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8/13/2019 GGSR Prelim
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BASICS OF
CORPORATE
GOVERNANCE........!!
8/13/2019 GGSR Prelim
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ean ng o corporate
governance!!
Corporate governance is the setof processes, customs, policies, laws, and institutionsaffecting the
way a corporation(or company) is directed, administered or
controlled.
Corporate governancealso includes the relationships among the
many stakeholdersinvolved and the goals for which the corporationis governed. The principal stakeholders are the shareholders,
the board of directors, executives, employees, customers, creditors,
suppliers, and the community at large
http://en.wikipedia.org/wiki/Business_processhttp://en.wikipedia.org/wiki/Custom_(law)http://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Lawshttp://en.wikipedia.org/wiki/Institutionshttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Stakeholder_(corporate)http://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Employeeshttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Employeeshttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Stakeholder_(corporate)http://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Institutionshttp://en.wikipedia.org/wiki/Lawshttp://en.wikipedia.org/wiki/Policieshttp://en.wikipedia.org/wiki/Custom_(law)http://en.wikipedia.org/wiki/Business_process8/13/2019 GGSR Prelim
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Good orporate GovernanceIt means governing the company in a value based manner.
OBJECTIVE - Enhancement of shareholder value keeping in view theinterests of other stakeholders
Key Constitutes:ShareholdersBoard of directorsManagement
Corporate Governance involves Promoting-
Transparency- Everything happen in the company should known toall the stakeholders.
Accountability- The management is accountable for its decision.
Equanimity- (Equitable Treatment) Rights of all the shareholders areequal, regardless of major and minor shareholding.
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MEANING OF
CORPORATE!!
A corporation is an
organization created
(incorporated) by a group
of shareholders who have
ownership of thecorporation.
The elected Board of
directors appoint and
oversee management ofthe corporation.
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Governance.
..meaning.!! defines Governance as
the act, manner, fact or
function of governing,
sway, control
The word has Latin
origins that suggest the
notion of 'steering'. It
deals with the processes
and systems by which anorganization or society
operates.
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7
Corporate Governance
Corporate governance is
a relationship among stakeholders that is used to
determine and control the strategic direction and
performance of organizations
concerned with identifying ways to ensure that
strategic decisions are made effectively
used in corporations to establish order between the
firms owners and its top-level managers
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Corporate
governancespecifies the
distribution of
rights Andresponsibililities
among different
participants in
corporations.
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CG means a system
by which corporate
entities are undercontrol and are
directed
CG attempts to put acheck on the
working of the
organization.
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Definition of CG..!!
CG denotes
direction and
control of the
affairs of acompany and it is
the relationship
between theowners ,directors
and managers.
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Corporate Governance is a relationship among
stakeholders that is used to determine and control the
strategic direction and performance of organizations
Corporate Governance
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Corporate Governance is a relationship amongstakeholders that is used to determine and control
the strategic direction and performance of
organizations
Concerned with identifying ways to ensurethat strategic decisions are made effectively
Corporate Governance
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Used in corporations to establish order betweenthe firms owners and its top-level managers
Corporate Governance is a relationship amongstakeholders that is used to determine and control
the strategic direction and performance of
organizations
Concerned with identifying ways to ensurethat strategic decisions are made effectively
Corporate Governance
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Main features of CG..!!
1. It is a set of system and
processes which embraces
organization structure.
2. Ensures best interest of the
stakeholders
3. Denotes direction leadership
4. explains relationship
between directors , owners
and managers.
5. Attempts to put a check onworking ofa n organization.
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Features continued
6. Protects interests of bond
holders and society.
7. To make balance between
economic and social goals.
8. Ensures timely flow of all info. to board of directors.
9. Ensures sound system of risk
management and internal
control.
10. Leads to transparency inworking of corporate affairs.
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Scope of CG!!
IT provides the
structure for
setting
objectives andproviding means
to attain them.
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Benefits of good CG!!
