Dec 2009 Session 3

[Asif]

1) Discuss the extent to which good corporate governence procedures can help manage the problems arising from the divergent interests of multiple stakeholder groups in prviate sector companies
2) Define and explain risk in the context of Corporate governnence

[Suze]

Risk is a condition in which there exists a quantifiable dispersion in the possible results of any activity.

Some of the concepts of Corporate Governance include transparency, independence, accountability and integrity and there is always the risk that that this would no be so.

Transparency means open and clear disclosure of relevant information to shareholders and other stakeholders. Information should not be concealed if it would affect decision making.

Independence is where the non-executive directors should be independent and therefore promote the interests of shareholders and other stakeholders.

Accountability is whether an organisation (and its directors) are answerable in some way for the consequences of their actions.

Integity means straightforward dealing and completeness and that the directors of a company should not place themselves under any fincial or other obligation to outside individuals or organisations that might influence them in the performance of their official duties.

[Suze]

Corporate Governance is the system by which companies are directed and controlled. (Cadbury Report)

Boards of Directors are responsible for the governance of their companies. The Stockholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.

The responsibilities of the board include setting the companies strategic goals, providing the leadership to put them into effect, supervising management of the business and reporting to the stockholders.

[Asif]

Shareholders own the business and directors ctrl them. This creates an agency relationship problem. Director interest may not be the same as shareholders. Apart from shareholder there are other stakeholder who faces the same problem (supplier, customer, general public etc.

1. CG codes requires director to disclose their remuneration, basis of salary & other benefits this solves the problem of conflict between directors & shareholders.
2. CG codes suggest inclusion of remuneration committee, audit committee therefore shareholder may be relaxed bcoz director’s benefit will be determined fairly.
3. The feature of CG codes is a mix of NED & ED therefore there is independence in the board and power is spread.
4. Codes require the board to regularly communicate with shareholders therefore they are better informed about the business.