EXCEL PROFESSIONAL INSTITUTE CORPORATE STRATEGY, ETHICS AND GOVERNANCE-2.6

Transcription

1 EXCEL PROFESSIONAL INSTITUTE CORPORATE STRATEGY, ETHICS AND GOVERNANCE-2.6 CORPORATE GOVERNANCE FRAMEWORK

2 The main subtopics to consider under CGF are; What is Corporate Governance Symptoms of poor corporate governance Corporate governance theories Corporate governance development worldwide Corporate governance principles and codes Code of best practices in corporate governance

3 Corporate governance is a system by which organisations are directed and controlled. Elements in corporate governance The management and reduction of risk is fundamental Overall performance enhanced by good supervision and management within best practice guidelines Good governance provides a framework for an organisation to pursue its strategy in an ethical and effective manner Willingness to apply the spirit as well as letter of the law Accountability is generally a major theme in all governance framework.

4 Increasing internationalization and globalization- investors investing outside their home countries Differential treatment of domestic and foreign investors in terms of reporting and associated right/dividend caused investors to call for parity of treatment Environmental Element Basis of analysis PESTEL Issues Macro-environment concerning financial reporting Key drivers were of raised change by many investors Scenarios Five forces Industry or sector Cycles of competition in the way corporate governance Strategic has developed groups Market segments A Competitors number and of market high profile corporate CSFs scandals and collapse including Polly The characteristics of individual countries may have a significant influence Peck

5 2. SYMPTOMS OF POOR CORPORATE GOVERNANCE The following symptoms can indicate poor corporate governance; Domination by a single individual Lack of involvement by board Legal Lack of adequate control function Lack of supervision Lack of independent scrutiny Lack of contact with shareholders Emphasis on short term profitability Misleading accounts and information Sociocultural Factors Try question on page 335

6 3. CORPORATE GOVERNANCE THEORIES Debates about the place of governance are founded on four differing views associated with the ownership and management of organisations. Stewardship Theory Management acts primarily as stewards of the organisation. Technically, shareholders have the right to dismiss their stewards if they dissatisfied by their stewardship. Stakeholder Theory Management has a duty of care to the organisation, its owners and to its wider stakeholders Agency Theory Management will act in an agency capacity, seeking to service their own self-interest and looking after the performance of the company only where it goals are co-incident with their own. Transaction Cost Theory The way the company is organized or governed determines its control over transactions. Management will be opportunistic. Like agency theory, transaction cost theory aims to ensure that managers effectively pursue shareholders interests.

7 Stakeholder is any person or organisation with an interest in the company. There are two types of stakeholders which can be identified. Financial Stakeholders stakeholders with financial relationship with the organisation. Eg. Shareholders and other investors, employees, customers, suppliers, government, etc. Interest Stakeholders Those interested in how the organisation behaves and are very often more powerful than financial stakeholders due to the influence they have over it. Eg. Media, NGOs, Activist groups, competitors, regulators

8 4. CORPORATE GOVERNANCE DEVELOPMENT WORLDWIDE 4.1 USA Corporate governance rules in the USA have developed from relatively little to the complex Sarbanes-Oxley Act Three main drivers of this were; Active management Enron, Arthur Anderson and Worldcom Close relationship between auditors and clients

9 South Africa has seen its share of corporate failures. To prevent repeat and provide confidence and some assurance for investors develop some sophisticated practices and rule. Approach; Self-regulation SA has adopted Self-regulation approach to CG (comply or explain like UK). All listed companies must comply with the content of the King s report. New Companies Act 2009 It enhances corporate governance and empowers shareholders. It codifies the standard for director s conduct and holds directors accountable where standard is not met.

10 Principle base approach (comply or explain) 1998 Combined code (Cadbury, Greenbury and Hampel report) 2003 Combined code (Turnbull, Higgs and Smith reports were incorporated) The Combined code was again revised in In 2010, the Combined Code was renamed the UK Corporate Governance Code

11 In 2003, EC took the view that CG matters should be left to individual states to deal with In 2004, the EU Corporate Governance Forum was established with 15 members Amended in 2010 to 14 members and includes The evaluation of the effectiveness of monitoring and enforcement systems that member states have in place.

12 5. CORPORATE GOVERNANCE PRINCIPLES AND CODES 5.1 Governance Principles CG codes are based on a set of principles founded upon ideas of what CG is meant to achieve; To ensure adherence to and satisfaction of the strategic objectives of the organisation, thus aiding effective management To minimise risk To promote integrity, that is straightforward dealing and completeness To fulfill responsibilities to all stakeholders and to minimise potential conflict of interest between owners, managers and wider stakeholder community To establish clear accountability at senior levels within and organisation To maintain the independence of those who scutinise the behaviour of the organisation and its senior executive managers. (NEDs, internal and external auditors) To promote accurate and timely reporting of trustworthy/independent financial and operational data

13 The principles of CG in Ghana are based on principles published by OECD and commonwealth Association for CG. The OECD principles are grouped into five; 1. The right of shareholders Right to participate and vote in general meetings Elect and remove members o the board Obtain relevant and material information on timely basis Capital markets for corporate control should function in an efficient and timely manner 2. The equitable treatment of shareholders All shareholders of the same class of shares should be treated equally, including minority shareholders and overseas shareholders Impediments to cross-boarder shareholdings should be eliminated

14 3. The role of stakeholders Right of stakeholders should be promoted All stakeholders should have access to relevant information on timely and regular basis Performance-enhancing mechanisms for employee participation should be permitted to develop Stakeholders, including employees should be able to freely communicate their concerns about illegal or unethical relationships to the board 4. Disclosure and transparency Timely and accurate disclosure must be made of all material matters regarding the company The company s approach to disclosure should promote the provision of analysis or advice that is relevant to decisions by investors

15 5. The responsibilities of the board Responsible for strategic guidance of the company Responsible for effective monitoring of management Board members should act on a fully informed basis, in good faith, with due diligence and care and in the best interest of the company and its shareholders They should treat all shareholders fairly They should be able to exercise independent judgment, this includes assigning independent NEDs to appropriate task

16 The code of best practices in CG is an optional code designed for publicly listed companies in Ghana. IT enshrines the principles of CG to be followed by all organisations. 6.1 Application of the code The code is intended as a guideline applicable to all corporate body approved or licensed as stock exchanges The code is not enforceable by law It is best practice document and its principle are designed to be evolutionary in nature Should be adopted by users to suit their own circumstances provided the spirit of the principles underlying the practices is maintained.

17 Section I-The Mission, Responsibilities and Accountability of the board of Directors Section II-Committees of the Board Section III-Relationship to shareholders and stakeholders Section IV-Financial Affairs and Auditing Section V-Disclosures in Annual Reports Section VI-Code of Ethics Section VII-Glossary

18 END OF CHAPTER THANK YOU