1) REDUCES RISK
2) STIMULATES PERFORMANCE
3) IMPROVES ACCESS TO
CAPITALMARKETS
4) ENHANCES THE
MARKETIBILITY OF GOODS
AND SERVICES
5) IMPROVES LEADERSHIP
6) DEMONSTRATES
TRANSPARENCY AND SOCIAL
ACCOUNTABILITY7) PROMOTES
TRANSPARENCYINDECISIONM
AKING PROCESS
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STEPS FOR MAKING CORPORATE
GOVERNANCE EFFICIENT!!
i. Commitment of the
management
ii. Legal & administrative
framework
iii. Transparency in decision
making
iv. Proper implementation of codes
v. Improving the system
vi. Reviewing banking system
vii. Making laws effective
viii. Strict compliance
ix. Increasing role of independent
directors
x. Highlighting governance role.
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ACTIVITY TIME.!!
CORPORATE
GOVERNANCE IS THE
BLOOD THAT FILLS
THE VEIN OF
TRANSPARENTCORPORATE
DISCLOSURE IN THE
LIGHT OF THIS
EXPLIAN THEIMPORTANCE OF CG.
Objecti es of good corporate
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Objectives of good corporate
governance
Objectives of good
corporate governance
Strengthen management
oversight functions and
accountability
Balance skills, experience
and independence on the
board appropriate to the
nature and extent ofcompany operations
E t bli h d t
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Establish a code to
ensure integrity
Safeguard the
integrity ofcompany reporting
Risk management
and internal control
Disclosure of allrelevant and
material matters
Recognition and
preservation of
needs of
shareholders
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More efficient allocation of capital .
Encourage higher levels of efficiency,
quality, and competitiveness throughout
the national economy.
Boost private sector development.
Create more jobs.
Improve quality of living.
Poverty alleviation of a Nation.
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Attracts investors
Lowers costs of capital
Improves performance, efficiency
Reduces risks of financial crisis
Promotes sustainable growth
Engages stakeholders
Defines responsibilities in Serving communities
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A. Evo lu tion o f Corporate Governance:
Wave of High Pro fi le Scandals, Fraud, Crisis
1990s - CEO dismissals in the US (IBM, Kodak, etc.);
Financial collapse of UK corporates (Polly Peck, Bank of
Credit and Commerce Intl, Maxwell Group,etc.)
1997 - Asian Financial Crisis
2000 - Massive bankruptcies and criminal malfeasance
(Enron, Worldcom, AIG, AOL, Arthur Andersen, etc.)
2008 - US Sub-prime Crisis goes global
2011 - Greece crises and impacts Eurozone
2012 - JP Morgans sloppy deals, Barclays Libor-rigging scandal
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A. React ions /Intervent ions to address cris is
1992 - The Cadbury Report issued. Defined Boards responsibilities
and accounting systems.
2000 - OECDs principles of corporate governance issued
2002 - Sarbanes and Oxley passed into law in the US
2008 - Bailouts of too big to fail corporates by governmentse.g. Troubled Asset Relief Program in the US
2009 - Dodd-Frank Wall Street Reform and Consumer Protection Act
Current - tighter monetary and financial policies, risk management
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B. Corpo rate Governance in the Phi l ippines
2001 - World Bank & IMF Report: Corporate Governance
Assessment of the Philippines based on OECD Principles
High concentration of wealth by limited number of families
Weak enforcement of corporate law and capital market regulations
Weak corporate boards
Need to professionalize accounting and auditing sectors
Poor disclosures of financial and non-financial information
Unprotected rights of minority shareholders
Conclusion: Crisis in Leadership
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B. SEC, PSE and BSP Response
SEC issued Corporate Governance Code in 2002, amended in 2009
Required training and defined disqualifications of Directors
CG scorecard self-assessment issued and mandated
Required accreditation of external auditors, term of managing
partner limited
Required setting up of various Board Committees
Imposed minimum of 2 independent directors in Boards
Required Audit Committees to Self-Assess Performance
Conclusion: More Regulation vs. Enforced Regulation
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Separation of Ownership and Managerial Control
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Basis of the modern corporation
Separation of Ownership and Managerial Control
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Basis of the modern corporation
Shareholders purchase stock, becoming...
