CORPORATE GOVERNANCE Corporate governance is a term that refers broadly to the rules, processes, or laws by

which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations.

The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community).

Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization are significant factors urging corporate governance. Corporate Governance is essential to develop added value to the stakeholders

CORPORATE GOVERNANCE Cont..

Corporate Governance deals with determining ways to take effective strategic decisions.

It gives ultimate authority and complete responsibility to the Board of Directors. In today’s

market- oriented economy, the need for corporate governance arises. Also, efficiency as

well as globalization are significant factors urging corporate governance. Corporate

Governance is essential to develop added value to the stakeholders

Corporate Governance ensures transparency which ensures strong and balanced

economic development. This also ensures that the interests of all shareholders (majority

as well as minority shareholders) are safeguarded. It ensures that all shareholders fully

exercise their rights and that the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional

aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical

environment.

Four Pillars Of Corporate Gov

1) Accountability - Ensure that management is accountable to the Board

- Ensure that the Board is accountable to shareholders

2) Fairness - Protect Shareholders rights

-Treat all shareholders including minorities, equitably

- Provide effective redress for violations

3) Transparency - Ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership

and corporate governance

4) Independence - Procedures and structures are in place so as to minimise, or avoid completely conflicts of interest.

- Independent Directors and Advisers i.e. free from the influence of others

Benefits Of Corporate Governance

Good corporate governance ensures corporate success and economic growth.

Strong corporate governance maintains investors’ confidence, as a result of which,

company can raise capital efficiently and effectively.

It lowers the capital cost.

There is a positive impact on the share price.

It provides proper inducement to the owners as well as managers to achieve

objectives that are in interests of the shareholders and the organization.

Good corporate governance also minimizes wastages, corruption, risks and

mismanagement.

It helps in brand formation and development.

It ensures organization in managed in a manner that fits the best interests of all.

Corp Governance Explained

Effective corporate governance is also of interest to nations. As stated by one scholar, “Every country wants the firms that operate within its borders to flourish and grow in such ways as to provide employment, wealth, and satisfaction, not only to improve standards of living materially but also to enhance social cohesion.  

Four internal governance mechanisms and a single external one are used in the modern corporation. The three internal governance mechanisms examined here are ;

(1) Ownership concentration, as represented by types of shareholders and their different incentives to monitor managers,

(2) The board of directors, and

(3) Executive compensation. The external governance mechanism is the

market for corporate control.

Corp Governance Explained Cont…Governance mechanisms and issues that will be discussed in this module include the following:

types of shareholders and their incentives to monitor managers boards of directors executive compensation the market for corporate control a comparison of the Zimbabwean. governance systems U.K, U.S, German,

and Japanese systems

DISCUSSION QUESTIONS

1. On whose behalf should corporate boards direct and control the activities of the

organization?

2. Why do corporate directors need to be concerned about more than the conflict in any part

of their organization?

3. Why do corporate governance best practices limit possibilities to improve corporate

governance effectiveness?

4. How does corporate governance (CG) make improving existing corporate governance

best practices possible?

5. How could governance committees apply CG to create a corporate environment that

delivers sustainable business performance and adapts to changing conditions for business?

 

Thanks you all!!!

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2013