Corporate Governance - Presentation - Karim Virani

Presented By : Karim Virani
Presented to : Dr. Abuzar Wajidi
Course : Corporate Governance

TOPICS TO BE COVERED

WHAT IS CORPORATE GOVERNANCE
• Corporate governance is the set of processes, customs, policies, laws and
institutions affecting the way in which a corporation is directed,
administered or controlled.
• Corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation.
• Corporate governance also includes the relationships among the many
players involved and the goals for which the corporation is governed.

PRINCIPAL PLAYERS

OBJECTIVES OF CORPORATE GOVERNANCE
• The fundamental objective of corporate governance is to enhance
shareholders' value and protect the interests of other stakeholders by
improving the corporate performance and accountability
• It harmonizes the need for a company to strike a balance at all times between
the need to enhance shareholders' wealth whilst not in any way being
detrimental to the interests of the other stakeholders in the company
• It is integral to the very existence of a company and strengthens investor's
confidence by ensuring company's commitment to higher growth and profits.

IMPORTANCE OF CORPORATE
GOVERNANCE
• Corporate governance is an important aspect of business..
• It helps streamline the process and gives people accountability.
• The point of corporate governance is to help the decision making process.
• One of the main goals is to clearly explain to the board, the stakeholders, and
the shareholders what their duties and responsibilities are within the
company.
• With knowing those roles and responsibilities, the people within the
corporation can understand what they are held accountable for.
• Accountability is what helps people within the company make decisions.

GOOD CORPORATE GOVERNANCE – AIM
The aim of Good Corporate Governance is to ensure
commitment of the board in managing the company in a
transparent manner for maximizing long-term value of the
company for its shareholders and all other partners.

ELEMENTS OF
GOOD CORPORATE GOVERNANCE
Accountability
of both internal
& external
Transparency /
openness
Recognition of
stake
holders/shareh
olders rights
Legal
compliance
Ongoing
financial
scrutiny and
control

PARTIES TO CORPORATE GOVERNANCE

• A board of directors is responsible for oversight of management’s
performance, acting in the best interests of all shareholders.
• The board has the responsibility of endorsing the organization's strategy,
developing directional policy, appointing, supervising and remunerating
senior executives, and ensuring accountability of the organization to its
investors and authorities.

The Employees
• Strengths the system of human resource management
• Increases the labor motivation
• Raises lawfulness and authority of the decision making.
• Improves the corporate culture
• Contributes to economic grow and social stability
• “…Without stable cooperation between employees and management,
shareholders’ value will never be maximized…”

The Shareholders
• Shareholders provide capital, approve major transaction and elect
directors of the board but they are not involved in the day to day
management of the company.

• The CEO and Senior executives are responsible for the day to day operation
of the corporation.
• The role of management is to support the chief executive officer and
implement the running of the general operations and financial business of
the Company, in accordance with the delegated authority of the Board.

CONTROL AND OWNERSHIP STRUCTURES
Dual-class shares
Ownership pyramids
Voting coalitions
Proxy votes
Control and possession construction alludes to the kinds and constitution of
stockholders within a company.

DUAL CLASS SHARES
• Dual class stock is intended to give specific shareholders voting control.
• Dual class stock structures are controversial.
• Supporters feel that the structure allows strong leadership to put long-term
interests first while seeing beyond the near-term financial situation.
• Opponents of dual class structures feel it allows a small group of privileged
shareholders to maintain control while other shareholders (with less voting
power) provide the majority of the capital.

OWNERSHIP PYRAMID
• Pyramidal ownership structure is defined as an entity whose ownership
structure displays a top-down chain of control
• The separation of actual ownership and control occurs because the pyramid
structure enables the ultimate owners to establish control
disproportionately to the amount of ownership he has in every one of the
successive firms.

VOTING COALITIONS
• A voting coalition or voting pool consists of several shareholders agreeing to
vote in the same way.
• Voting coalitions are rare, especially those that persist in the long term. One
reason for the infrequency of voting coalitions may be the costs imposed by
regulation.

PROXY VOTING
• A ballot cast by one person on behalf of another.
• One of the benefits of being a shareholder is the right to vote on certain
corporate matters.
• Since most shareholders cannot or do not want to attend the annual and
special meetings at which the voting occurs, corporations provide
shareholders with the option to cast a proxy vote.

FAMILY CONTROL
Family concerns control possession and command constructions of a few
organizations, and it has been proposed the omission of kin managed company
is senior to that of organizations managed by institutional financiers.

DIFFUSE SHAREHOLDERS
• In elaborated Anglo-American nations (Australia, Canada, New Zealand,
U.K., U.S.), institutional financiers control the trade for stocks in greater
organizations.
• The major part in the Japanese trade are grasped by monetary businesses
and manufacturing organizations, those are not institutional financiers if
their possessions are mostly with-on cluster.

MECHANISM AND CONTROL
• Corporate manner of government systems and powers are developed to
lessen the incompetency’s that emerge as of meaning hazard and
unfavorable choice.
• There are either interior tracking setups or outside tracking setups.
• Internal tracking may be completed, for instance, by one (or a few) great
shareholder(s) in the situation of confidentially grasped businesses either a
firm belonging to a trade cluster.
• External tracking of managers’ conduct happens once an autonomous 3rd
party (e.g. the outside auditor) attests the precision of data presented by
administration to financiers.

