINITIONS

Generally, corporate governance refers to the host of legal and non-legal

CORPORATE GOVERNANCE: COMMISSION DEFINITIONS

… is the method by which a corporation is directed, administered or controlled.

include regulators, employees, suppliers, partners, customers, constituents (for

“Corporate governance is not an abstract goal, but exists to serve corporate

importance of solid corporate governance. Well-executed corporate governance

Good corporate governance helps to prevent corporate scandals, fraud, and

of good corporate governance. The benefits of good corporate governance are

To properly understand and utilize corporate governance it is important to

 Treating Shareholders Equally

 Identifying the Roles of the Board of Directors

THE IMPORTANCE OF CORPORATE GOVERNANCE

Accountability is what helps people within the company make decisions,

Corporate governance is also great because it is a form of self-policing. Before

 Stakeholder interests should also be recognized by corporate governance. In

 Board responsibilities must be clearly outlined to majority shareholders. All

 Business transparency is the key to promoting shareholder trust. Financial

without exaggeration or "creative" accounting. Falsified financial records can

CORPORATE GOVERNANCE AS RISK MITIGATION

THE ROLE OF STAKEHOLDERS IN YOUR BUSINESS

business takes a different approach to stakeholders. The roles of stakeholders

(i) enhance accountability to shareholders and other stakeholders,

(ii) ensure timely and accurate disclosures of all material matters,

It is specifically designed to enable company to discharge its statutory duty of

 Board of Directors – is responsible for providing leadership, either directly

 10 Board Committees – assist the Board in focusing on specific matters,

 External auditor and Internal Audit Department – provide assurance on

THE ROLE AND BENEFITS OF A CORPORATE GOVERNANCE FRAMEWORK

Having a common governance framework can play an important role in helping

A TOOL FOR ADDRESSING GOVERNANCE RISK

In developing the Governance Framework, consideration was given to a number

strategy and risk?

The framework offers an end-to-end view of corporate governance. It forms the

THE BOARD’S UNIQUE ROLE

 Governance: The board establishes structures and processes to fulfill