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CORPORATE GOVERNANCE by Prof. Aliza Racelis
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object]
Lessons learned from corporate scandals…
The stories of recent corporate debacles are accounts that are typically told in an emerging area of study called….. ,[object Object],[object Object],[object Object]
CORPORATE GOVERNANCE… (cont’d) ,[object Object],[object Object]
CORPORATE GOVERNANCE… ,[object Object],[object Object]
CORPORATE GOVERNANCE… ,[object Object]
ANSWER THIS: ,[object Object],Diversification Risk Shareholder risk profile Managerial risk profile S M A B
Moral Hazard ,[object Object],[object Object],[object Object],[object Object],[object Object]
Two broad routes can be taken to alleviate insider moral hazard: ,[object Object],[object Object]
Dysfunctional Corporate Governance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Various Theories for thinking about corporate governance: ,[object Object],Corporate Governance Agency Theory Shareholder Theory
Separation of Ownership & Managerial Control (Principal-agent problem) ,[object Object],[object Object],[object Object]
Managerial Incentives ,[object Object],[object Object],[object Object],[object Object],[object Object]
Governance mechanisms used in the modern Western-style corporation*: ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],*From  Strategic Management: Competitiveness and Globalisation ,  Chapter 10: Corporate Governance
1. Ownership Concentration ,[object Object],[object Object],[object Object]
Growing influence of  institutional investors ,[object Object],[object Object],[object Object]
Case in Point: ,[object Object],*From  Strategic Management: Competitiveness and Globalisation ,  Chapter 10: Corporate Governance
Comparison of shareholders by sector (Data are for 1990, except for France – 1992.) ( Source:  Prowse (1995) p. 13 for U.S., & Institute of Fiscal & Monetary Policy, 1996 for other countries; reproduced in “Comparing of Financial Systems”, Franklin Allen & Douglas Gale, Chap. 4 ‘Corporate Governance’, MIT Press, 2001.) Indivi-duals Pension funds Financial Inst’ns Non-fin’l Inst’ns Public sector Foreign indiv’s & Inst’ns Other U.S. 50% 20% 5% 14% 0 5% 6% U.K. 20 31 30 3 4 12 Japan 23 41 25 1 4 6 France 34 23 21 2 20 Germany 17 22 42 5 14
2. Board of Directors ,[object Object]
Classification of Board of Directors’ Members: ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Average U.S. Board Size and Independence by Company Size and Industry
Average Board Size and Independence Around the World, 2004
Number of members on Boards of Directors ( Source:  Institute of Fiscal & Monetary Policy, 1996; reproduced in “Comparing of Financial Systems”, Franklin Allen & Douglas Gale, Chap. 4 ‘Corporate Governance’, MIT Press, 2001.)
3. Executive Incentives ,[object Object],[object Object],[object Object],[object Object]
Types of Executive Compensation ,[object Object],[object Object],[object Object],[object Object]
Types of Executive Compensation (continued) ,[object Object],[object Object],[object Object],[object Object],[object Object]
4. Market for Corporate Control ,[object Object],[object Object]
Market for corporate control (cont’d) Terminology : ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Market for corporate control (cont’d) ,[object Object],[object Object]
Potential problem with the market for corporate control… ,[object Object],[object Object]
2. The Environment of Corporate Governance: Philippine Corporate Governance: Issues and Reforms (paper by Dr. Erlinda Echanis)
An Integrated System of Governance From textbook ‘Corporate Governance’ (2 nd  Ed.) by Kim & Nofsinger, Fig. 1.2, p. 7.
“ Philippine Corporate Governance: Issues and Reforms” (paper by Dr. Erlinda Echanis, available here:   http://www.upd.edu.ph/~cba/PMR/2006.htm ) ,[object Object],[object Object],Judiciary System Regulatory System Financial Reporting Philippine Corporate Governance
LEGAL SYSTEM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
FINANCIAL REPORTING SYSTEM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
REGULATORY SYSTEM ,[object Object],[object Object],[object Object],[object Object]
JUDICIARY SYSTEM ,[object Object],[object Object]
3. Other ‘Corporate Monitors’: ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],3a)  Governance Issues in Accounting and Auditing :
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],3b)  Banks and Analysts:
[object Object],[object Object],[object Object],[object Object],[object Object],3c)  Creditors and Credit Rating Agencies:
3d)  Shareholders and Shareholder Activism: ,[object Object],[object Object],[object Object],[object Object]
[object Object]
Key Elements of Sarbanes-Oxley
Key Elements of Sarbanes-Oxley
Will the Act Be Beneficial? ,[object Object],[object Object],[object Object]
Will the Act Be Beneficial? ,[object Object],[object Object],[object Object]
International Perspective ,[object Object],[object Object]
Corporate Governance Codes around the World Country Law or Recommendation Date Australia Principles of Good Corporate Governance and Best Practice Recommendations March 2003 Austria Austrian Code of Corporate Governance November 2002, updated April 2005 Belgium Belgian Corporate Governance Code December 2004 Brazil Code of Best Practice of Corporate Governance March 2004 Canada National Policy 58-201 Corporate Governance Guidelines December 2003 China The Code of Corporate Governance for Listed Companies in China January 2001 Denmark Revised Recommendations for Corporate Governance in Denmark August 2005 Finland Corporate Governance Recommendations for Listed Companies December 2003 France The Corporate Governance of Listed Corporations October 2003