Residual Claimants
Separation of Ownership and Managerial Control
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Basis of the modern corporation
- Shareholders reduce risk efficiently by holdingdiversified portfolios
Shareholders purchase stock, becoming...
Residual Claimants
Separation of Ownership and Managerial Control
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Basis of the modern corporation
- Shareholders reduce risk efficiently by holdingdiversified portfolios
Shareholders purchase stock, becoming...
Residual Claimants
Professional managers contract to provide
decision-making
Separation of Ownership and Managerial Control
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Basis of the modern corporation
- Shareholders reduce risk efficiently by holdingdiversified portfolios
Shareholders purchase stock, becoming...
Residual Claimants
Professional managers contract to provide
decision-making
Modern public corporation form leads to efficientspecialization of tasks
Separation of Ownership and Managerial Control
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Basis of the modern corporation
Professional managers contract to provide
decision-making
- Risk bearing by shareholders
- Strategy development and decision-making bymanagers
- Shareholders reduce risk efficiently by holdingdiversified portfolios
Shareholders purchase stock, becoming...
Residual Claimants
Modern public corporation form leads to efficientspecialization of tasks
Separation of Ownership and Managerial Control
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Agency Theory
An agency relationship exists
when:
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An agency relationship exists when:
Shareholders
(Principals)
Firm Owners
Agency Theory
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An agency relationship exists when:
Shareholders
(Principals)
Firm Owners
Managers(Agents)
Decision
Makers
Hire
Agency Theory
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An agency relationship exists when:
Shareholders
(Principals)
Firm Owners
Agency RelationshipRisk Bearing Specialist
(Principal)
Managers(Agents)
Decision
Makers
which creates
Managerial Decision-Making Specialist
(Agent)
Hire
Agency Theory
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The Agencyproblem occurs when:
- The desires or goals of the principal and agent conflict
and it is difficult or expensive for the principal to verify
that the agent has behaved appropriately
Agency Theory
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The Agencyproblem occurs when:
- The desires or goals of the principal and agent conflictand it is difficult or expensive for the principal to verify
that the agent has behaved appropriately
Example:Overdiversification because increased productdiversification leads to lower employment risk for
managers and greater compensation
Agency Theory
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The Agencyproblem occurs when:
- The desires or goals of the principal and agent conflictand it is difficult or expensive for the principal to verify
that the agent has behaved appropriately
Solution:Principals engage in incentive-based performance
Example:Overdiversification because increased productdiversification leads to lower employment risk for
managers and greater compensation
contracts, monitoring mechanisms such as the
board of directors and enforcement mechanisms
such as the managerial labor market to mitigate the
agency problem
Agency Theory
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Principals may engage in moni to r ingbehavior to assess
the activities and decisions of managers
- However, dispersed shareholding makes it difficult and
and inefficient to monitor managements behavior
Agency Theory
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Principals may engage in moni to r ingbehavior to assess
the activities and decisions of managers
- However, dispersed shareholding makes it difficult and
and inefficient to monitor managements behavior
For example:Boards of Directors have a fiduciaryduty to shareholders to monitor management
- However, Boards of Directors are often accused ofbeing lax in performing this function
Agency Theory
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44
Risk bearing specialist (principal)
pays compensation to a managerial
decision-making specialist (agent)
Agency Relationship: Owners and Managers
An Agency
Relationship
Managers
(Agents)
Shareholders
(Principals)
Decision makers
Firm owners
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Issues in corporate
governance.
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CG Is a system by
which corporate entities
are being controlledand directed .
corporate governance
attempts to puts check
on working of an
organization .it checks
the balance between
directors, auditors andmanagement..
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Corporate Governance is
concerned with holding the
balance between economic
and social goals and betweenindividual and public goals.
The governance framework is
there to encourage the efficient
use of resources and equally
to require accountability for thestewardship of those
resources.
