Coporate Governance

1. Corporate governance

2. • Corporate governance covers a very wide range of topics,
and risk management is an integral part of the successful
corporate governance of every organization
• Most countries in the world place corporate governance
requirements on organizations. These requirements are
particularly strong in relation to companies quoted on stock
exchanges, organizations that are registered charities and
government departments, agencies and authorities.
• For instance, companies listed on the London Stock
Exchange have to be guided by the Combined Code on
Corporate Governance published by the Financial Reporting
Council.

3. • The purpose of corporate governance is to
facilitate accountability and responsibility for
efficient and effective performance and ethical
behaviour.
• It should protect executives and employees in
undertaking the work they are required to do.
• Finally, it should ensure stakeholder confidence
in the ability of the organization to identify and
achieve outcomes that its stakeholders value.

4. • There are two main approaches to the enforcement
of corporate governance standards.
• Some countries treat corporate governance
requirements as ‘comply or explain’.
• In other words, the organization should comply with
the requirements or explain why it was not
appropriate, necessary or feasible to comply
• If appropriate, an organization could explain that an
alternative approach was taken to achieve the same
result. In these countries, the requirements may be
regarded as one means of achieving good practice,
but equally effective alternative arrangements are
also acceptable.

5. • Other countries require full compliance with
detailed requirements, although limited
alternatives for achieving compliance are
sometimes included within these
requirements.
• In these countries detailed compliance is
expected and exceptions would not be
acceptable.

6. • Corporate governance requirements should be
viewed as obligations placed on the board of an
organization.
• These requirements are placed on board members
by legislation and by various codes of practice.
• Often, these corporate governance requirements are
presented as detailed codes of practice.
• To start the process of enhancing corporate
governance standards, an organization may develop
a code of ethics for company directors, together with
appropriate ‘delegation of authority’ documents.
• An annual statement of conflict of interest should be
required from directors and training should be
provided for the board on corporate governance.

7. • Also, the organization should set up appropriate committees
(as listed below) with established terms of reference and
membership of each of these committees, which may be
established as sub-committees of the board.
• Reports on corporate governance standards, concerns and
activities should be received at every board meeting and
these papers will often be presented by the company
secretary.
• risk management committee;
• audit committee;
• disclosures committee;
• nominations committee;
• remuneration committee.

8. OECD principles of corporate
governance
• A basic definition of corporate governance is ‘the system
by which organizations are directed and controlled’.
• Corporate governance is therefore concerned with
systems, processes, controls, accountabilities and
decision making at the highest level and throughout an
organization.
• Because corporate governance is concerned with the way
that senior management fulfil their responsibilities and
authority, there is a large component of risk
management contained in the overall corporate
governance structure for every organization.

9. • Corporate governance is concerned with the need for openness, integrity
and accountability in decision making and this is
relevant to all organizations regardless of size or whether in the public or
private sector.
• The Organization for Economic Cooperation and Development (OECD) is
an international organization helping governments tackle the economic,
social and governance challenges of a
globalized economy.
• The OECD has established a set of principles for corporate governance
• These principles focus on the development of an effective corporate
governance framework that pays due regard to the rights of stakeholders.
• The principles require the equitable treatment of all stakeholders and an
influential role for stakeholders in corporate governance. Finally, the
principles require disclosure and transparency.
• All of these principles are delivered by the board of the organization and
the principles, therefore, make detailed reference to the responsibilities of
the board

11. LSE corporate governance framework
• The London Stock Exchange (LSE) has produced
guidance on corporate governance and the
focus of that guidance is on the effectiveness of the
board.
• In the view of LSE, corporate governance is about
the effective management of the organization
and the appropriate responsibilities and the role
of the senior managers and board members
within the organization.

12. • Governance activities are centred on the board of the
organization and the LSE guidance refers to these boards as
supervisory and managerial boards.
• The corporate governance framework has two main
components. These components are:
1) the responsibilities, obligations and rewards of board
members, and
2) the fulfilment of stakeholder expectations, rights,
participation and dialogue.
• The importance of board member responsibilities, obligations
and rewards are emphasized and include arrangements for:
• determining membership of the board;
• accountability of board members;
• delegation of authority from the board;
• remuneration of board members.

13. • The responsibilities of board members must be fulfilled in five
important areas, in respect of the fulfilment of stakeholder
expectations, rights, participation and dialogue.
• In summary, these five areas are as follows:
• strategic thinking, planning and implementation;
• corporate social responsibility;
• effective management of risks;
• audit and risk assurance;
• full and accurate disclosure.
• The OECD principles and the LSE corporate governance
framework provide the overall requirements and framework
within which corporate governance must be delivered.
• However, the processes that are used to deliver each of the fi
ve areas of stakeholder expectation will vary.

14. • Risk management activities should be viewed
within the wider framework of corporate
governance.
• Although risk management is presented as a
separate component of corporate governance
in the LSE framework, risk issues also underpin
strategy, corporate social responsibility, audit
and disclosure.