Issues in Corporate Governance
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This document discusses key issues in corporate governance. It begins by defining corporate governance as the interaction between shareholders, the board of directors, and management in directing a company. It then lists 7 main issues: 1) Remuneration and rewarding of directors, 2) The board's responsibility for risk management and internal controls, 3) Reliability of financial reporting and external auditors, 4) Duties of directors, 5) Shareholders' rights and responsibilities, 6) Separation of the CEO and chairperson roles, and 7) Corporate social responsibility and business ethics. For each issue, it provides 1-2 paragraphs explaining the relevance and concerns around each topic.
Issues in Corporate Governance
- 1. ISSUES IN CORPORATE GOVERNANCE By Abdul Razak.R
- 2. Corporate Governance • Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. • It is the technique by which companies are directed and managed.
- 3. Corporate Governance • It is the technique by which companies are directed and managed. • In narrow sense, corporate governance deals with maximizing the shareholder’s wealth. • In broader perspective, it considers the welfare of the all stakeholders and the society.
- 4. Why Corporate Governance ? • Better access to external finance • Lower costs of capital – interest rates on loans • Improved company performance – sustainability • Higher firm valuation and share performance • Reduced risk of corporate crisis and scandals
- 5. Corporate Governance - Parties • 1. Share-holders Those that own the company. • 2. Directors Guardians of the company’s assets fot the shareholder. • Manager Who use the company’s assets.
- 6. Various issues of corporate governance • Experts identify various critical issues which require detailed understanding and remedial mechanism for effecting corporate governance practices.
- 7. ISSUES IN CORPORATE GOVERNANCE • 1. Remuneration and Reward of Directors • 2. Board’s Responsibility for Risk Management and Internal Control • 3. Reliability of Financial Reporting and External Auditors • 4. Duties of Directors • 5. Shareholders’ Rights and Responsibilities • 6. Separation of the roles of CEO and chairperson • 7. Corporate Social Responsibility & Business Ethics
- 8. ISSUES IN CORPORATE GOVERNANCE 1. Remuneration and Reward of Directors • Directors being paid excessive bonuses and salaries have been identified as significant corporate abuses for a large number of years. • It is, however, unavoidable that the corporate governance codes have been targeted this significant issue
- 9. ISSUES IN CORPORATE GOVERNANCE 2. Board’s Responsibility for Risk Management & Internal Control • If the board does not arrange the regular meetings in order to consider the organizational activities systematically show that the board is not meeting their responsibilities. • It results in the poor system that may unable to report and measure the risks associated with business
- 10. ISSUES IN CORPORATE GOVERNANCE 3. Reliability of Financial Reporting & External Auditors • Financial reporting and auditing issue are seen more critical to corporate governance by the investors because of their main consideration in ensuring management accountability. • It is the reason that they have been must debated and the focus of serious litigation.
- 11. ISSUES IN CORPORATE GOVERNANCE 4. Duties of Directors • The corporate governance reports have aimed to build on the directors’ duties as defined in statutory and case law duties of directors. • These include the fiduciary duties to act in the best interests of the company, use their powers for a purpose, avoid conflicts of interest and exercise a duty of care.
- 12. ISSUES IN CORPORATE GOVERNANCE 5. Shareholders’ Rights and Responsibilities • Shareholders’ role and rights is subject of particular importance. • They should be informed about all those information that are material to them because these information may influence their amount of investment. • They should also be given the right to vote on policies affecting the governance of organization
- 13. ISSUES IN CORPORATE GOVERNANCE 6. Separation of the roles of CEO & chairperson • It is now increasingly being realized that the practice of combining the role of chair person with that of the CEO as is done in countries like the US and INDIA leads to conflicts in decision making and too much concentration of power in one person resulting in unsavory consequences.
- 14. ISSUES IN CORPORATE GOVERNANCE 7. Corporate Social Responsibility & Business Ethics • The lack of mutual decision and sense of responsibility for businesses and stakeholders has unavoidably turned out the business ethics and social responsibility a significant part of corporate governance debate.
- 15. Thank You