The aim is to align as nearly as
possible the interest of
individuals, corporations andsociety.
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The foundation of any
structure of corporate
governance isdisclosure.
Openness is the basis
of public confidence
in the corporate
system and funds will
flow to centers of
economic activity thatinspire trust.
Sh h ld l i i t i t th
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Shareholders role in governance is to appoint the
directors and the auditors.
Poor corporate governance has ruined companies,
sent directors to jail, and destroyed a globalaccounting firm and threatened economies and
governments.
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Objectives of CG.!!
Parties to corporate
governance
Board of directors
Managers
Workers
Shareholders or owners
Regulators
Customers Suppliers
Community (people
affected by the actions of
the organization)
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Corporate Governance Mechanisms
Internal Governance Mechanisms
Managerial Incentive Compensation
Ownership Concentration
External Governance MechanismsMarket for Corporate Control
Multidivisional Organizational Structure
Board of Directors
G M h i
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Governance Mechanisms
Ownership Concentration
Boards of Directors
Executive Compensation
Market for Corporate Control
Multidivisional Organizational Structure
G M h i
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Ownership Concentration
Governance Mechanisms
G M h i
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Ownership Concentration- Large block shareholders have a strong incentive to
monitor management closely
Governance Mechanisms
G M h i
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Ownership Concentration- Large block shareholders have a strong incentive to
monitor management closely
- Their large stakes make it worth their while to spend
time, effort and expense to monitor closely
Governance Mechanisms
Go ernance Mechanisms
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Ownership Concentration
monitor management closely
time, effort and expense to monitor closely
- Large block shareholders have a strong incentive to
- Their large stakes make it worth their while to spend
- They may also obtain Board seats which enhances
their ability to monitor effectively (although financial
institutions are legally forbidden from directly holding board
seats)
Governance Mechanisms
Governance Mechanisms
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Boards of Directors
Governance Mechanisms
Governance Mechanisms
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Boards of Directors- Insiders
- Related Outsiders
- Outsiders
Governance Mechanisms
Governance Mechanisms
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Boards of Directors
- Review and ratify important decisions
- Insiders
- Related Outsiders
- Outsiders
Governance Mechanisms
Governance Mechanisms
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Boards of Directors
- Review and ratify important decisions
- Set compensation of CEO and decide when to
replace the CEO
- Insiders
- Related Outsiders
- Outsiders
Governance Mechanisms
Governance Mechanisms
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Boards of Directors
- Review and ratify important decisions
- Set compensation of CEO and decide when to
replace the CEO
- Lack contact with day to day operations
- Insiders
- Related Outsiders
- Outsiders
Governance Mechanisms
Governance Mechanisms
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Recommendations for more effectiveBoard Governance
Governance Mechanisms
Governance Mechanisms
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Recommendations for more effective
Board Governance
- Increase diversity of board members backgrounds
- Strengthen internal management and accounting
control systems
- Establish formal processes for evaluation of the
boards performance
Governance Mechanisms
Governance Mechanisms
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Executive Compensation
Governance Mechanisms
Governance Mechanisms
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Salary, Bonuses, Long term incentive compensation
Executive Compensation
Governance Mechanisms
Governance Mechanisms
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Salary, Bonuses, Long term incentive compensation- Executive decisions are complex and non-routine
- Many factors intervene making it difficult to establish
for outcomes
how managerial decisions are directly responsible
Executive Compensation
- In addition, stock ownership (long-term incentive
market changes which are partially beyond their control
compensation) makes managers more susceptible to
Governance Mechanisms
Governance Mechanisms
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Salary, Bonuses, Long term incentive compensation- Executive decisions are complex and non-routine
- Many factors intervene making it difficult to establish
for outcomes
how managerial decisions are directly responsible
Executive Compensation
- In addition, stock ownership (long-term incentive
market changes which are partially beyond their control
compensation) makes managers more susceptible to
Incentive systems do not guarantee that managers make
the right decisions, but they do increase the likelihood
that managers will do the things for which they are