INTERNAL CORPORATE GOVERNANCE
CONTROLS
Internal corporate governance controls (internal controls) play a vital role in
ensuring the success of a business organization and preventing corporate fraud.
Internal control activities that ensure proper corporate governance include:
 Monitoring by board
 Internal audits and robust policies
 Proper balance of power
 Performance based remuneration
 Monitoring by large shareholders and other stakeholders

MONITORING BY BOARD
The board should monitor the corporate governance of the company through
continuous review of its internal structure. This ensures that there are clear
lines of accountability for management throughout the company.
The board should also monitor and review:
• Corporate strategy
• Major plans of action
• Risk policy
• Annual budgets and business plans
• Corporate performance
• major capital expenditures, acquisitions and divestitures
• governance practices and changes
• selection, compensation and succession planning of executives
• key executive and board remuneration

INTERNAL AUDITS AND ROBUST POLICIES
• Regular internal audits have to be carried out by auditors employed by the
organization in order to assess the health of governance processes,
operational health and financial reporting.
• Robust internal control policies should also be implemented to ensure that
the company lives up to its obligations to investors, stakeholders,
employees, the environment, the government and the public at large

PROPER BALANCE OF POWER
A separation of powers and responsibilities between management groups
ensures that there’s a proper system of checks and balances in place, with one
group implementing policies and another ensuring that these are implemented
and functioning in the right manner.

PERFORMANCE BASED REMUNERATION
Executive pay, a contentious topic following the 2007-08 financial crises, is
expected to be linked to performance in order to ensure that management is
rewarded for operating the company keeping in mind the rights of investors
and other stakeholders.

MONITORING BY LARGE SHAREHOLDERS
AND OTHER STAKEHOLDERS
Individuals and institutions that have large shareholdings (and financial
institutions such as banks who are creditors) have the right to monitor the
performance of the management, acting as an effective internal control
measure.

EXTERNAL CORPORATE GOVERNANCE
CONTROLS
External stakeholders play an important role in ensuring proper corporate
governance processes in a business organization.
Some of the key external corporate governance controls include:
 Government regulations
 Media exposure
 Market competition
 Takeover activities
 Public release and assessment of financial statements

GOVERNMENT REGULATIONS
• Government regulations are the most effective external controls on the
governance of a company. Companies are required to comply with these or
face penalties for violations.
• Most corporate governance regulatory requirements are based on the
OECD Principles of Corporate Governance.

MEDIA EXPOSURE
Media scrutiny of the workings and processes of a company ensures, to a
certain degree, the proper governance in an organization. Whistleblowers often
expose wrongdoing within a company to the government and media
organizations

MARKET COMPETITION
Companies with the best corporate governance practices have the best
standing in the market. Reputation, credibility and positive public perception all
play a vital role in boosting a company’s image and thus help it trump its
competition and best its peers.

TAKEOVER ACTIVITIES
Takeover activities lay a company’s internal processes and workings open to
public scrutiny. Both government regulators and the media will focus on the
internal policies and governance structures, thus acting as an effective external
control.

PUBLIC RELEASE AND ASSESSMENT OF
FINANCIAL STATEMENT
The public release of financial statements by listed companies exposes them
open to assessment or scrutiny by regulators, investors, members of the public
and so on. This acts as an external control as companies have to be scrupulous
and careful about the details included in these statements and in ensuring that
they are properly prepared and audited.

FINANCIAL REPORTING AND THE
INDEPENDENT AUDITOR
• The board of executives has main obligation for the corporation’s outside
monetary informing purposes.
• The Chief Executive Officer and Chief Financial Officer are vital contributors
and boards normally have a elevated level of dependence on them for the
stability and provision of bookkeeping data. They supervise the interior
bookkeeping setups, and are reliant on the corporation’s Accountants and
interior assessors.
• The power of the business customer to begin and end administration
advising facilities and, further basically, to choose and disband bookkeeping
businesses contradicts the idea of an autonomous assessor.

SYSTEMIC PROBLEMS OF CORPORATE
GOVERNANCE
• Demand for information: In line to impact the directors, the stockholders
should roll into one with other ones to shape a polling cluster that may pose a
actual menace of bearing intentions either designating directors at a common
gathering.
• Monitoring costs: A obstacle to stockholders utilizing high-quality data is the
outlay of handling it, particularly to a not so large stockholder. The customary
reply to this difficulty is the effectual trade theory that proposes that the not
so large stockholder must gratis ride on the discernments of greater non-
amateur financiers.
• Supply of bookkeeping information: Financial accounts shape a vital link in
activating suppliers of funding to screen directors. Imperfections in the
monetary informing procedure tend to trigger imperfections in the success of
business manner of government..

DEBATES IN CORPORATE GOVERNANCE
EXECUTIVE PAY
• Top corporate executives have always been well-paid for obvious reasons.
• Running a major corporation is a demanding job; you would expect to pay a
high salary to get and retain talented hardworking people.
• CEOs generally can count on big paychecks in good times and bad. They
tend to do well even when their companies do poorly; although they can
expect to do better when corporate profits or stock prices rise

SEPARATION OF CEO AND CHAIRMAN OF
THE BOARD ROLES
To date, research on CEO-chair separation has yielded only one overarching
conclusion:
• A CEO who also serves as board chair is no better or worse for company
performance than an independent director serving as board chair.
• Nevertheless, many in the corporate governance field advocate for
separation of the CEO and board chair.

Corporate Governance - Presentation - Karim Virani

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