SLIDE 3
Corporate governance is the structure of rules, practices, and
processes used to direct and manage a company. Corporate
governance is the system of rules, practices, and processes by which a
firm is directed and controlled. Corporate governance essentially
involves balancing the interests of a company's many stakeholders,
such as shareholders, senior management executives, customers,
suppliers, financiers, the government, and the community.
Corporate governance entails the areas of environmental awareness,
ethical behavior, corporate strategy, compensation, and risk
management.
Corporate governance is something altogether different from the daily operational
management activities enacted by a company’s executives. It is a system of direction and
control that dictates how a board of directors governs and oversees a company.
.SLIDE 4
A company's board of directors is the primary force influencing
corporate governance.
Since corporate governance also provides the framework for attaining a
company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance
measurement and corporate disclosure.
Bad corporate governance can cast doubt on a company's operations
and its ultimate profitability.
Poor corporate governance, at best, leads to a company failing to achieve its stated goals,
and, at worst, can lead to the collapse of the company and significant financial losses for
shareholders
In today’s market-oriented economy and with the effects of globalization, the
importance of corporate governance is growing. This is due to the fact of governance
being an important way of ensuring transparency that makes sure the interests of all
shareholders (big or small) are safeguarded.
SLIDE 5
Understanding Corporate Governance
A company’s corporate governance is important to investors since it
shows a company's direction and business integrity. Good corporate
governance helps companies build trust with investors and the
community. As a result, corporate governance helps promote financial
viability by creating a long-term investment opportunity for market
participants.
Proxy advisors and shareholders are important stakeholders who
indirectly affect governance, but these are not examples of governance
itself. The board of directors is pivotal in governance, and it can have
major ramifications for equity valuation.
Communicating a firm's corporate governance is a key component of
community and investor relations.
Most companies strive to have a high level of corporate governance.
For many shareholders, it is not enough for a company to merely be
profitable; it also needs to demonstrate good corporate
citizenship through environmental awareness, ethical behavior,
and sound corporate governance practices. Good corporate governance
creates a transparent set of rules and controls in which shareholders,
directors, and officers have aligned incentives.
Slide 6
Corporate Governance and the Board of Directors
The board of directors is the primary direct stakeholder influencing corporate
governance. Directors are elected by shareholders or appointed by other
board members, and they represent shareholders of the company.
The board is tasked with making important decisions, such as corporate
officer appointments, executive compensation, and dividend policy. In some
instances, board obligations stretch beyond financial optimization, as when
shareholder resolutions call for certain social or environmental concerns to be
prioritized.
Boards are often made up of inside and independent members.
Independents are considered helpful for governance because they dilute the
concentration of power and help align shareholder interest with those of the
insiders Insiders are major shareholders, founders, and executives.
Independent directors do not share the ties of the insiders, but they are
chosen because of their experience managing or directing other large
companies.
The board of directors must ensure that the company's corporate governance
policies incorporate the corporate strategy, risk management, accountability,
transparency, and ethical business practices.
Slide 7
NEED OF CORPORATE GOVERNANCE
Corporate Governance is needed to create a corporate culture of transparency,
accountability and disclosure.
Corporate Performance: Improved governance structures and processes ensure
quality decision-making, encourage effective succession planning for senior
management and enhance the long-term prosperity of companies, independent of the
type of company and its sources of finance
Enhanced Investor Trust: Investors consider corporate governance as important as
financial performance when evaluating companies for investment. Investors who are
provided with high levels of disclosure and transparency are likely to invest openly in
those companies.
Better Access to Global Market: Good corporate governance systems attract
investment from global investors, which subsequently leads to greater efficiencies in the
financial sector.
Combating Corruption: Companies that are transparent, and have sound system that
provide full disclosure of accounting and auditing procedures, allow transparency in all
business transactions, provide environment where corruption would certainly fade out.
Easy Finance from Institutions: SEvidences indicate that well-governed companies
receive higher market valuations. The credit worthiness of a company can be trusted on
the basis of corporate governance practiced in the company.
Enhancing Enterprise Valuation: Improved management accountability and
operational transparency fulfill investors expectations and confidence on management
and corporations, and in return, increase the value of corporations.
Reduced Risk of Corporate Crisis and Scandals: Effective Corporate Governance
ensures efficient risk mitigation system in place. A transparent and accountable system
makes the Board of a company aware of the majority of the mask risks involved in a
particular strategy, thereby, placing various control systems in place to facilitate the
monitoring of the related issues.
Accountability: Investor relations are essential part of good corporate governance.
Investors directly/ indirectly entrust management of the company to create enhanced
value for their investment. The company is hence obliged to make timely disclosures on
regular basis to all its shareholders in Corporate Governance is integral to the existence
of the company.
