Documente Academic
Documente Profesional
Documente Cultură
Lecture 6
26.03.3018
Director of United Nations Development
Programme (UNDP) for Pakistan Marc-André
Franche,
Religion Corporations
Faith Business Ethics
Hope Corporate Governance
Charity Social Responsibility
What is Corporate Governance
The word Corporate Governance is basically concerned through which
a company is managed and controlled. It deals with the setting of
rights and duties among different peoples being involved with the
company affairs. It also involves with the setting of company objectives
keeping in view the interest of stakeholders of the company (La Porta
et al, 2000).
Corporate governance is the system by which business corporations
are directed and controlled. The corporate governance structure
specifies the distribution of rights and responsibilities among different
participants in the corporation, such as, the boards, managers,
shareholders and other stakeholders, and spells out the rules and
procedures or making decisions on corporate affairs.
By doing this, it also provides the structure through which the
company objectives are set, and the means of attaining those objectives
and monitoring performance.
Corporate Governance
Corporate Governance System
Dimensions of Corporate Governance
Evolution of Corporate Governance
The concept of corporate governance is not too old. It has been
massively use in late 1980s. In early 1990s the various corporate
failure scandals in big companies in USA like IBM, Kodak, and
Honeywell etc. In early 2000s the big bankruptcies scandals in USA
based companies were Enron (Enron shareholders filed a $40 billion
lawsuit after the company's stock price, which achieved a high of
US$90.75 per share in mid-2000, plummeted to less than $1 by the
end of November 2001) and WorldCom which leaded towards the
founding of corporate governance code in USA and UK.
In the beginning of the new millennium several companies in the USA
and elsewhere faced collapse because of because of corporate
misgovernance and unethical practices they indulged in. the then
existing regulatory framework seemed to be inadequate to deal with
the gigantic business conglomerates that committed deliberate frauds
Corporate Governance-Global Overview
• World com: $5.8 billion lost by shareholders and total lost was $ 48
billion (inflating profits etc).
• The founder Bernie Ebbers borrowed $408 million from the phone
hall of stocks.
• The accounting firm Anderson was accused of shredding enron
documents and was convicted for obstruction of justice.
shame---- • Energy company, Dynergy was under investigation for accounting and
trading malpractices In part related to California power crisis.
• Securities and exchange commission sued executives of garbage company
2002
waste management for massive accounting fraud from 1992-1997 that
resulted in a $17 billion restatement of earnings.
• Adelphia Communications made illegal loans to founder Rigas family
members and was under investigation for accounting malpractices.
• Southhern California software company Peregrine systems said it might
have overstated revenue by $100 million over three years.
Academic point of view of
corporate governance
• From academic stand point corporate governance is seen as
one that addresses the problems that result from the separation
of ownership and control. Viewed form this perspective
corporate governance focuses on some structures and
mechanisms that would ensure the proper internal structure and
rules of the board of directors, creation of independent
committees, rules for disclosure of information to shareholders
and creditors, transparency of operations and an impeccable
process of decision making and control of management.
The ownership of companies is more or less equally divided between individual shareholders and institutional
shareholders.
Companies are typically run by professional managers who have negligible ownership stakes. There is a fairly
clear separation of ownership and management.
Most institutional investors are reluctant for certain activities. They view themselves as portfolio investors
interested in investing in a broadly diversified portfolio of liquid securities. If they are not satisfied with a
company’s performance, they simply sell the securities in the market and quit.
The disclosure norms are comprehensive, the rules against insider trading are tight, and the penalties for price
manipulations stiff, all of which provide adequate protection to the small investor and promote general market
liquidity. Incidentally, they also discourage large investors from taking an active role in corporate governance.
German Model
It is also known as two-tier board model. Corporate
governance in the German model is exercised through two
boards, in which the upper board supervises the executive
board on behalf of stakeholders and is typically societal-
oriented.
In this model, although shareholders own the company, they
do not entirely dictate the governance mechanism. They elect
50 percent of members of supervisory board and the other
half is appointed by labor unions ensuring that employees and
laborers also enjoy a share in the governance. The supervisory
board appoints and monitors the management board.
The Japanese Model