What is Corporate

Governance?
 Corporate governance
 Good governance is a fundamental element
of a democratic society.
 Management Vs Governance
 Management deals with daily operations, while Governance is about the
underlying ethics of a corporation.
 Poor management can affect governance
• Weak governance undermines the financial and operational
performance of a corporation
• Weak governance affects investors’ faith in the company.
 Corporate Governance
 Contemporary corporate governance
started in 1992 with the Cadbury report in
the UK
 is concerned primarily with protecting
weak and widely dispersed shareholders
against self-interested Directors and
managers
 Corporate Governance
 Cadbury was the result of several
high profile company collapses
 CG guidelines focused on preventing
corporate collapses such as Enron,
Polly Peck, WorldCom, Chiquita
Brands Int, Adelphia
Communications, Nortel and the
Maxwell companies
 Corporate Governance Parties
 Diverse Ownership
• Shareholders – those that own the company
• Directors – Guardians of the Company’s assets
for the Shareholders
• Managers - who use the Company’s assets

 Family Firms Dilemma

• Owners-Managers vs minority shareholders
 Four Pillars
of Corporate Governance
• Accountability

• Fairness

• Transparency

• Independence
Elements of Corporate Governance
 Good Board practices

 Control Environment

 Transparent disclosure

 Well-defined shareholder rights

 Board commitment
 Good Board Practices
 Clearly defined roles and authorities

 Duties and responsibilities of Directors

understood

 Board is well structured

 Appropriate composition and mix of skills

 Good Board Procedures
 Appropriate Board procedures

 Director Remuneration in line with best

practice

 Board self-evaluation and training

conducted
 Control Environment
 Internal control procedures
 Risk management framework present
 Business continuity procedures in place
 Independent external auditor conducts audits
 Independent audit committee established
 Compliance Function established
 Transparent Disclosure
 Financial Information disclosed
 Non-Financial Information disclosed
 Financials prepared according to
International Financial Reporting
Standards (IFRS)
 High-Quality annual report published
 Web-based disclosure
 Well-Defined Shareholder Rights

 Minority shareholder rights formalised

 Well-organised shareholder meetings
conducted
 Policy on related party transactions
 Policy on extraordinary transactions
 Clearly defined and explicit dividend policy
 Board Commitment
 The Board discusses corporate governance
issues and has created a corporate
governance committee
 A corporate governance improvement plan
has been created
 Appropriate resources are committed to
corporate governance initiatives
 Board Commitment
 Policies and procedures have been
formalised and distributed to relevant staff
 A corporate governance code has been
developed
 A code of ethics has been developed
 The company is recognised as a corporate
governance leader
 Country Perspective
 Corporate Governance is by way of
legislation or best practice Code
 US adopted legislation in 2002 - Sarbanes
Oxley Act
 Most other developed and emerging
market countries have adopted best
practice Codes e.g. Combined Code in the
UK, Cromme Code in Germany and the
King II Code in South Africa
 Country perspective - Codes
 These Codes are voluntary and are
enforced by shareholders
 Most of them operate on a ‘comply or
explain’ approach
 Country Perspective-
Bangladesh
 Development of CG in Bangladesh????
 Why Corporate Governance?
 Better access to external finance
 Lower costs of capital – interest rates on
loans
 Improved company performance –
sustainability
 Higher firm valuation and share
performance
 Reduced risk of corporate crisis and
scandals