OTHER LECTURES ARE CONNECTED

1. 1
Corporate
Governance
Second Lecture :
By
ABDUL WAKEEL
NAZARI
E-mail Address : Wakeel_khan@live .com
contact NO# 0092-3489237407
PLEASE SUBCRIBE MY YOUTUBE CHANNEL

2. Need for Corporate Governance
 To protect and serve individual interest of each stakeholder
 To protect and serve the collective interest of all stakeholders
 To ensure no one benefits at the expense of another
 To ensure no stakeholder has monopoly of decision-making.
2

3. Definitions of Corporate Governance
 The mechanism used to control and direct the affairs of a
corporate body in order to serve and protect the individual
and collective interests of all its stakeholders.
 Mechanism: all laws, professional codes, industrial practices
and management techniques employed to conduct and
regulate the affairs of a company.
3

4. Definitions Of Corporate Governance
Cont’d. . .
 Gabrielle O’Donovan defines corporate governance as “an
internal system encompassing policies, process and people,
which serves the needs of shareholders and other
stakeholders, by directing and controlling management
activities with good business savvy, objectivity,
accountability and integrity. Sound corporate governance is
reliant on external marketplace commitment and legislation,
plus a healthy board culture which safeguards policies and
processes”
4

5. Definitions Of Corporate Governance
Cont’d. . .
 La Porta defines corporate governance as a set of
mechanisms through which outside investors protect
themselves against expropriation by the insiders.
 “Insiders means both managers and controlling shareholders”
5

6. Definitions Of Corporate Governance
Cont’d. . .
The Cadbury Report
 Defines Corporate governance as the system by which
companies are directed and controlled.
6

7. Governance & Management
 How do these terms differ?
 Does Governance include Management?
Or
 Does Management include Governance?
7

8. Relationship Between Management And
Governance
 Governance: it can be assumed that what a Board of
Directors of a company does to ensure a proper conduct of its
affairs
 Management: what is done by the employees hired by
Board to operate the company’s affairs on day to day basis.
8

9. Relationship Between Management And
Governance
BOARD OF
DIRECTORS
(performing the
governance
function)
MANAGERS
(carrying out the
operational
management of the
company)
Executive Directors
(involved in both functions)
9

10. Functional Relationship Between
Governance And Management Of A
Company
Governance Function Management
Approval of Plans Planning Preparation of plans
Providing overall leadership Leading Leading those who
implement plans
Arranging
resources
Organizing Tasks division & resource
usage
Controlling managers Controlling Controlling employees
10

11. Governance
 Strategic vision
 Setting Objectives of company
 Devising plans to achieve these objectives
 Arranging resources
 Defining rules and parameters
 Not directly concerned with routine affairs
 Protection of Interests of all stakeholders
11

12. 12
Management
 Current & Operational Affairs
 Taking directions from the Board
 Implementing the Plans
 Developing Suggestions and Alternatives

13. Corporate Sins
 Sloth: unwillingness to take risks and initiatives.
 Greed: is the desire of mangers to get the best for
themselves.
 Fear: is a tendency to refrain from doing any thing as not to
displease a boss (investors).
 Sloth refers to an attitude of risk aversion while fear indicate
simple laziness.
13

14. Agency Theory
 What is Agency Theory?
 Does it apply to companies?
 Two-party (Shareholders means Principal and Directors
means Agent)
 The focus of governance is on “interest of each stakeholder”
and the “collective interest of all stakeholders” not just the
interest of one particular party, namely shareholders.
 Three-party model
 Principal-Watchdog-Agent
14

15. Approaches To Corporate Governance
 Shareholders approach to Corporate Governance
 Stakeholders Approach to Corporate Governance
 Enlightened shareholders approach
15

16. 16
Key Issues
 Financial reporting
 Directors’ remuneration
 Risk management
 Effective communication
 Corporate Social Responsibility

17. 17
Financial Reporting
 Accuracy
 Reliability
 Internal and external audit
 Comprehensiveness
 Timeliness

18. 18
Directors Related Issues
 Remuneration
 Powers
 Balance between:
 executive and non-executives
 Election and re-election
 Representation

19. 19
Risk Management
 Risk profile
 What risks to take?
 Avoidable and non-avoidable risks
 What not to take?
 How to handle risks taken?

20. 20
Communication
 Transparency
 Regular communication
 With who?
 In what format?

21. 21
Corporate Social Responsibility
 Business Ethics
 Being a good citizen
 Doing business responsibly

22. 22
Why is CG Important?
 Good reputation is good business
 Protection of stakeholders’ interest
 Support to capital markets
 Support to society
 Every one wins