rewarded
Governance Mechanisms
Governance Mechanisms
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Multidivisional Organizational Structure
Governance Mechanisms
Governance Mechanisms
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Designed to control managerial opportunism
Multidivisional Organizational Structure
Governance Mechanisms
Governance Mechanisms
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Designed to control managerial opportunism- Corporate office and Board monitor business-unit
- Increased managerial interest in wealth maximization
managers strategic decisions
Multidivisional Organizational Structure
Governance Mechanisms
Governance Mechanisms
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Designed to control managerial opportunism- Corporate office and Board monitor managers
- Increased managerial interest in wealth maximization
strategic decisions
Multidivisional Organizational Structure
Governance Mechanisms
M-form structure does not necessarily limit corporate-
level managers self-serving actions
Governance Mechanisms
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Designed to control managerial opportunism- Corporate office and Board monitor managers
- Increased managerial interest in wealth maximization
strategic decisions
Multidivisional Organizational Structure
Governance Mechanisms
M-form structure does not necessarily limit corporate-
- May lead to greater rather than less diversification
levelmanagers self-serving actions
Governance Mechanisms
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Designed to control managerial opportunism- Corporate office and Board monitor managers
- Increased managerial interest in wealth maximization
strategic decisions
Multidivisional Organizational Structure
Governance Mechanisms
M-form structure does not necessarily limit corporate-
- May lead to greater rather than less diversification
Broadly diversified product lines makes it difficult for
top-level managers to evaluate the strategic decisions
of divisional managers
level managers self-serving actions
Governance Mechanisms
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Market for Corporate Control
Governance Mechanisms
Governance Mechanisms
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Market for Corporate Control
Operates when firms face the risk of takeover
when they are operated inefficiently
Governance Mechanisms
Governance Mechanisms
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Market for Corporate Control
Operates when firms face the risk of takeover
when they are operated inefficiently
- Changes in regulations have made hostile takeovers difficult
- Many firms began to operate more efficiently as a result of
- The 1980s saw active market for corporate control, largely
as a result of available pools of capital (junk bonds)
the threat of takeover, even though the actual incidence of hostile
takeovers was relatively small
Governance Mechanisms
Governance Mechanisms
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Market for Corporate Control
Operates when firms face the risk of takeover
when they are operated inefficiently
The market for corporate control acts as an
important source of discipline over managerial
incompetence and waste
- Changes in regulations have made hostile takeovers difficult
- Many firms began to operate more efficiently as a result of
- The 1980s saw active market for corporate control, largely
as a result of available pools of capital (junk bonds)
the threat of takeover, even though the actual incidence of hostile
takeovers was relatively small
Governance Mechanisms
Corporate Governance and Ethical Behavior
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It is important to serve the interests of multiple
stakeholder groups
p
Corporate Governance and Ethical Behavior
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Shareholders are one important stakeholder group,
which are served by the Board of Directors
It is important to serve the interests of multiple
stakeholder groups
p
Corporate Governance and Ethical Behavior
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Product market stakeholders (customers, suppliers and
host communities) and Organizational stakeholders
(managerial and non-managerial employees) are also
important stakeholder groups
Shareholders are one important stakeholder group,
which are served by the Board of Directors
It is important to serve the interests of multiple
stakeholder groups
p
Corporate Governance and Ethical Behavior
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Product market stakeholders (customers, suppliers and
host communities) and Organizational stakeholders
(managerial and non-managerial employees) are also
important stakeholder groups
Shareholders are one important stakeholder group,
which are served by the Board of Directors
Although controversial, some believe that ethically
responsible firms should introduce governance
mechanisms which serve all stakeholders interests
It is important to serve the interests of multiple
stakeholder groups
p
code of business
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code of business
conduct???
This Code of
Business Conduct
and Ethics helps
ensure compliancewith legal
requirements and
our standards of
business conduct
C d f d t ti d !!
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Code of conduct continued..!!
