Embed Size (px)
Citation preview
Corporate Governance
Vicentiu RamniceanuUniversity of Bucharest
• Majority shareholder blocks appointment of new directors;
• Minority shareholder requires investigation over executive compensation package;
• EU Country urged to investigate toxic waste scandal;
• Top company employees go on strike for breach of information rights.
2
News headlines
3
Introduction
Company founded (owned and managed) by individual, family, partnership, government or company.
Stage 1:
Stage 2:
Company expands by issuing more equity and debt. New equity holders also get voting rights as to who manages the company.
Equity New Equity Debt
EquityVoting Rights
Voting Rights Voting Rights
4
What is Corporate Governance? Corporate governance is about minimizing
the loss of value that results from the separation of ownership and control.
It deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.
While corporate governance has been a hot issue in recent years (Enron, Worldcom, Lehman Brothers) it is a problem that has been around for hundreds of years – Adam Smith (1776).
5
Good corporate governance practices involve: – The corporate governance framework should
protect shareholders rights.– The corporate governance framework should
ensure the equitable treatment of all shareholders.
– Stakeholders should be involved in corporate governance.
– Disclosure and transparency is critical.– The board of directors should be monitored and
held accountable for what guidance it gives.
What is Corporate Governance?
6
7
Internal Mechanisms
Board of Directors Board Size & Independence Chairman/CEO Positions Board Committees
Executive Compensation Ownership Structure
Concentrated versus Dispersed Ownership
Identity of Owners Other Blockholders
8
External Mechanisms
External Auditors Debt & Equity Markets
Monitoring by debt holders Analysts Mergers & Acquisitions
Legal/Regulatory System Common versus Civil Law Extent of Law Enforcement Recent Regulations – Sarbanes Oxley Act, ASX Good Corporate Governance Principles
9
Legal Systems Each country’s legal system has built in
a certain degree of investor protection. However, there is a wide variation in protection and enforcement of these rules around the world.
For a certain period common law countries were deemed to provide higher protection than French civil law countries.
Low investor protection seems to result in concentrated ownership and underdeveloped equity markets.
10
Recent Regulations Common law In response to the Enron crisis in the US, the
Sarbanes Oxley Act was passed in 2002. This has significantly increased governance practices and the personal liability of directors in the US.
Most other nations have issued Corporate Governance Best Practice Guidelines to assist companies in improving their governance – But these are voluntary!
UK Corporate Governance Code – amended several times (1992-2012).
UK Stewardship Code (2010).
11
Recent Regulations European Union Communication from the Commission to the Council
and the European Parliament – Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward (2003);
Green Paper on EU Corporate Governance in financial institutions and remuneration policies (2010);
Green Paper on EU Corporate Governance Framework (2011);
Action Plan: European company law and corporate governance – 12.12.2012.
12
Corpotate Governance Romania
Romania – EU Member State; Since 2007 – harmonization with EU
Acquis; Corporate Governance targets – Romanian
Company Law (31/1990), Capital Markets Law (297/2004);
Public enterprises corporate governance Ordinance (109/2011).
Bucharest Stock Exchange Corporate Governance Code (2008).
13
Measuring Corporate Governance Understanding what good corporate
governance is about is quite easy. However, it is difficult to measure whether companies are really committed to good governance.
All we can do is measure if they have certain corporate governance mechanisms in place – we don’t know if they are effective or not!
Organizations such as Standard and Poors and Credit Lyonnais Securities Asia have started providing corporate governance ratings in recent years.S&P
14
Benefits of Good Governance
Researchers have shown that companies with good corporate governance practices are valued more highly and run more effectively.
So the benefits of good governance include: Higher share price; Lower cost of funds; Greater international following.
