Corporate Governance


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Corporate Governance

  1. 1. Corporate Governance, Stakeholders, Ethics and Culture
  2. 2. Corporate Governance <ul><li>Corporate Governance is about the way in which organizations are run and who should control them – the chairman, chief executive, and the board of directors, shareholders or stakeholders such as employees </li></ul><ul><li>Need: Separate ownership & management </li></ul><ul><li>Beneficiaries – Board - Management </li></ul>
  3. 3. <ul><li>Laws to enhance corporate governance: company law, audit function and accounting standards </li></ul><ul><li>Political aims of corporate governance: </li></ul><ul><li>Creating framework for control large powerful companies whose interest may not coincide with the national interest </li></ul><ul><li>Controlling MNCs, which can dominate the local economy </li></ul><ul><li>Ensuring companies are answerable to stakeholders, and not only shareholders </li></ul><ul><li>Ensuring companies are run according to laws </li></ul><ul><li>Protecting investors who buy shares </li></ul>
  4. 4. Principles of Good Corporate Governance <ul><li>The rights of the shareholders: co commitment for return on investment, use of their money </li></ul><ul><li>The equitable treatment of shareholders: minority, foreign shareholders, right to have violation redressed </li></ul><ul><li>The role of stakeholders: creating wealth, jobs, and sustainability of enterprise </li></ul><ul><li>Disclosure and transparency: financial, performance, governorship of co </li></ul><ul><li>The responsibility of the board: strategic guidance, monitoring of management, board’s accountability to the co and the stakeholders </li></ul>
  5. 5. Role of Non-Executive Directors <ul><li>Experience and knowledge </li></ul><ul><li>Warning EDs of high risk-areas </li></ul><ul><li>Provide supervision </li></ul><ul><li>Determine EDs remuneration </li></ul><ul><li>Appointing and liaising with auditors </li></ul><ul><li>Advice to board and individual directors </li></ul>
  6. 6. Result of focus on corporate governance <ul><li>Increasing power of governing body </li></ul><ul><li>Increasing shareholder power </li></ul><ul><li>Pressure for formulating strategy </li></ul><ul><li>Greater security of quoted business </li></ul><ul><li>Greater emphasis of risk management </li></ul><ul><li>Greater scrutiny of mergers & acquisitions </li></ul>
  7. 7. Stakeholders <ul><li>Anyone affected by the organization </li></ul><ul><li>Different objectives: managers, govt, pressure groups, shareholders, customers, suppliers, financiers </li></ul><ul><li>Objectives may be in conflict </li></ul><ul><li>Does not necessarily exercise the power </li></ul>
  8. 8. Analyzing Stakeholders <ul><li>Mendelow Matrix: </li></ul><ul><li>A: minimum effort: lack of interest & power </li></ul><ul><li>B: keep informed: interested but lack power </li></ul><ul><li>C: keep satisfied: require assurance of strategy outcome in advance </li></ul><ul><li>D: key players: major drivers of change </li></ul>
  9. 9. Ethics <ul><li>Business ethics is the application of ethical values to business behavior </li></ul><ul><li>Ethical Dilemmas: </li></ul><ul><li>Child labor </li></ul><ul><li>Environment protection for law or future generations </li></ul><ul><li>Bribes or official presents </li></ul><ul><li>Downsizing: maintaining ratios or competence </li></ul><ul><li>Testing medicine on less priveleged </li></ul><ul><li>Merck Vioxx </li></ul><ul><li>Apple shares issue </li></ul>
  10. 10. Reidenbach & Robin Model <ul><li>Amoral: winning at any cost – no set of values other than greed </li></ul><ul><li>Legalistic: obeying the law – if it is legal then it is OK </li></ul><ul><li>Responsive: what can be gained from ethical behavior – pretending to be caring </li></ul><ul><li>Emerging ethical: take an active interest in ethical issues – recognize social contract – want to do the right thing </li></ul><ul><li>Ethical cos – have a ‘total ethical profile’ – balance profits/ethics throughout their culture </li></ul>
  11. 11. CSR <ul><li>Corporate responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance. </li></ul><ul><li>Different views: </li></ul><ul><li>Shareholder: SR of business to make profit – employment generation, economic growth, innovation, tax contribution, living standards (directors’ being charitable with other people’s money) </li></ul><ul><li>Long term self interest view: PR arising from CSR will increase profits in the long term. Failure to do will prompt litigation and damage business. </li></ul><ul><li>Stakeholder view: one stakeholder may be sacrificed for greater good of other stakeholders </li></ul>
  12. 12. Common CSR issues <ul><li>Work creation and training programmes </li></ul><ul><li>Sponsorship of the arts and sport </li></ul><ul><li>Employee welfare programmes </li></ul><ul><li>Community welfare programmes </li></ul><ul><li>Support for educational institutions and links with business </li></ul><ul><li>Contributions to overseas aid </li></ul><ul><li>Environmental programmes </li></ul>
  13. 13. Organizational Culture <ul><li>Culture is the set of values, guiding beliefs, understandings and ways of thinking that are shared by the members of an organization and is taught to new members as correct. It represents the unwritten, feeling part of the organization. </li></ul><ul><li>‘the way we do things around here’ </li></ul>
  14. 14. The effect of culture <ul><li>Strategy </li></ul><ul><li>Strategic lens: design, experience, idea </li></ul><ul><li>Perceptions about competitors </li></ul><ul><li>Perceptions about customers </li></ul><ul><li>Management style </li></ul><ul><li>Attitude to various stakeholders </li></ul><ul><li>Ethical behavior </li></ul><ul><li>Attitude towards CSR </li></ul>
  15. 15. The cultural web <ul><li>A way of understanding organization – paradigm </li></ul><ul><li>Organizations find it difficult to think and act outside that paradigm </li></ul><ul><li>It is a shared mindset – formed from the basic or implicit assumptions that members of an organization unconsciously carry around them </li></ul><ul><li>Cultural web: six inter-related elements </li></ul>
  16. 16. 6 key inter-related elements <ul><li>Routines and rituals </li></ul><ul><li>Stories and myths </li></ul><ul><li>Symbols </li></ul><ul><li>Power structure </li></ul><ul><li>Organizational structure </li></ul><ul><li>Control systems </li></ul>
  17. 17. Core values and mission <ul><li>The most generalized type of object </li></ul><ul><li>Core values are the principles that guide an organization’s behavior </li></ul><ul><li>Content of mission statement: purpose, strategy, policies and standards of behavior, values </li></ul>