Corporate Governance Codes (continued) Country Law or Recommendation Date Germany The German Corporate Governance Code (The Cromme Code) February 2002, amended May 2003 Greece Principles of Corporate Governance July 2001 Hong Kong Hong Kong Code on Corporate Governance November 2004 Italy Corporate Governance Code (il Codice di Autodisciplina delle società quotate rivisitato) July 2002 Japan Principles of Corporate Governance for Listed Companies April 2004 Netherlands The Dutch corporate governance code December 2003 Norway The Norwegian Code of Practice for Corporate Governance December 2004 Philippines SEC Code of Corporate Governance April 2002 Portugal Recommendations on Corporate Governance November 2003
Corporate Governance Codes (continued) Country Law or Recommendation Date Russia The Russian Code of Corporate Conduct April 2002 South Korea Code of Best Practice for Corporate Governance September 1999 Sweden Swedish Code of Corporate Governance  Report of the Code Group December 2004 Switzerland Swiss Code of Best Practice for Corporate Governance June 2002 Taiwan Taiwan Corporate Governance Best-Practice Principles 2002 Thailand Code of Best Practice for Directors of Listed Companies October 2002 Turkey Corporate Governance Principles June 2003 United Kingdom The Combined Code on Corporate Governance July 2003
U.S. SEC vs. Philippines SEC ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Implications: ,[object Object],[object Object],[object Object],[object Object]
Philippines SEC “Code of Corporate Governance” ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Do Codes suffice? ,[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],Do Codes suffice? (cont’d)
Asian Corporate Governance Roundtable ,[object Object],[object Object],[object Object]
White Paper on Asian Corporate Governance OUTLINE of APPENDIX A ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
White Paper on Asian Corporate Governance OUTLINE of APPENDIX A (Cont’d) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Philippines Institute of Corporate Directors (ICD): ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],Philippines Institute of Corporate Directors (ICD):
Corporate Governance The End

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Corporate Governance

  • 1. CORPORATE GOVERNANCE by Prof. Aliza Racelis
  • 2.
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  • 4. Lessons learned from corporate scandals…
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  • 20. Comparison of shareholders by sector (Data are for 1990, except for France – 1992.) ( Source: Prowse (1995) p. 13 for U.S., & Institute of Fiscal & Monetary Policy, 1996 for other countries; reproduced in “Comparing of Financial Systems”, Franklin Allen & Douglas Gale, Chap. 4 ‘Corporate Governance’, MIT Press, 2001.) Indivi-duals Pension funds Financial Inst’ns Non-fin’l Inst’ns Public sector Foreign indiv’s & Inst’ns Other U.S. 50% 20% 5% 14% 0 5% 6% U.K. 20 31 30 3 4 12 Japan 23 41 25 1 4 6 France 34 23 21 2 20 Germany 17 22 42 5 14
  • 21.
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  • 23. Average U.S. Board Size and Independence by Company Size and Industry
  • 24. Average Board Size and Independence Around the World, 2004
  • 25. Number of members on Boards of Directors ( Source: Institute of Fiscal & Monetary Policy, 1996; reproduced in “Comparing of Financial Systems”, Franklin Allen & Douglas Gale, Chap. 4 ‘Corporate Governance’, MIT Press, 2001.)
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  • 33. 2. The Environment of Corporate Governance: Philippine Corporate Governance: Issues and Reforms (paper by Dr. Erlinda Echanis)
  • 34. An Integrated System of Governance From textbook ‘Corporate Governance’ (2 nd Ed.) by Kim & Nofsinger, Fig. 1.2, p. 7.
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  • 46. Key Elements of Sarbanes-Oxley
  • 47. Key Elements of Sarbanes-Oxley
  • 48.
  • 49.
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  • 51. Corporate Governance Codes around the World Country Law or Recommendation Date Australia Principles of Good Corporate Governance and Best Practice Recommendations March 2003 Austria Austrian Code of Corporate Governance November 2002, updated April 2005 Belgium Belgian Corporate Governance Code December 2004 Brazil Code of Best Practice of Corporate Governance March 2004 Canada National Policy 58-201 Corporate Governance Guidelines December 2003 China The Code of Corporate Governance for Listed Companies in China January 2001 Denmark Revised Recommendations for Corporate Governance in Denmark August 2005 Finland Corporate Governance Recommendations for Listed Companies December 2003 France The Corporate Governance of Listed Corporations October 2003
  • 52. Corporate Governance Codes (continued) Country Law or Recommendation Date Germany The German Corporate Governance Code (The Cromme Code) February 2002, amended May 2003 Greece Principles of Corporate Governance July 2001 Hong Kong Hong Kong Code on Corporate Governance November 2004 Italy Corporate Governance Code (il Codice di Autodisciplina delle società quotate rivisitato) July 2002 Japan Principles of Corporate Governance for Listed Companies April 2004 Netherlands The Dutch corporate governance code December 2003 Norway The Norwegian Code of Practice for Corporate Governance December 2004 Philippines SEC Code of Corporate Governance April 2002 Portugal Recommendations on Corporate Governance November 2003
  • 53. Corporate Governance Codes (continued) Country Law or Recommendation Date Russia The Russian Code of Corporate Conduct April 2002 South Korea Code of Best Practice for Corporate Governance September 1999 Sweden Swedish Code of Corporate Governance Report of the Code Group December 2004 Switzerland Swiss Code of Best Practice for Corporate Governance June 2002 Taiwan Taiwan Corporate Governance Best-Practice Principles 2002 Thailand Code of Best Practice for Directors of Listed Companies October 2002 Turkey Corporate Governance Principles June 2003 United Kingdom The Combined Code on Corporate Governance July 2003
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