a notes on role of media in corporate governance...

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6. RAMA KRISHNA dot A

8.  Outlines
◦ Role of Media in ensuring Corporate Governance
◦ Media can play role in CG by effecting in three
ways;
 Pressure on politicians to go for corporate law reforms
 Pressure on managers to take care of the shareholders
money
 Pressure on managers to take care of the societal
norms

9. ◦ Importance of media
 Can play role even in the absence of legal act
◦ Harms of using advertisement as a media tool.
 Misrepresentation of facts
◦ Media and corporate governance
 Should be broadened rather than just legal and
contractual aspects
 Managers focus should be shareholders but also the
societal norms

10. ◦ Individual as well as institutional investors can use
press to fight with the management.
◦ Selective coverage and media credibility
 Sometimes foreign newspapers are more credible than
the local.
 The issue of credibility can question the investigation
made by the newspaper

11.  Management side deals can increase the query of
credibility.
 A single credible newspaper can’t fight with lots more
incredible newspapers.
◦ Adverse effects of advertising
 dishonesty
 Fear appeals
◦ Positive effects of advertising
 Guidance to children in making decisions
 Developing skills

12.  Outlines
◦ Problems faced by developing and transition or
change economies
 Still in process of basic market institutions to regulate
 Internal owner vs. external owner
 Inflow of new capital is not facilitated
 Lack of property rights, contract violations and self-
dealing are the core issues, not just the owners and
controllers relationship

13.  Act are there but it is hard to implement.
 Judiciary, bureaucracy and regulatory bodies are not
alert to stop corporate misgovernance.
◦ Summary of problems facing these economies
 Low economic growth
 Public sectors dominance i.e. CG is for private sectors
 Lack of effectiveness of privatization
 Lack of awareness among shareholders
 Govt. influence
 Internal owners are more influential than external
owner (no voting powers)
 More concentration toward family-owned corporations.

14.  Lack of legal protection for investors
 No inflow of new capital
 Low property rights and contract laws.
 Lack of well regulatory banking sector
 Exit mechanism, bankruptcy and foreclosure (taking
possession of mortgage property) norms are absent.
 No sound securities market
 Lack of competition
 Corruption and mismanagement
 Non-uniform guidelines by the govt. for all companies

15. ◦ Corporate Governance Models
 Insider system
 Insider own majority of the company shares
 Voting rights
 Power to monitor management
 Keep their investment for long period in a firm
 Support decisions for long period of time
 Dominant owners can use the firms’ assets by colluding
with the management, at the expense of minority
shareholders.
 Irresponsible exercise of power resulting waste resources
and drain company productivity levels.

16.  Outsider system
 Large number of owners hold small number of company
shares
 Can’t monitor management
 Can’t involve in management decisions
 Common law countries (UK, USA) own this system
 Independent board members to monitor managerial
behaviour
 More accountable and less corrupt
 Having dispersed ownership structure with some
weaknesses
 Looking for short term maximization
 Conflicts between directors and owners

17.  Outlines
◦ 1. Introduction
 Monopoly is that one person or company controls 1/3
of the local or national market
 Abuses or mistreatment of monopolies are
 High prices
 Wrong allocation of resources
 Abuse of investors/markets by giving wrong information.
 Preventing or stop inventions
 Economic instability
 Corruption and bribery
 Economic power in the hands of few

18. ◦ Anti-monopoly laws
 Prevents firms to make monopoly
 Prevent unfair price discrimination
◦ Competitive firm is preferred because
 Low prices
 Avoid wastages for competition
 Efficiency
 Consumers’ tastes and preferences

19. ◦ Benefits of competition
 Competition in the product market
 Quality products
 Low prices
 Competition in the capital market
 Relationship of firms and financial institutions
 Economic Power and Political Influence
 Firms can take political influence for their benefits
 Monopolistic market can lead toward the political
influence, would results in bad governance.
 Competition is the only solution.

20. ◦ Challenges to Good Enforcement
 Resources
 Meaningful sanctions
 A real big challenge
◦ Competition Agencies and Competition Policies
 To prevent anti-competitive practices
 To resist the lobbying of interest groups
 Competition policy should be at the top.
 Adequate resources to investigate anti-competitive
practices.