Prof. Igor Filatotchev Session 1

Transcription

1 Corporate Governance: An Overview Prof. Igor Filatotchev Session 1 1

2 Corporate Governance: Current debates An Overview New and emerging issues Aims and objectives of the course Implications for research, teaching and practice Reading Assessment 2

3 Corporate Governance Debate: 200 Years of Controversy It s only when misgovernment grows extreme enough to produce a revolutionary agitation among the shareholders that any change can be effected Herbert Spence

4 Corporate Governance: Current Issues Corporate failures and regulatory initiatives have placed corporate governance systems under closer scrutiny than ever: Enron; Worldcom (USA) Maxwell Group (UK) Parmalat (Italy) VW (Germany) LukOil (Russia) Hyundai (Korea) etc. 4

5 2/3 UK investors no longer feel confident investing in the Stock Market as a result of fraud and accounting problems at Enron and Worldcom Survey of UK investors by Cavendish Asset Management, October

6 If fund managers are truly to fulfil their duty of seeking to maximise value for their shareholders, then there will be times certainly more than at present where intervention is the right action to take Paul Myners Institutional Investment March

7 It is crucial to effective corporate governance that the owners of the company hold the Directors to account for the Company s performance The UK Department of Trade and Industry Modernising Company Law July

8 Areas of Concern Concentration of power in small number of executive directors Lack of balance in Board composition: an executive capture of Boards Deficiencies in accountability and audit Over-generous remuneration of the executives: a reward for failure 8

9 Good Corporate Governance provides a system of transparent, efficient and effective monitoring and control over strategic decisions at all levels of management 9

10 Why is Corporate Governance so Important? Good Corporate Governance leads to better accountability and transparency Good Corporate Governance prevents managers from making wrong strategic decisions Good Corporate Governance facilitates the successful implementation of important strategies 10

11 Good Governance is an important driver of strategic change! 11

12 Corporate Governance Corporate governance deals with the agency problem: the separation of management and finance. The fundamental question of corporate governance is how to assure financiers that they get a return on their financial investment. Shleifer, Andrei and Robert W. Vishny (1997) 'A Survey of Corporate Governance', Journal of Finance 52,

13 Corporate Governance the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies responsibilities of the Board include setting the company s strategic aims, providing the leadership to put them into effect, and supervising the management of the business and reporting to shareholders on their stewardship The UK Department of Trade and Industry,

14 The Regulator s Response: UK 1992 Cadbury Code 1994 Greenbury Report 1998 Hempel Report 1998 Stock Exchange Combined Code 1999 Turnbull Report 2003 Higgs and Smith Reports The UK regulation is based on a comply-or-explain principle 14

15 Corporate Governance in the USA: 2002 Sarbanes-Oxley Legislation Increase in directorial independence Constraints on non-audit services of audit firms; rotation of auditors Section directors report on the effectiveness of internal controls - auditors report on management s assessment of the controls - potentially unlimited legal liability Disclosure of voting records by institutions 15

16 Corporate Governance: Current Debates Roles of non-executive directors Disclosure practices: Enhanced Business Reviews Companies relationships with auditors Executive remuneration issues Roles of institutional investors 16

17 New Perspectives on Corporate Governance Monitoring and control Resource and legitimacy Strategy/Service Access to resources Strategic leadership Strategic restructuring expertise Corporate venturing 17

18 Corporate Governance and Entrepreneurial Leadership Wealth protection and wealth creation roles of corporate governance Resource and strategy roles of corporate boards Boards as a knowledge pool The new roles of non-executive directors Individual entrepreneurship, corporate venturing and innovation 18

19 Stakeholder Model of Governance The roles of stakeholders in the strategy process Responsible corporate behaviour Business ethics Stakeholders and innovation 19

20 Aims and Objectives of the Course to enable students to achieve knowledge of corporate governance and its practical relevance to organisations; to understand the role and function of boards of directors, the work of external and internal auditors, audit committees to explain the main elements of stakeholder theory and principles of corporate social responsibility. 20

21 A Road Map of the Course Overview of the current debate on corporate governance The role of the Board of Directors; institutional investors Internal and external auditors and management in the corporate governance debate Recent regulatory issues Corporate Social Responsibility and business ethics International corporate governance: a comparative analysis 21

22 Learning Outcomes An understanding of the range of corporate governance theories and practices A full understanding of the current issues in corporate governance An understanding of the role of corporate boards, board committees and Non Executive Directors (NEDs) in the governance of organisations An understanding of Corporate Social Responsibility Gain an in-depth knowledge and understanding of corporate governance sufficient to give advice on these issues to senior management. 22

23 Reading (Main) Filatotchev, I. and Wright, M. (Eds.) The Life-Cycle of Corporate Governance. London: Edward Elgar. Mallin, C. (Ed) International Corporate Governance. A Case Study Approach. London: Edward Elgar. Monks, R.G. and Minow, N Corporate Governance. 3 rd edition (2nd edition also acceptable). Blackwell. 23

24 Reading (Recommended) Cadbury, A Corporate Governance and Chairmanship: a Personal View. Oxford: OUP. Cannon, T Corporate Responsibility. Pitman Publishing. The Combined Code on Corporate Governance (June 2006) Grandori, A. (Ed) Corporate Governance and Firm Organization, Oxford: Oxford University Press. Gospel, H. and Pendleton, A. (Eds) Corporate Governance and Labour Management: An International Comparison, Oxford: Oxford University Press. Shleifer, A. and Vishny, R A Survey of Corporate Governance, Journal of Finance, Vol 52, No 2, June. 24

25 Reading For This Session Monks, R.G. and Minow, N Shleifer, A. and Vishny, R A Survey of Corporate Governance, Journal of Finance, Vol 52, No 2, June. 25