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Corporate Governance Overview by Dr. Butt

This document provides an overview of corporate governance. It defines corporate governance and a company, describing characteristics like ownership through shares and separate legal entity status. It outlines company types and the typical hierarchy within a company. Key players like shareholders, directors, and senior managers are identified. Stakeholders are classified based on their role and ability to protect interests. The document distinguishes between governance and management. It examines different approaches to governance and issues like financial reporting, director remuneration, and risk management. The importance of good corporate governance for reputation, stakeholder interests, capital markets, and society is highlighted.

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3K views26 pages

Corporate Governance Overview by Dr. Butt

This document provides an overview of corporate governance. It defines corporate governance and a company, describing characteristics like ownership through shares and separate legal entity status. It outlines company types and the typical hierarchy within a company. Key players like shareholders, directors, and senior managers are identified. Stakeholders are classified based on their role and ability to protect interests. The document distinguishes between governance and management. It examines different approaches to governance and issues like financial reporting, director remuneration, and risk management. The importance of good corporate governance for reputation, stakeholder interests, capital markets, and society is highlighted.

Uploaded by

Ahsan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
  • An Introduction to Corporate Governance
  • What is it about?
  • Company
  • Hierarchy of a Company
  • Top Players
  • Classification of Stakeholders
  • Opportunity to Protect Individual Interests
  • Need for Corporate Governance
  • Governance & Management
  • Governance
  • Management
  • Approaches to Corporate Governance
  • Corporate Sins
  • Agency Theory
  • Key Issues
  • Financial Reporting
  • Directors Related Issues
  • Risk Management
  • Communication
  • Corporate Social Responsibility
  • Why is CG Important?
  • Conclusion

An Introduction to Corporate Governance

Dr Safdar A Butt

What is it about?

Corporate Governance

Company

What is a company? Characteristics of a Company Types of Companies

Characteristics of a Company

Ownership in shares Freely transferable shares Separate entity apart from shareholders Liability of shareholders Indefinite life Board of directors

Types of Companies

Limited or Unlimited Limited by shares or by guarantee Private or Public Listed or Unlisted

Hierarchy of a Company

Shareholders

Own the company, do not run it.


Elected by and reporting to shareholders

Board of Directors

Management
Appointed by and reporting to directors Includes executive directors

Top Players

Shareholders: Voting power Chairman:

May be executive or non-executive

Directors

May be executive or non-executive


May or may not be a director May or may not be directors
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Chief Executive Officer

Senior Managers:

Classification of Stakeholders

Owners Lenders Employees Business Associates

Suppliers and Customers

Society

Includes government

Opportunity to protect individual interests

Managers and Employees have the greatest opportunity to protect their interest(s) Suppliers and Clients essentially go by each transaction or contract. Lenders and Shareholders are most vulnerable. Society depends entirely on law

Classification of Stakeholders
Classified on basis of Role in the Company Classified on basis of opportunity to protect individual interests

Those with Full Opportunity


Controlling Shareholders Financial institutions with elaborate lending Contracts

Those with a Partial Opportunity


Institutional Investors with Board representation

Those with Virtually No opportunity


Minority and individual shareholders with no board Representation

Owners

Lenders

Buyers of listed bonds with trustee arrangements

Other lenders

Employees

Executive Directors

Senior Managers

Other employees on regular or contract terms Smaller suppliers and smaller clients

Business Associates

Suppliers who sell only on cash terms

Major Suppliers and clients with contracts

Society

Government

Public at large
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Need for Corporate Governance

To protect and serve individual interest of each stakeholder To protect and serve the collective interest of all stakeholders To ensure no one benefits at the expense of another To ensure no stakeholder has monopoly of decision-making.
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Governance & Management


How do these terms differ? Does Governance include Management? Or Does Management include Governance?

12

Governance & Management


Governance
Approval of Plans Providing overall leadership Arranging resources Controlling managers

Function
Planning Leading Organizing Controlling

Management
Preparation of plans Leading those who implement plans Tasks division & resource usage Controlling employees
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Governance

Strategic Setting Objectives Devising plans to achieve these objectives Setting rules or parameters Not directly concerned with routine affairs Protection of Interests of all stakeholders

14

Management

Current & Operational Affairs Taking directions from the Board Implementing the Plans Developing Suggestions and Alternatives

15

Approaches to Corporate Governance

Shareholders Approach Stakeholders Approach Enlightened Shareholders Approach Which approach is best?

16

Corporate Sins

Sloth

Unwillingness to take initiative or risk, prefer status quo, be lazy.


Putting self above company Not annoy or stand up to any stakeholder / investor / boss.
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Greed

Fear

Agency Theory

What is Agency Theory? Does it apply to companies? Two-party and three-party model Principal-Watchdog-Agent

18

Key Issues

Financial reporting Directors remuneration Risk management Effective communication Corporate Social Responsibility

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Financial Reporting

Accuracy Reliability

Internal and external audit

Comprehensiveness Timeliness

20

Directors Related Issues

Remuneration Powers Balance between:

executive and non-executives

Election and re-election Representation

21

Risk Management

Risk profile What risks to take?

Avoidable and non-avoidable risks

What not to take? How to handle risks taken?

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Communication

Transparency Regular communication With who? In what format?

23

Corporate Social Responsibility

Business Ethics Being a good citizen Doing business responsibly

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Why is CG Important?

Good reputation is good business Protection of stakeholders interest Support to capital markets Support to society Every one wins

25

Thank you
Dr S A Butt

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