Corporate Governance: A brief and simple overview

ByWiparat Chuanrommanee, Ph.D.

Financed and Banking DepartmentAssumption University

Aug. 17, 2009

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Corporate GovernanceTopics:

1. Corporate Governance and Its Importance

2. International Corporate Governance Practices

3. Corporate Governance in Your Daily Life3.1 Students3.2 Workers

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Corporate Governance

The set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled.

Corporate governance includes the relationships among many “stakeholders” involved and the goals for which the corporation is governed.

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The Main Relationship Initial phase of business

operationOwner

(a manager)

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The Main Relationship Later development

Managers

Shareholders

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The Main Relationship

Later development

Shareholders Board of directors

Managers

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The Main Relationship

Later development

Managers

Shareholders

Shareholders Board of directors

Managers

“Principal-agent Problem”

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Its Importance Governance shortcomings as a significant

explanatory factor in the financial scandals and corporate collapses

1997: Asian financial crisis

2002-2006:The high-profile collapses of a number of large U.S. firms such as Enron, MCI Inc. (WORLDCOM), Xerox and Parmalat

2008-2009: Hamburger Crisis

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Its Importance A sound corporate governance system can help

create an environment conducive to the efficient and sustainable growth of the corporate sector, leading to sustainable economic growth.

Corporate governance and firm performance

Corporate governance and investment decisionetc.

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Its Importance

Summary: Efficiency and effectiveness Competitiveness Stakeholders confidence Increased shareholder values

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International corporategovernance practices

1. Rights and equitable treatment of shareholders

- Respect the rights of shareholders - Help shareholders to exercise their rights

Ex. Shareholder general meetings

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International corporategovernance practices

2. Interests of other stakeholders

- Legal and other obligations to all legitimate stakeholders

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International corporate governance practices

3. Role and responsibilities of the board

- A range of skills and understanding

- Ability to review & challenge management - Sufficient size

- Sufficient level of commitment - Appropriate mix of executive and non-executive directors

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International corporate governance practices

4. Integrity and ethical behaviour

- Ethical and responsible decision making - Compliance and Ethics Programs

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International corporate governance practices

5. Disclosure and transparency

- Integrity of the company's financial report - Timely and balanced disclosure of material

matters

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Corporate governance in your daily life

University?

-To provide holistic education and training so as to equip students with all-round personal development as well as professional knowledge and skills

-To undertake research, emphasizing those of an applied nature which are relevant to industrial, commercial and community needs.

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Corporate governance in your daily life

University Governance

• Academic freedom and autonomy

• Performance, ethics and professionalism

• Transparency and public accountability

• Social responsibility

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Corporate governance in your daily life

Students --- Key stakeholders?

“How to demonstrate your good university citizenship?”

- Follow rule and regulation of the university and act under the right and responsibility of students

- Participate in the university activities

- Search for the opportunity to build up new knowledge and gain more experiences in your field of study

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Corporate governance in your daily life

Workplace?

“Responsible Corporate Citizen”

Human Rights, Labor, Environment,

Anti-Corruption (UN Global Compact, 1999)

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Bibliography Brickley, James A., William S. Klug and Jerold L. Zimmerman,

Managerial Economics & Organizational Architecture, ISBN

Cadbury, Sir Adrian, "The Code of Best Practice", Report of the Committee on the Financial Aspects of Corporate Governance, Gee and Co Ltd, 1992.

Cadbury, Sir Adrian, "Corporate Governance: Brussels", Instituut voor Bestuurders, Brussels, 1996.

Claessens, Stijn, Djankov, Simeon & Lang, Larry H.P. (2000) The Separation of Ownership and Control in East Asian Corporations, Journal of Financial Economics, 58: 81-112

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Bibliography Shleifer, A. and R.W. Vishny (1997), A Survey of Corporate

Governance. Journal of Finance, 52 (2): 737-783.

University Governance Statement, The Hong Kong Polytechnic University

Zhuang, J (1999), Corporate Governance in East Asia and Some Policy Implications, EDBRC (Economic and Development Resource Center) Briefing Notes #14, Asian Development Bank.