download materi Corporate Governance

n  What is Corporate Governance?

n  Alison Dillon Kibirige

n  Corporate Governance

n   Contemporary corporate governance started in 1992 with the Cadbury report in the UK

n   Cadbury was the result of several high profile company collapses

n   is concerned primarily with protecting  weak and widely dispersed shareholders against self-interested Directors and managers

n  Corporate Governance Parties

n   Shareholders – those that own the company

n   Directors – Guardians of the Company’s assets for the Shareholders

n   Managers who use the Company’s assets

n  Corporate Governance

n   Primarily concerned with public listed companies i.e. those listed on a Stock Exchange

n   Focused on preventing corporate collapses such as Enron, Polly Peck and the Maxwell companies

n  Corporate Governance

n   What relevance does it have to Africa where there are few public listed companies

n   Most companies are non-listed, private family owned businesses where the shareholders and the managers are often the same people

n  Four Pillars
of Corporate Governance

n   Accountability

n   Fairness

n   Transparency

n   Independence

n  Accountability

n  Ensure that management is accountable to the Board

n  Ensure that the Board is accountable to shareholders

n  Fairness

n   Protect Shareholders rights

n   Treat all shareholders including minorities, equitably

n   Provide effective redress for violations

n  Transparency

     

      Ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership and corporate governance

n  Independence

n   Procedures and structures are in place so as to minimise, or avoid completely conflicts of interest

n   Independent Directors and Advisers i.e. free from the influence of others

n  Corporate Governance in Africa

n   In 1994, The King Report in South Africa also included within its Code of Corporate Governance requirements on sustainability and ethical standards

n   This was due to the context of a developing country and business ethics in Africa

n  Sustainability

n   No generally accepted definition

n   Most commonly used is from the Brundtland Report for the World Commission on Environment and Development 1987 which defines it as:

n  Sustainability

     

‘development that meets the needs

of the present without compromising

the ability of future generations

to meet their own needs’

n  Stakeholders

n   Sustainability recognizes stakeholder rights i.e. the rights of interested parties e.g. employees, the community, suppliers, customers etc.

n   Encourage co-operation between the company and its stakeholders in creating wealth, jobs and economic stability

n  Business Ethics

n   Established values and principles a company uses to inform and conduct its activities

n   Should permeate a company’s culture and drive its strategy, business goals, policies and activities

n   Usually found in a code of ethics

n  Elements of Corporate Governance

n   Good Board practices

n   Control Environment

n   Transparent disclosure

n   Well-defined shareholder rights

n   Board commitment

n  Good Board Practices

n   Clearly defined roles and authorities

n   Duties and responsibilities of Directors understood

n   Board is well structured

n   Appropriate composition and mix of skills

n  Good Board procedures

n   Appropriate Board procedures

n   Director Remuneration in line with best practice

n   Board self-evaluation and training conducted

n  Control Environment

n   Internal control procedures

n   Risk management framework present

n   Disaster recovery systems in place

n   Media management techniques in use

n  Control Environment

n   Business continuity procedures in place

n   Independent external auditor conducts audits

n   Independent audit committee established

n  Control Environment

n   Internal Audit Function

n   Management Information systems established

n   Compliance Function established

n  Transparent Disclosure

n   Financial Information disclosed

n   Non-Financial Information disclosed

n   Financials prepared according to International Financial Reporting Standards (IFRS)

n  Transparent Disclosure

n   Companies Registry filings up to date

n   High-Quality annual report published

n   Web-based disclosure

n  Well-Defined Shareholder Rights

n   Minority shareholder rights formalised

n   Well-organised shareholder meetings conducted

n   Policy on related party transactions

n  Well-Defined Shareholder Rights

n   Policy on extraordinary transactions

n   Clearly defined and explicit dividend policy

n  Board Commitment

n   The Board discusses corporate governance issues and has created a corporate governance committee

n   The company has a corporate governance champion

n   A corporate governance improvement plan has been created

n   Appropriate resources are committed to corporate governance initiatives

n  Board Commitment

n   Policies and procedures have been formalised and distributed to relevant staff

n   A corporate governance code has been developed

n   A code of ethics has been developed

n   The company is recognised as a corporate governance leader

n  Other Entities

n   Corporate Governance applies to all types of organisations not just companies in the private sector but also in the not for profit and public sectors

n   Examples are NGOs, schools, hospitals, pension funds, state-owned enterprises

n  Country Perspective

n   Corporate Governance is by way of legislation or best practice Code

n   US adopted legislation in 2002  - Sarbanes Oxley Act

n   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

n  Country perspective - Codes

n   These Codes are voluntary and are enforced by shareholders

n   Most of them operate on a ‘comply or explain’ approach

n   The Media also play a part in highlighting good or bad practices

n  Country Perspective

n   Countries in Africa have tended to adopt a hybrid approach whereby they have followed the ‘comply and explain’ approach but have enshrined some of the principles in law to assist in enforceability

n   The reason is the weakness of the shareholder base and of the media

n  Why Corporate Governance?

n   Better access to external finance

n   Lower costs of capital – interest rates on loans

n   Improved company performance – sustainability

n   Higher firm valuation and share performance

n   Reduced risk of corporate crisis and scandals

n  Why Corporate Governance?

      In 2002, L Klapper and I Love from the World Bank found evidence that improving a company’s corporate governance has proportionately greater impact in countries with weak legal environments.

      They have suggested that companies can partially compensate for ineffective laws and enforcement by establishing good corporate governance at the company level and providing credible investor protection

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