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Corporate

Governance

Corporate governance
The system by which companies are

directed and controlled


Involves a set of relationships between a
companys management,
its board,
its shareholders,
and other stakeholders.

Corporate governance
Corporate governance also provides
the structure through which the objectives of the

company are set,


and the means of attaining those objectives and
monitoring performance are determined.

Corporate governance
Corporate governance 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 & assessed,
how performance is optimized.

Corporate Governance
Corporate Governance is a relationship
among stakeholders that is used to
determine and control the strategic
direction and performance of organizations

Corporate Governance
Corporate Governance is a relationship
among stakeholders that is used to
determine and control the strategic
direction and performance of organizations
Concerned with identifying ways to
ensure that strategic decisions are
made effectively

Corporate Governance
Corporate Governance is a relationship
among stakeholders that is used to
determine and control the strategic
direction and performance of organizations
Concerned with identifying ways to
ensure that strategic decisions are
made effectively
Used in corporations to establish order
between the firms owners and its toplevel managers

Corporate Governance Life Cycle


Maturity
Public Corporation

Governance
challenges

(Diffuse Shareholders)

Maintain alertness
Board assessment
Advance value

Public Corporation
(Majority Shareholders)

Growth Governance challenges:

Risk management

ent

Developm

Corporat

commitments

Develop board directors.

IPO
(Initial Public Offering)

Engage stakeholders.

Private
Company
Funding
Entrepreneurs

Launch Governance Challenges:

Raise capital
Recruit board of directors
Establish accountability
Time

Diversity in Corporate Governance


National, regional and cultural

differences
Ownership structure and dispersion
The industry and market environment
of the corporation
Firm size and structure
Life cycle variations including origin &
development, technology & periodic
crises and new directions

Levels of Governance
Business Ethics/Principles
Procedures/Processes
Practices/Behaviour

Board Structure and Performance

The Transformation from Management


Control to Independent Boards
The Board Controlling the Levers of Power

EXECUTIVES

Senior
Independent
directors

Investors
relations

Chairman

Nomination
Committee

Chief
Executive

Audit
Committee

Remuneration
Committee

Auditing of
Accounts

N O N-E X E C U T I V E S

Board
Appointments

Executive
Remuneration

What is Corporate Governance?


Good corporate governance practices

involve:
The corporate governance framework should

protect shareholders rights.


The corporate governance framework should
ensure the equitable treatment of all
shareholders.
Stakeholders should be involved in corporate
governance.
Disclosure and transparency is critical.
The board of directors should be monitored and
held accountable for what guidance it gives.
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Board of Directors
The board of directors is responsible for

overseeing management and representing


shareholders interests.
US and Australia have single-tiered
boards, headed by a Chairman of the
Board. The CEO and other executives
usually also sit on the board.
Some other countries (Germany,
Indonesia) have two-tiered boards. The
roles and composition of the two boards
can differ.
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Board Size
Boards should be an appropriate size not

too big not too small.


Depending on the size of the company
within the range of 5-15 is normal.
If the board is too small, there is a lack of
monitoring.
If the board is too big, there are problems
reaching a consensus for decision making.

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Board Independence
Boards should have a majority/high

proportion of outside/independent
directors.
Outside/independent directors should
have no personal interest in the company
and therefore are more effective monitors.
But, it is also a good idea to have some
company insiders (CEO, executives) on the
board to provide the board with a better
understanding of the companys
operations.
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Chairman/CEO Positions
The Chairman of the Board is responsible

for overseeing the board of directors.


The CEO is responsible for the day-to-day
running of the company.
In family-controlled companies it is
common for the same person or relatives
to hold both of these positions. But, this
concentrates power and reduces
monitoring.
Therefore, the positions of Chairman and
CEO should be separated.
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Board Committees
The board of directors can delegate

certain duties to board committees this


can provide increased monitoring on
specific issues.
Audit committee responsible for internal
audit function and appointment of
external auditor.
Remuneration committee responsible for
setting appropriate compensation for
directors and executives.
Nomination committee responsible for
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finding appropriate directors and

Executive Compensation
Compensation of top executives can be

used to tie the interests of the executives


to those of shareholders.
Variable performance packages are
preferred:
If they perform well, they are rewarded.
If they perform poorly, they are not rewarded

or fired.
Alignment of interests is usually achieved

through:
Stock ownership
Stock options

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Ownership Structure
The identity of the controlling owner can

also have corporate governance


implications.
Family-controlled companies use crossholdings and pyramidal structures to gain
effective control of the company
Government-owned and widely-held
companies are more likely to follow the
rules.

