Session 1 : Introduction

[Acid]

Hi Omerpk,

This is our first session for P1 BIT. We will answer the questions and then compare and discuss. Often our answers will be marked by a subject expert here.

I'll start with a very general question regarding Corporate governance undermines all areas of P1 Syllabus. You will post the question next week. This should be our structure until we have more members which should be after the Results.


Corporate Governance is all about how companies are run and controlled. What do you think are the factors and individual which drives and controls a company ? And what could result If there is no good corporate governance?

You can write as much as you want but it should be what you understood rather then what the study text says. The aim should be understand the principles and be able to write it in text.

Good luck

[omerpk]

Q)Corporate Governance is all about how companies are run and controlled. What do you think are the factors and individual which drives and controls a company ? And what could result If there is no good corporate governance?

A)Corporate Governance (CG) is the system by which organizations are directed and controlled. It is a set of relationships between directors,shareholders and other stakeholders.

Stakeholders are groups/individuals whose interests are directly affected by the activities of an organization.Each stakeholder has a role in influencing the operations of the company and their respective interests in the company. They may be divided into the following categories:

i) Internal stakeholders - Role Within the Company:
- Directors - Responsible for the actions of the company
- Employees - Run business operations and implement policies of the Board of Directors (BOD)
-Employee Unions - Protect employee interests

ii) External stakeholders - Influencing the Company's operations from outside:

- External auditors - Independent review of company's financial statements
- Regulators -Implementing and monitoring compliance with regulations
- Government - Implementing and maintaining laws which all companies must comply
-Institutional investors - Through use of their combined voting power can influence corporate policy

The possibile outcomes of poor corporate governance need to be considered in the context of the organizational areas affected by CG as outlined below.

- Duties of directors and the functions of the BOD

Without proper CG the directors and the BOD may not be aware of their responsibilities and consequently fail to discharge them.

The risk management and internal control function of the BOD may not function properly or at all

There may also not be a formal performance evaluation process of the BOD and the individual directors.

Board meetings may not be held on a regular basis and as a result strategic decision making may be delayed.

- Composition of the BOD and Directors remueration

BOD may have a majority of executive directors (ED) who dominate the decision making instead of a balance between ED and NED

Board Committees (e.g.Audit,Remuneration) may comprise entirely of ED.

In the absence of a remuneration policy Directors may decide their own remuneration.

-Reliability of Financial reporting and external audit

Financial reporting may be unreliable due to incorrect/non-application of a sound internal control system

Inability to apply the principles of CG shall need to be disclosed along with the reasons in the annual accounts

Auditors may highlight significant matters (including the poor CG practices) affecting their audit opinion which could result in a modified instead of a 'clean' audit report

-Shareholders rights and responsibilities

Shareholders may not be given adequate notice of AGMs or copies of annual accounts

There may not be regular dialogue betwen the owners/shareholders and the management/directors leading to friction/misunderstandings between the two groups.


P.S.

Acid, sorry for the delay in replying and i'll try to be more prompt next time. I consulted the text while drafting my answer as I could not retain all the info on the first go at the chapter. Hopefully reviewing my short notes and mind maps shall refresh my memory and the concepts shall settle down in my 'natural' hard drive. I'll try posting my question in a day or two.

[omerpk]

Corporate Governance [CG] issues primarily relate to listed companies.However similar issues might also apply to smaller companies and Not-For-Profit [NFP] organisations. Discuss the different CG issues relating to these type of organisations.

[Acid]

Hi omer

I'll get back with my answer to Q1 and Q2 and compare it with urs answer within 2days .

Thx

[Vivienne]

Corporate governance is the way companies are directed and controlled.it highlights the way companies are run.A company is an entity that is controlled to some extent by some stakeholder participation.

Stakeholders are those individuals taht have a stake in a company and are directly or indirectly connected with the affairs or wellbeing of the company.example of stakeholders are customers ,employees,suppliers and the public.

In recent times it has become a pre requisite at stock exchanges for companies to have a good record of corporate governance.where corporate governance is employed ,the following are seen

1. The position of chairman and chief executive are held by seperate persons.
2.There is an audit committee in place which is comprised of non executive directors
3.There are specific committees like remuneration and appointment.
4. there is an internal audit in place.

Results of no good corporate governance

1.A lot of companies go under or become bankrupt because of employment of a lot of underhand methods of accounting which are concealed.an example of this is Enron

2.Trading on the stock exchange is difficult as corporate governance is a prerequisite. this will make it very difficult for the company to offload its shares .


Am Proceeding with session 2 asap. meanwhile i want to post a summary of the Corporate governance Codes as these are a major player in the dispensation of CG.