All Company employees areexpected to read and understand
this Code of Business Conduct and
Ethics, uphold these standards in
day-to-day activities, obey with all
applicable policies and procedures,
and ensure that all agents and
Contractors are aware of,
understand and adhere to these
standards.
Because the principles described in
this Code of Business Conduct and
Ethics are general in nature
COMPLIANCE IS EVERYONE'S
BUSINESS
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Ethical business conduct is critical to our business. As anemployee, your responsibility is to respect and adhere to these
practices.
Many of these practices reflect legal or regulatory
requirements. Violations of these laws and regulations can
create significant legal responsibility for you, the Company, itsdirectors, officers, and other employees. Part of your job and
ethical responsibility is to help enforce this Code of Business
Conduct and Ethics.
C d f t ti !!
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Code of corporate practice..!!
Written guidelinesissued by
an officialbody or
professionalassociationto
its membersto
helpthemcomplywith
its ethical
standards.
Example of code of corporate
http://www.businessdictionary.com/definition/guideline.htmlhttp://www.investorwords.com/3398/official.htmlhttp://www.businessdictionary.com/definition/professional.htmlhttp://www.businessdictionary.com/definition/association.htmlhttp://www.businessdictionary.com/definition/association.htmlhttp://www.businessdictionary.com/definition/member.htmlhttp://www.investorwords.com/1004/comply.htmlhttp://www.businessdictionary.com/definition/ethical-standards.htmlhttp://www.businessdictionary.com/definition/ethical-standards.htmlhttp://www.businessdictionary.com/definition/ethical-standards.htmlhttp://www.businessdictionary.com/definition/ethical-standards.htmlhttp://www.investorwords.com/1004/comply.htmlhttp://www.businessdictionary.com/definition/member.htmlhttp://www.businessdictionary.com/definition/association.htmlhttp://www.businessdictionary.com/definition/association.htmlhttp://www.businessdictionary.com/definition/professional.htmlhttp://www.investorwords.com/3398/official.htmlhttp://www.businessdictionary.com/definition/guideline.html8/13/2019 GGSR Prelim
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Example of code of corporate
practice!! The International Council of Toy Industries (ICTI), an association
of associations, is committed on behalf of its member companies
to the operation of toy factories in a lawful, safe, and healthful
manner.
It upholds the principles that no underage, forced, or prison labor
should be employed; that no one is denied a job because ofgender, ethnic origin, religion, affiliation or association, and that
factories comply with laws protecting the environment.
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Supply agreements with firms manufacturing on behalfof ICTI members must also provide for adherence to
these principles.
The role of ICTI is to inform, educate, and survey its
members so that individual member companies canadhere to its Code of Business Practices.
As an association, it also acts tao encourage local and
national governments to enforce wage and hour laws
and factory health and safety laws
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Specific operating conditionsthat member companies areexpected to meet and obtaincontractor agreement in advanceare as follows
L b !!
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Labor..!! That working hours per week, wages and overtime pay practices
comply with the standards set by law or, in the absence of a law,address humane, safe and productive working conditions;
that no one under the legal minimum age is employed in any
stage of toy manufacturing; that a minimum age of 14 applies in
all circumstances, but notwithstanding the foregoing, that C138
Minimum Age Convention (1973) and C182 Worst Forms of
Child Labor Convention (1999) of the International Labor
Organization apply;
that no forced or prison labor is employed, that workers are free
to leave once their shift ends, and that guards are posted only for
normal security reasons;
that all workers are entitled to sick and maternity benefits as
provided by law;
that all workers are entitled to freely exercise their rights ofemployee representation as provided by local law.
THE WORKPLACE !!
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THE WORKPLACE.!!
