Corporate Governance

and ESG
Corporate Governance Overview
And Stakeholder Groups

© 2019 by Keith Tan. All rights reserved.

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Corporate Governance
and ESG
Corporate Governance Overview
And Stakeholder Groups
1. Definition
2. Stakeholder Groups
 Caused by Weak Corporate Governance!

Enron A
ccountin
Scandal g

Regulations to
protect markets
and investors
Yes, we need
protection from
unfair practises!

Investors

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Environmental, Social, and Governance

Environmental Social
Issues Issues

We care
about these
aspects too!
Investors

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Corporate Governance
“The system of internal controls and procedures by which individual companies are managed. It provides a
framework that defines the rights, roles and responsibilities of various groups… within an organization. At
its core, corporate governance is the arrangement of checks, balances, and incentives a company needs
in order to minimise and manage the conflicting interests between insiders and external share-owners.”
~ CFA Institute Centre for Financial Market Integrity

Rights, Roles,
Responsibilities
Framework
Checks,
balances,
Shareholders incentives

Board of Directors

Suppliers Management Creditors

Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Theories of
Corporate Governance
Shareholder Theory
Primary Focus: Interests of shareholders

Make
me rich! Framework

Shareholders
We are
running the
Maximise
Board of Directors
show!
value
Suppliers Management Creditors
Common
Stock Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Theories of
Corporate Governance
Stakeholder Theory
Broader focus: considers conflicts among several groups

Framework

Shareholders

Board of Directors

Suppliers Management Creditors

Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
Interests of shareholders
ongoing profitability and growth “Owners”
of the firm
→ value of shares↑ claim on net assets
Shareholders of the company
voting rights for
board election and after all liabilities
corporate matters settled

Board of Directors

Suppliers Management Creditors

Owners’
Equity
LISTED
Assets COMPANY

Employees
Liabilities

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
Interests of shareholders
ongoing profitability and growth
of the firm
→ value of shares↑
🔒Protect Shareholders
shareholder
interests

👍Hire, 👎fire, and Board of Directors

set compensation💵

Suppliers Management Creditors

LISTED COMPANY Monitor financial

Set strategic performance and
direction other activities
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Shareholders

One-tier Board
single board of directors

Non-Executive Directors Executive Directors

Not employed by
company
Board of Directors

Suppliers Management Creditors

LISTED COMPANY
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Shareholders

Two-tier Board
supervisory
Non-Executive Directors
board
oversees

Executive Directors management

board
Board of Directors

Suppliers Management Creditors

LISTED COMPANY
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Shareholders

Board-approved Board of Directors

compensation💵

Suppliers 💵Salary, Management Creditors

💵💵Bonus (based Interests of managers

LISTED COMPANYcontinued employment and
on company performance)

Perquisites higher compensation

(expense accounts,
company planes✈, special Employees → meeting 🎯targets that affect bonus
retirement benefits)

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Shareholders

Board of Directors

Suppliers Management Creditors

LISTED
💵Salary, COMPANY
💵💵Bonus (based Interests of employees
on company performance) Employees
job security and pay
career advancement, training,
Listed Company and working conditions

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Interests of creditors
Shareholders getting timely interest and
principal repayments
→ partly protected by collaterals and
covenants

Board of Directors

Banks,
bondholders
Suppliers Management ns Creditors
Loa

LISTED COMPANY t e r e s t
In
No voting
Employees rights
Does not
participate in
firm growth Listed Company
Corporate Governance Overview And Stakeholder Groups
1. Definition 2. Stakeholder Groups
Interests of suppliers
preserving ongoing relationship🤝 Shareholders
💰profitability of deals
firm’s solvency and financial strength

Board of Directors

Suppliers Management IOUs Creditors

LISTED COMPANY
short-term
Employees
credit

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Interests of customers
reliable/timely delivery, ongoing support,
product guarantees, after-sale service
company stability (long-term relationships)
Shareholders Customers

Board of Directors

Suppliers Management Creditors

LISTED COMPANY
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
 Interests of gov / regulators
protect the interests of the public
ensure well-being of the economy
Gov/Regulators corporate taxesShareholders Customers

Ta
x es
Board of Directors

Suppliers Management Creditors

LISTED COMPANY
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
Gov/Regulators Shareholders Customers

Board of Directors

Suppliers Management Creditors

LISTED COMPANY
Employees

Listed Company

Corporate Governance Overview And Stakeholder Groups

1. Definition 2. Stakeholder Groups
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