INTRODUCTION TO

CORPORATE
GOVERNANCE
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 Governance

 A process whereby elements in society wield power, authority and

influence and enact policies and decisions concerning public life and
social upliftment.

 The process of decision-making and the process by which decisions

are implemented (or not implemented) through the exercise of power
or authority by leaders of the country and / or organizations.

 Can be used in several contexts – corporate governance, international

governance, national governance, and local governance.
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Participation
Effectiveness & Rule of Law
Efficiency

Characteristics
Equity &
of Good Transparency &
Inclusiveness Accountability
Governance

Consensus
Responsiveness
Oriented
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 Characteristics of Good Governance - PARTICIPATION

 Participation by both men and women is a key cornerstone of good

governance.

 Participation could be either direct or through legitimate institutions

or representatives.

 Participation needs to be informed and organized – freedom of

expression on one hand and an organized civil society on the other
hand.
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 Characteristics of Good Governance – RULE OF LAW

 Good governance requires fair legal frameworks that are enforced

impartially.

 It also requires full protection of human rights, particularly those of

minorities.

 Impartial enforcement of laws requires an independent judiciary and

an impartial and incorruptible police force.
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 Characteristics of Good Governance – TRANSPARENCY

 Decisions taken and their enforcement are done in a manner that

follows rules and regulations.

 Information is freely available and directly accessible to those who will

be affected by such decisions and their enforcement.

 Enough information is provided and that it is provided in easily

understandable forms and media.
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 Characteristics of Good Governance – ACCOUNTABILITY

 Not only governmental institutions but also the private sector and civil
society organizations must be accountable to the public and to their
institutional stakeholders.

 Who is accountable to whom varies depending on whether decisions

or actions taken are internal and external to an organization or
institution.

 An organization or an institution is accountable to those who will be

affected by its decisions or actions.

 Accountability cannot be enforced without transparency and the rule

of law.
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 Characteristics of Good Governance – RESPONSIVENESS

 Good governance requires that institutions and processes try to serve

the needs of all stakeholders within a reasonable timeframe.
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 Characteristics of Good Governance – CONSENSUS ORIENTED

 Good governance requires mediation of the different interests in

society to reach a broad consensus on what is in the best interest of
the whole community and how this can be achieved.

 Requires a broad and long-term perspective on what is needed for

sustainable human development and how to achieve the goals of such
development.

 Can only result from an understanding of the historical, cultural and

special contexts of a given society or community.
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 Characteristics of Good Governance – EQUITY & INCLUSIVENESS

 Ensures that all its members feel that they have a stake in it and do not
feel excluded from the mainstream of society.

 Requires all groups, but particularly the most vulnerable, have

opportunities to improve or maintain their well being.
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 Characteristics of Good Governance – EFFECTIVENESS & EFFICIENCY

 Good governance means that processes and institutions produce

results that meet the needs of society while making the best use of
resources at their disposal.

 The concept of efficiency in the context of good governance also

covers the sustainable use of natural resources and the protection of
environment.
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 Corporate Governance

 The system of rules, practices, and processes by which business

corporations are directed and controlled.

 Involves balancing the interests of a company’s various stakeholders –

shareholders, management, customers, suppliers, financiers,
government and the community.

 Good corporate governance is all about controlling one’s business

and so is relevant, and indeed vital, for all organizations, whatever size
and structure.
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 Purpose of Corporate Governance

To enhance
To facilitate
shareholders’ It is about what the
effective,
value and protect board of directors
entrepreneurial
the interests of of a company
and prudent
other stakeholders does, and how
management that
by improving the they set the values
can deliver long-
corporate of the business
term success of
performance and firms.
the company.
accountability
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Objectives of Corporate
Governance

Fair and Equitable Treatment of

Shareholders

Self-Assessment

Increase Shareholders’ Wealth

Transparency and Full Disclosure

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 Objectives of Corporate Governance – FAIR AND EQUITABLE TREATMENT

OF SHAREHOLDERS

 A corporate governance structure ensures equitable and fair

treatment of all shareholders of the company.

 In some organizations, a group of high net-worth individuals and

institutions who have a substantial proportion of their portfolios
invested in the company, remain active through occupation of top-
level positions that enable them to guard their interests.

 However, all shareholders deserve equitable treatment and this equity

is safeguarded by a good governance structure in any organization.
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 Objectives of Corporate Governance – SELF-ASSESSMENT

 Corporate governance enables firms to assess their behavior and

actions before they are scrutinized by regulatory agencies.

 Business establishments with a strong corporate governance system

are better able to limit exposure to regulatory risks and fines.

 An active and independent board can successfully point out

deficiencies or loopholes in the company operations and help solve
issues internally on a timely basis.
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 Objectives of Corporate Governance – INCREASE SHAREHOLDERS’

WEALTH

 Another corporate governance’s main objective is to protect the long-

term interests of the shareholders.

 Firms with strong corporate governance structure are seen to have

higher valuation attached to their shares by businessmen.

 This only reflects the positive perception that good corporate

governance induces potential investors to decide to invest in a
company.
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 Objectives of Corporate Governance – TRANSPARENCY AND FULL

DISCLOSURE

 Good corporate governance aims at ensuring a higher degree of

transparency in an organization by encouraging full disclosure of
transactions in the company accounts.
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 Basic Principles of Corporate Governance

 Effective corporate governance is transparent, protects the rights of shareholders

and includes both strategic and operational risk management.

 It is concerned in both the long-term earning potential as well as actual short-term

earnings and holds directors accountable for their stewardship of the business.
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 Basic Principles of Effective Corporate Governance – TRANSPARENCY

AND FULL DISCLOSURE

Positive answers to the following questions indicate a firm’s conformance and

compliance with the basic principles of good corporate governance:

 Does the board meet the information needs of investment

communities?
 Does it safeguard integrity in financial reporting?
 Does the board have sound dislosure policies and reporting practices?
 Does it make timely and balanced disclosures?
 Can an outsider meaningfully analyze the organization’s actions and
performances?
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 Basic Principles of Effective Corporate Governance – ACCOUNTABILITY

Positive answers to the following questions indicate a firm’s conformance and

compliance with the basic principles of good corporate governance:

 Does the board clarify its role and that of management?

 Does it promote objective, ethical and responsible decision making?
 Does it lay solid foundations for management oversight?
 Does the composition mix of board membership ensure an
appropriate range and mix of expertise, diversity, knowledge and
added value?
 Is the organization’s senior official committed to widely accepted
standards of correct and proper behavior?
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 Basic Principles of Effective Corporate Governance – CORPORATE

CONTROL

Positive answers to the following questions indicate a firm’s conformance and

compliance with the basic principles of good corporate governance:

 Has the board built long-term sustainable growth in shareholders’

value for the corporation?
 Does it create an environment to take risk?
 Does it encourage enhanced performance?
 Does it recognize and manage risk?
 Does it remunerate fairly and responsibly?
 Does it recognize the legitimate interests of stakeholders?
 Are conflicts of interest avoided such that the organization’s best
interests prevail at all times?
Thanks!
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