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Board Governance Framework


Board of Directors

Corporate
Secretary
Reporting &
Disclosure
Governance
System and
Controls

Key Areas of Responsibility

Board
Meetings

Board Operations

Chairman

Achievement of strategic objectives and value creation


Fulfil responsibilities and duties in law and prescribed functions

Strategy
Corporate Policies & Procedures
Board Governance Instruments
Monitoring and Evaluation

Board Committees
Audit
Committee

Information and Communication

Shareholders

CEO & Management

Remuneration
Committee

Other
Committees

Executive
Committee

Internal Controls
& Assurance

Combined Assurance Model


Internal Audit

External Audit

Other Assurance
Providers

Management
Source: KPMG

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Role of Corporate Secretary


Resolves organizational
matters for board
Explains the procedural meetings
Key link between
requirements of laws, the
company and noncharter, and bylaws of the
executive directors
company
Works closely with
Chairman and CEO on
Oversees, conducts
board agenda
induction trainings for
newly elected
Arranges the annual
directors
shareholders meeting
Supervises and coand other special
ordinates board papers &
meetings
presentations
Ensures compliance with
Takes the minutes ofthe board procedures
board meetings

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Four Pillars of Corporate


Governance
Accountability
Fairness
Transparency
Independence

Accountability
Ensure that management is accountable to

the Board
Ensure that the Board is accountable to
shareholders

Fairness
Protect Shareholders rights
Treat all shareholders including minorities,

equitably
Provide effective redress for violations

Transparency
Ensure timely, accurate disclosure on all

material matters, including the financial


situation, performance, ownership and
corporate governance

Independence
Procedures and structures are in place so

as to minimize, or avoid completely


conflicts of interest
Independent Directors and Advisers i.e.
free from the influence of others

Elements of Corporate
Governance
Good Board practices
Control Environment
Transparent disclosure
Well-defined shareholder rights
Board commitment

Good Board Practices


Clearly defined roles and authorities
Duties and responsibilities of Directors

understood
Board is well structured
Appropriate composition and mix of skills

Good Board procedures


Appropriate Board procedures
Director Remuneration in line with best

practice
Board self-evaluation and training
conducted

Control Environment
Internal control procedures
Risk management framework present
Disaster recovery systems in place
Media management techniques in use

Control Environment
Business continuity procedures in place
Independent external auditor conducts

audits
Independent audit committee established

Control Environment
Internal Audit Function
Management Information systems

established
Compliance Function established

Transparent Disclosure
Financial Information disclosed
Non-Financial Information disclosed
Financials prepared according to

International Financial Reporting Standards


(IFRS)

Transparent Disclosure
Companies Registry filings up to date
High-Quality annual report published
Web-based disclosure

Well-Defined Shareholder Rights


Minority shareholder rights formalised
Well-organised shareholder meetings

conducted
Policy on related party transactions

Well-Defined Shareholder Rights


Policy on extraordinary transactions
Clearly defined and explicit dividend policy

Board Commitment
The Board discusses corporate governance

issues and has created a corporate


governance committee
The company has a corporate governance
champion
A corporate governance improvement plan
has been created
Appropriate resources are committed to
corporate governance initiatives

Board Commitment
Policies and procedures have been

formalised and distributed to relevant staff


A corporate governance code has been
developed
A code of ethics has been developed
The company is recognised as a corporate
governance leader

Why Corporate Governance?


Better access to external finance
Lower costs of capital interest rates on

loans
Improved company performance
sustainability
Higher firm valuation and share
performance
Reduced risk of corporate crisis and
scandals

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