CORPORATE GOVERNANCE Corporate governance is the system by

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CORPORATE GOVERNANCE Corporate governance is the system by which organizations are directed and controlled

CORPORATE GOVERNANCE Corporate governance is the system by which organizations are directed and controlled It refers to a relationship among stakeholders that is used to determine and control the strategic direction and performance of organizations A company should be managed in the best interests of its stakeholders, with a particular emphasis on its shareholders Corporate governance is used to establish order between the firm’s owners and its top-level managers 07/03/2021 [email protected] com 1

In order to achieve good corporate governance a company must have regard to the

In order to achieve good corporate governance a company must have regard to the following: i. It must act in the best interest of its owners (shareholders) ii. Consideration should be given to all stakeholders iii. It must comply with relevant codes iv. Consideration should be given to the balance of power within the board of directors v. Fair remuneration should be exhibited vi. Risk must be monitored and managed vii. Good ethics must be observed and Corporate Social Responsibility must be considered 07/03/2021 [email protected] com 2

viii. It should employ independent auditors Corporate governance is concerned with setting of company

viii. It should employ independent auditors Corporate governance is concerned with setting of company values by the Board of Directors Contingency approach to corporate governance implies that the role of corporate governance is likely to differ in ways contingent on both the firm’s internal and external factors The effectiveness of governance practices depend on: a) Firm’s size b) Age of the firm c) Independence of the board d) Board committees 07/03/2021 [email protected] com 3

e) Skills/expertise of board members f) Innovation intensity g) Regulatory and institutional constraints on

e) Skills/expertise of board members f) Innovation intensity g) Regulatory and institutional constraints on business activity 07/03/2021 [email protected] com 4

Principles of Corporate Governance 1. Leadership Being headed by effective board responsible for the

Principles of Corporate Governance 1. Leadership Being headed by effective board responsible for the long-term success of the company The role of the head of the company running the board and the executive running the company’s business should be carried out by more than one individual The chairman leads the board and is responsible for its effectiveness 07/03/2021 [email protected] com 5

Principles of Corporate Governance 2. Effectiveness Board and committee members should consist of members

Principles of Corporate Governance 2. Effectiveness Board and committee members should consist of members with appropriate skills, experience, independence and knowledge to enable them carryout their duties Formal, rigorous and transparent procedures for the appointment of new directors to the board should exist Directors need to devote sufficient time to the company to enable them to carry out their responsibilities effectively 07/03/2021 [email protected] com 6

Principles of Corporate Governance Directors should receive an induction when they join the board

Principles of Corporate Governance Directors should receive an induction when they join the board Directors need to update and refresh their skills and knowledge regularly Information needs to be provided to the board in a timely manner and of appropriate quality to enable it to carry out its duties The board needs to have a formal and rigorous policy that annually evaluates its own performance and that of its committees and individual directors 07/03/2021 [email protected] com 7

Principles of Corporate Governance 3. Accountability It is the responsibility of the board to

Principles of Corporate Governance 3. Accountability It is the responsibility of the board to produce an understandable and balanced assessment of the company’s prospects and position The board needs to maintain a suitable relationship with the company’s auditor Corporate reporting, risk management and internal control principles need established formal and transparent arrangements determined by the board It is the board’s responsibility to maintain sound risk management and internal control systems 07/03/2021 [email protected] com 8

Principles of Corporate Governance 4. Remuneration No director should be in a position where

Principles of Corporate Governance 4. Remuneration No director should be in a position where they are involved in deciding their own remuneration Remuneration packages need to be sufficient to attract, retain and motivate directors of the right quality to run the company successfully A company should not pay more than is necessary for the services of directors 07/03/2021 [email protected] com 9

Principles of Corporate Governance 5. Relations with shareholders The board has a responsibility to

Principles of Corporate Governance 5. Relations with shareholders The board has a responsibility to ensure that satisfactory dialogue with shareholders takes place The AGM is a suitable mechanism to communicate with investors and encourage their participation 07/03/2021 [email protected] com 10

The above principles can be achieved by adopting code of best practice which is

The above principles can be achieved by adopting code of best practice which is based on the following principles: i. Transparency: making information available ii. Accountability: required to justify decisions or actions iii. Equity: being fair and impartial iv. Probity: being honest and morally upright 07/03/2021 [email protected] com 11