1 Corporate Governance (09 Feb 011)

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Department of Management Sciences,

CIIT, Islamabad

Corporate Governance


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Word of Truth

Dr. Asghar Naeem (CG 1,09/02/2011)

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SURAH Al Nisa


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Word of Truth


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SURAH Al-NISA, Verse 135


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Corporate Governance: Rationale1

Business organizations are under severe

criticism for poor Corporate Governance (CG)

spectacular business failures, affected not justshareholders but a variety of stakeholders

Managers, and particularly the top

management, are often blamed for poor CGand its consequences


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Corporate Governance: Rationale 2

A more balanced view is to blame not only the

managers but also the shareholders, the Board,

the regulators and some other keystakeholders.

Students of business need an understanding of

the issues underlying CG, if they have to

present themselves and also act as responsible

corporate citizens.


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Teaching Schema

Part 1 Corporate Governance context and overview

Part 2 Paradigms facilitating CG: Business Ethics and CSR

Part 3

key stakeholders in CG, their roles &responsibilities


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Part 1: Corporate Governance Context

and Overview

Forms of business ownership

Separation of ownership and control

Definitions of corporate Governance

Historical Perspectives

CG aspects, structure, principles, functions

and mechanism


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Part 2: Paradigms facilitating CG:

Business Ethics and CSR

Ethical Theories

Ethics in the workplace

Triangle of business ethics Reporting business ethics and conduct

Financial reporting integrity

Corporate Social Responsibility: Definitionsand scope


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Part 3: key stakeholders in CG, their

roles & responsibilities

Board of directors roles and responsibilities

Board committee

roles and responsibilities of management Regulatory bodies, standard setters, and best

practices

Accountants and auditors Shareholders and shareholder activism


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Readings

Textbook:

Corporate Governance: Principles, Policies andPractices, A. C. Fernando , Dorling Kindersley,

India, 2006 Journal and Magazines:

Corporate Governance and Disclosure

Social Science Research Network World Bank and IMF websites

Websites of Stock Exchanges around the World


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Tentative Evaluation Criteria

Grading System:

The final grade will be computed from thefollowing constituent parts:

Class presence, participation and

presentations: 50%

Exam: 50%


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Forms of Business Ownership

In general , a business can be a

sole proprietorship

partnership

Corporation

Adolf Berle and Gardiner Means (1932)TheModern Corporation and Private Property

- Separation of ownership and control


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Separation of ownership, monitoring

and control

Stakeholders Monitors Controllers


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Stockholders

Creditors

Employees

Society

Within Company

Board of

Directors

Outside Company

Auditors

Analysts

Investment banks

Credit rating agencies

Government

SEC

Managers


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Definitions of Corporate Governance1

From Academic viewpoint, CG deals with theproblems resulting from the separation ofownership and control

This perspective focuses on

o Structures and mechanism to ensure properinternal structures and rules of the board of

directorso Creation of independent committees

o rules for disclosures of information to

shareholders and creditorsDr. Asghar Naeem (CG 1,09/02/2011) 14


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Corporate governance deals with the ways in

which suppliers of finance to corporations assure

themselves of getting a return on their

investment. How do the suppliers of finance get

managers to return some of the profits to them?

How do they make sure that managers do not

steal the capital they supply or invest it in bad

projects? How do suppliers of finance control

managers?


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J. Wolfensohn, former president of World Bankexpressed

corporate governance is about promoting corporate

fairness, transparency and accountability

Corporate governance refers to the structures and

processes for the direction and control of companies.

Corporate governance concerns the relationships amongthe management, Board of Directors, controllingshareholders, minority shareholders and other

stakeholders (The World Bank, 2005)


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Sir Adrian Cadbury, Chairman of the Cadbury Committee

Corporate Governance is defined as holding the balance

between economic and social goals and also between

individual and communal 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 interests of individuals,

corporations, and society.


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Sir Adrian Cadbury, Chairman of the Cadbury Committee

The incentives to corporations is to achieve their

corporate aims and to attract investment. The incentives

for states is to strengthen their economies and

discourage fraud and mismanagement.


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1 Corporate Governance (09 Feb 011)

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