Corporate Governance

Department of Management Sciences, CIIT, Islamabad

Word of Truth
SURAH Al Nisa

Dr. Asghar Naeem (CG 1, 09/02/2011)

Word of Truth
SURAH Al-NISA, Verse 135

Dr. Asghar Naeem (CG 1, 09/02/2011)

Corporate Governance: Rationale1

Business organizations are under severe criticism for poor Corporate Governance (CG) spectacular business failures, affected not just shareholders but a variety of stakeholders Managers, and particularly the top management, are often blamed for poor CG and its consequences
Dr. Asghar Naeem (CG 1, 09/02/2011)

Corporate Governance: Rationale 2

A more balanced view is to blame not only the managers but also the shareholders, the Board, the regulators and some other key stakeholders. Students of business need an understanding of the issues underlying CG, if they have to present themselves and also act as responsible corporate citizens.
Dr. Asghar Naeem (CG 1, 09/02/2011)

Teaching Schema
Corporate Governance context and overview

Part 1

Part 2

Paradigms facilitating CG: Business Ethics and CSR

key stakeholders in CG, their roles & responsibilities

Part 3

Dr. Asghar Naeem (CG 1, 09/02/2011)

Part 1: Corporate Governance Context and Overview

Forms of business ownership Separation of ownership and control Definitions of corporate Governance Historical Perspectives CG aspects, structure, principles, functions and mechanism

Dr. Asghar Naeem (CG 1, 09/02/2011)

Part 2: Paradigms facilitating CG: Business Ethics and CSR

Ethical Theories Ethics in the workplace Triangle of business ethics Reporting business ethics and conduct Financial reporting integrity Corporate Social Responsibility: Definitions and scope
Dr. Asghar Naeem (CG 1, 09/02/2011)

Part 3: key stakeholders in CG, their roles & responsibilities

Board of directors roles and responsibilities Board committee roles and responsibilities of management Regulatory bodies, standard setters, and best practices Accountants and auditors Shareholders and shareholder activism
Dr. Asghar Naeem (CG 1, 09/02/2011)

Readings
Textbook: Corporate Governance: Principles, Policies and Practices, A. C. Fernando , Dorling Kindersley, India, 2006 Journal and Magazines: Corporate Governance and Disclosure Social Science Research Network World Bank and IMF websites Websites of Stock Exchanges around the World
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Tentative Evaluation Criteria

Grading System: The final grade will be computed from the following constituent parts: Class presence, participation and presentations: 50% Exam: 50%
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Forms of Business Ownership

In general , a business can be a sole proprietorship partnership Corporation Adolf Berle and Gardiner Means (1932)The Modern Corporation and Private Property - Separation of ownership and control
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Separation of ownership, monitoring and control

Stakeholders
Stockholders

Monitors
Within Company Board of Directors

Controllers

Creditors

Outside Company
Auditors Analysts Investment banks Credit rating agencies

Managers

Employees

Society

Government SEC
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Definitions of Corporate Governance1

From Academic viewpoint, CG deals with the problems resulting from the separation of ownership and control This perspective focuses on o Structures and mechanism to ensure proper internal structures and rules of the board of directors o Creation of independent committees o rules for disclosures of information to shareholders and creditors
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Definitions of Corporate Governance2

Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers?
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Definitions of Corporate Governance3

J. Wolfensohn, former president of World Bank expressed corporate governance is about promoting corporate fairness, transparency and accountability Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders (The World Bank, 2005)
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Definitions of Corporate Governance4

Sir Adrian Cadbury, Chairman of the Cadbury Committee Corporate Governance is defined as holding the balance between economic and social goals and also between individual and communal goals. The 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.
Dr. Asghar Naeem (CG 1, 09/02/2011)

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Definitions of Corporate Governance5

Sir Adrian Cadbury, Chairman of the Cadbury Committee The incentives to corporations is to achieve their corporate aims and to attract investment. The incentives for states is to strengthen their economies and discourage fraud and mismanagement.

Dr. Asghar Naeem (CG 1, 09/02/2011)

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