That toy factories provide a safe working environment for their employees and comply with or exceedall applicable local laws concerning sanitation and risk protection;
that the factory is properly lighted and ventilated and that aisles and exits are accessible at all times;
that there is adequate medical assistance available in emergencies, and that designated employees
are trained in first aid procedures;
that there are adequate and well-identified emergency exits, and that all employees are trained in
emergency evacuation;
WORKPLACE
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CONTINUED!! that protective safety equipment is available and
employees are trained in its use;
that safeguards on machinery meet or exceed
local laws;
that there are adequate toilet facilities which meet
local hygiene requirements, and that they areproperly maintained;
that there are facilities or appropriate provisions
for meals and other breaks;
if a factory provides housing for its employees, it
will ensure that dormitory rooms and sanitary
facilities meet basic needs, are adequatelyventilated and meet fire safety and other local
laws;
that
Compliance !!
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Compliance..!!
The purpose of this Code is to establish a standard of performance, toeducate, and to encourage commitment to responsible manufacturing, not to
punish.
To determine adherence, ICTI member companies will evaluate their own
facilities as well as those of their contractors. They will examine all books and
records and conduct on-site inspections of the facilities, and request that their
contractors follow the same practices with subcontractors.
An annual statement of compliance with this Code must be signed by an officer
of each manufacturing company or contractor.
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Contracts for the manufacture of toys shouldprovide that a material failure to comply with
the Code or to implement a corrective action
plan on a timely basis is a breach of contract
for which the contract may be canceled.
Because of the great diversity in the kinds of
toys manufactured and the manufacturing
methods used, as well as the wide range in
factory sizes and numbers of employees,
three annexes are attached to this Code to
provide guidelines for determining
compliance. A rule of reason must be used
to determine applicability of the annex
provisions.
This Code should be posted or available for
all employees in the local language.
Board of Directors
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Board of Directors
A board of directorsis a bodyof elected or appointed
members who jointly oversee
the activities of a company or
organization. The body
sometimes has a differentname, such as board of
trustees, board of governors,
board of managers, or
executive board. It is often
simply referred to as "the
board."
Rights of Directors !!
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Rights of Directors ..!!
Directors have the right to: Participate in corporate
decisions and inspect
corporate books and records.
Compensation (usually a
nominal sum) andindemnification.
If a director is sued for acts as
director, the corporation should
guarantee reimbursement
(indemnification) or purchaseliability insurance to protect the
board from personal liability
A board's activities are
determined by the powers
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determined by the powers,
duties, and responsibilities
delegated to it or conferred on
it by an authority outside itself. These matters are typically
detailed in the organization's
bylaws.
The bylaws commonly also
specify the number ofmembers of the board, how
they are to be chosen, and
when they are to meet.
Typical duties of boards of directors include
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governing the organization byestablishing broad policies and
objectives;
Selecting, appointing, supporting
and reviewing the performance of
the chief executive;
ensuring the availability of
adequate financial resources;
Approving annual budgets;
Accounting to the stakeholders for
the organization's performance.
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The legal responsibilities ofboards and board
members vary with the
nature of the organization,
and with the jurisdictionwithin which it operates.
For public corporations,
these responsibilities are
typically much more
rigorous and complex than
for those of other types.
CG SYSTEM
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WORLDWIDE..!!
World wide corporate
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governance systems
(outsider) are those in
which the owners offirms tend to have a
transitory interest in the
firm and do not have
close relationships with
those in senior
managerial positions
within the company.
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Rather, these systems are characterized by relationshipsbetween management and shareholders being fluid and arms-
length.
Outsider systems are also characterized by the existence of an
active 'market for corporate control'- takeovers, particularly
hostile ones, are seen as both a remedy for managerial failureand a disciplinary mechanism on managers, ensuring that they
act in the best interests of shareholders.
Indeed, a further feature of this system in the protection of
shareholder rights over those of other organizational groups
(particularly employees).
by contrast, in 'insider' systems the owners of firms tend to havean enduring interest in the company and often hold positions on
the board of directors or other senior managerial positions
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the board of directors or other senior managerial positions.
These systems are characterized by stable and close relationships
between management and shareholders.
This stability of ownership, often coupled with legal or institutionalbarriers to takeovers, means that there is little by way of a market
for corporate control.
Moreover, insider systems are characterized by the existence of
formal rights for employees to influence key managerial decisions,
often through supervisory boards or works council-type bodies.