ABOUT Corporate governance

1. Corporate Governance
BY,
MD Shariful Khan

2. Introduction
•Corporate Governance;
• Corporate governance has gained immense and serious attention
because of high-profile scams and criminal activity by corporate
officers in power.
• Poor corporate governance can have an adverse effect on a
company’s financial health and level of trustworthiness.

3. Corporate governance focuses on how a corporation is
operated and covers every part of the company
organization, including:
• How a company resolves issues and makes decisions.
• The involvement, contribution, and communication
between management, shareholders, and workers.
• The ways in which rights and responsibilities are shared
between the company's workers, management, and
shareholders.
• Policies and procedures for decision making on company
affairs.

4. • Checks and balances(various procedures set in place to
reduce mistakes, prevent improper behavior, or decrease the
risk of centralization of power) designed to eliminate wholesale
fraud or abuse of the office.
• Policies that try to reduce or eliminate the principal–agent
problems.
• The relationship between the company and its shareholders.
• Business decisions, ideally made with everyone's best interest
in mind, such as:
• Mergers and acquisitions.
• Litigation.
• Intellectual property.
• Other key decisions made by the corporation.

5. Key Points Regarding Corporate governance
• Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled.
• A company's board of directors(elected group of individuals that represent
shareholders) is the primary force influencing corporate governance. A company’s
board of directors plays a key role in implementing and enacting corporate governance
policies. The board ensures that a company’s processes, decision-making, and other factors
align with the interest of the stakeholders.
• 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(disclosure refers to the timely release of all information
about a company that may influence an investor's decision).

6. • Corporate governance is based upon the principles of
responsibility, transparency, fairness, leadership and
accountability.
• Specific processes that can be outlined in corporate governance
include action plans, performance measurement, disclosure
practices, executive compensation decisions, dividend policies,
procedures for reconciling conflicts of interest and contracts
between the company and stakeholders.

7. The Structure of Corporate
Governance
Board of Directors
• The board of directors has the vital role of overseeing the company’s
management and business strategies to achieve long-term value creation.
• Selecting a well-qualified chief executive officer (CEO) to lead the
company, monitoring and evaluating the CEO’s performance, and
overseeing the CEO succession planning process are some of the most
important functions of the board.
• The board delegates to the CEO—and through the CEO to other senior
management—the authority and responsibility for operating the
company’s business.

8. The Structure of Corporate Govern
Management:
• Management, led by the CEO, is responsible for setting, managing
and executing the strategies of the company, including but not
limited to running the operations of the company under the
oversight of the board and keeping the board informed of the status
of the company’s operations.
• Management’s responsibilities include strategic planning, risk
management and financial reporting. An effective management
team runs the company with a focus on executing the company’s
strategy over a meaningful time horizon.

9. Shareholders:
• Shareholders invest in a corporation by buying its stock and receive
economic benefits in return.
• Shareholders are not involved in the day-to-day management of business
operations, but they have the right to elect representatives (directors) and
to receive information material to investment and voting decisions.
• Shareholders should expect corporate boards and managers to act as
long-term stewards of their investment in the corporation

10. Corporate Stakeholders
• A stakeholder is a party that has an interest in a company and can
either affect or be affected by the business.
• The primary stakeholders in a typical corporation are its investors,
employees, customers, and suppliers.
• However, with the increasing attention on corporate social
responsibility, the concept has been extended to include
communities, governments etc.
• Corporate stakeholders are those groups without whose support the
corporate organization would cease to exist

11. • They are broadly grouped into:
1. Internal stakeholders are people whose interest in a company
comes through a direct relationship, such as employment,
ownership, or investment. Internal stakeholders are owners,
employees, managers.
2. External stakeholders are those who do not directly work with
a company but are affected somehow by the actions and
outcomes of the business. External stakeholders, unlike internal
stakeholders, do not have a direct relationship with the
company. Instead, an external stakeholder is normally a person
or organization affected by the operations of the business.
When a company goes over the allowable limit of carbon
emissions, for example, the town in which the company is
located is considered an external stakeholder because it is
affected by the increased pollution

12. Problems With Stakeholders
• A common problem that arises for companies with numerous
stakeholders is that the various stakeholder interests may not align.
In fact, the interests may be in direct conflict.
• For example, the primary goal of a corporation, from the
perspective of its shareholders, is to maximize profits and enhance
shareholder value.
• Since labor costs are unavoidable for most companies, a company
may seek to keep these costs under tight control. This is likely to
upset another group of stakeholders, its employees

13. Principles of Corporate
Governance
Principle of fairness:
• This principle presupposes that the corporate governance
framework should ensure an equitable treatment of all
shareholders and other stakeholders such as employees etc.
• Members of the board and key executives should be required
to disclose to the board whether they, directly, indirectly or on
behalf of third parties, have a material interest in any
transaction or matter directly affecting the corporation.

14. Principle of fairness:
• This principle presupposes that the corporate governance
framework should ensure an equitable treatment of all
shareholders and other stakeholders such as employees etc.
• Members of the board and key executives should be required
to disclose to the board whether they, directly, indirectly or on
behalf of third parties, have a material interest in any
transaction or matter directly affecting the corporation.

15. Transparency principle:
• Transparency means openness, a willingness by the company to
provide clear information to the shareholders and other
stakeholders in all aspects of the conduct of business.
• Business organizations should disclose their financial and operating
results, timely and accurately ensuring that their shareholders and
other stakeholders understand the nature of the organization's
operations, the current state of affairs and the future direction in
terms of developments.
• Organizations should clarify and make publicly known the roles and
the responsibilities of the board and management to provide the
shareholders with a level of accountability.

16. Fiduciary principle:
• The directors who are the agents of the shareholders who
invest money and own the organization must act with trust
while discharging their duties .They must act with loyalty;
ensure full disclosure, diligence and obedience to the principle.
• The directors or officers should not exploit their position of
trust and confidence for personal gain at the expense of the
principal. Law demands a fiduciary to exercise highest degree
of care and utmost good faith in maintenance and preservation
of the principal’s assets and rights.

17. • Reliability principle: This principle focuses on honouring the
words and the commitment of the directors to all stakeholders.
• Principle of Dignity: Another principle of good corporate
governance is to respect the rights and privileges of all
stakeholders. On many occasions there may be conflict of
interest in protecting the rights and privileges of different
stakeholders.

18. Three Types of Corporate Governance
Mechanisms
Board of Directors
• A board of directors protects the interests of a company’s
shareholders.
• The board is often responsible for reviewing company management
and removing individuals who don't improve the company’s overall
financial performance.
• Shareholders often elect individual board members at the
corporation’s annual shareholder meeting or conference.
• Large private organizations may use a board of directors, but their
influence in the absence of shareholders may diminish

19. Audits
• Audits are an independent review of a company’s business
and financial operations.
• These corporate governance mechanisms ensure that
businesses or organizations follow national accounting
standards, regulations or other external guidelines.
• Shareholders, investors, banks and the general public rely on
this information to provide an objective assessment of an
organization.
• Audits also can improve an organization’s standing in the
business environment. Other companies may be more willing
to work with a company that has a strong track record of
operations.

20. Balance of Power
• Balancing power in an organization ensures that no one
individual has the ability to overextend resources.
• Segregating duties between board members, directors,
managers and other individuals ensures that each
individual’s responsibility is well within reason for the
organization.
• Corporate governance also can separate the number of
functions that one division or department completes within
an organization.