SLIDE 8
People, Purpose, Process,and Performance.
These are the Four Ps of Corporate Governance, the guiding philosophies behind
why governance exists and how it operates. Let’s have a look at exactly what each of
the Ps means.
People
People come first in the Four Ps because people exist on every side of the business
equation.
People are the organisers who determine a purpose to work towards, develop a
consistent process to achieve it, evaluate their performance outcomes, and use those
outcomes to grow themselves and others as people.
Purpose
Purpose is the next step. Every piece of governance exists for a purpose and
to achieve a purpose. The PURPOSE is the guiding principles of the organisation AND
Their mission statement. Every one of their policies and projects should exist to
further this agenda.
Process
Governance is the process by which people achieve their company’s purpose, and
that process is developed by analysing performance. Processes are refined over time
in order to consistently achieve their purpose, and it’s always smart to take a critical
eye to your governance processes.
Performance
Performance analysis is a key skill in any industry. The ability to look at the results of
a process and determine whether it was successful (or successful enough), and then
apply those findings to the rest of your organisation, is one of the primary functions
of the governance process.
SLIDE 9
COMPONENTS OF CORPORATE GOVERNANCE:
Transparency
Accountability
Security
SLIDE 10
TRANSPARENCY
Transparency is no longer just an option, but nearly a legal requirement that a company
has to comply with.
For a company, this means it allows its processes and transactions observable to
outsiders. It also makes necessary disclosures, informs everyone affected about its
decisions, and complies with legal requirements.
SLIDE 11
WHY TRANSPARENCY
1. Aside from stopping the next illegal moneymaking scheme, transparency also
builds a good reputation of the company in question. When shareholders feel
they can trust a company, they are willing to invest more, and this greatly helps in
lowering cost of capital.
2. Transparency is a critical component of corporate governance because it ensures
that all of a company’s actions can be checked at any given time by an outside
observer. This makes its processes and transactions verifiable, so if a question
does come up about a step, the company can provide a clear answer.
3. Ensure timely, accurate disclosure on all material matters, including the financial
situation, performance, ownership and corporate governance.
FACTS TO BE CONSIDERED UNDER THE HEAD TRANSPARENCY :
1. How transparent is your corporate board
2. Are directors actions readily verifiable by internal and external audit
3. Is their leadership visible from the top to all the way down
4. Is transparency applicable to everyone?
SLIDE 12
ACCOUNTABILITY
It takes more than transparency to build integrity as a company. It also takes
accountability, which can also mean answerability or liability.
SLIDE 13
WHY ACCOUNTABILITY’s
1. Shareholders are deeply interested in who will take the blame when something goes
wrong in one of a companys many processes. And even when everything goes smoothly
as expected, knowing that someone will be held accountable for future mishaps
increases shareholders confidence, which in turn increases their desire to invest more.
2. Accountability is more than that. It’s about having ownership over one’s actions whether
the consequences of those actions are good or bad. Thus, accountability covers not only
failings, but also accomplishments.
3. When the idea of accountability is approached with this positive outlook, people will be
more open to it as a means to improve their performance. This applies from the staff all
the way up to the corporate board.
FACTS TO BE CONSIDERED UNDER THE HEAD ACCOUNTABILITY :
1. Hows the level of accountability in your corporate board
2. Are your directors there to simply fill in a seat while leafing through their board packs and
board books, or are they actively engaged in decisions and strategies for your company
SLIDE 14
SECURITY
A company is expected to make their processes transparent and their people
accountable while keeping their enterprise data secure from unauthorized access. There
is simply no compromise for this. Companies that experience security breaches involving
the exposure of their clients personal information quickly lose their credibility.
SLIDE 15
WHY SECURITY
1. Even with accountability and transparency, a company without inadequate security
measures will have a hard time attracting shareholders. After all, any scandal even a
breach caused by third-party hackers can have a negative effect on a company’s stock
market performance.
2. The increasing threat of cyber crime in recent years puts security at a high priority for
many companies. Complying with security standards isn’t enough a company needs to
imbibe a culture of security to ensure that trade secrets, corporate data, and client
information are all kept safe from unauthorized access from inside and out. Security is
not just an IT concern anymore, unlike in the past.
3. Directors should be made aware of the seriousness of cyber crime and the gravity of its
consequences. A security breach especially involving client information can make the
public easily lose their trust. Trust is a big factor which will be considered by shareholders
before making an investment in a company.
FACTS TO BE CONSIDERED UNDER THE HEAD SECURITY:
1. How high is the awareness level of your company’s directors when it comes to security
2. How high is the awareness level of your company’s employees when it comes to security
