Week 12 &13 Managment as a Key Player in the Corporate Governance

8/11/2019 Week 12 &13 Managment as a Key Player in the Corporate Governance

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Department of

Management

Sciences

By

Muhammad Naveed Chohan

Sunday, September 07, 2014

CORPORATE GOVERNANCE

Week 12 & 13Management as a Key Player in the

Corporate Governance


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Outline

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Role of Management in Corporate Governance

Fit and Proper Test for Key Executives

Management Performance


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PRIVATE SECTOR

EXTERNAL

GOVERRNANCE

INTERNAL

GOVERNANCEPUBLIC SECTOR

EXTERNAL

GOVERNANCE

- Investors -General Meeting of Shareholders Meets

annually to approve accounts & electdirectors who may also be employees,

advisors, consultants, etc.

- Board of Directors -

Appoints own Chairman and CEO(Who may the same person )

And has power to form sub-committees

to: Manage audit matters;

Remunerate directors;

Nominate Directors;

Performs any other activities

- Management -CEO controls

managements and

employees

Auditor

Stock

Exchange

Bank (s)

Media

Professional

Bodies

(Accounting

standards. etc.)

Market forces for

employees, raw

material etc.

FederalGovernment

Trade

Practices,

monopolies,

Price

justifications,

Share issues,

Trading , Tax,

etc.

Regional

Government

(States)

Health, Safety,

Environment

etc.

Local

Government,

Building, Tax,

Environment,

Health, Waste

Disposal etc.(Anglo-Saxon Corporate Governance)


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Role of Management inCorporate Governance


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Framework of Corporate Governance:

-- Corporate Governance is about setting up a system of entrusting the

directors and managerswith responsibilitiesin relation to running

corporate affairs--

--A set of relationship between a companys management, its board, itsshareholders and other stakeholders

-- Corporate Governance signifies the manner in which business and affairs of

the corporations are directed and managed by the board of directors and

Senior management--


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Chief Executive Officer (CEO)

--A company other than a company managed by a managing agent must have

a chief executive of the company--

Appointment of Chief Executive officer (CEO):

First CEO must be appointed from the date of commencement/ within 15

days of incorporation

First CEO heads the company up first AGM or until subsequent CEO

Subsequent CEO is appointed by Directors for 3 Years

A CEO can be re-elected

Subsequent continues up to appointment of successor

Terms and Conditions of Appointment:

Determine in AGM in accordance with articles

Not already a director

Entitle to all rights and privileges subject to liabilities


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Restriction on Appointment:

Not eligible to appoint as CEO if not eligible to become as a director

Director disqualified to become a director will not become as CEO

Removal:

Resolution of directors in ratio

Under article of association

Can not compete with the business and will disclose

Penalty for Contravention:

Fine up to Rs,10,000

Bar to appoint as CEO for 3 years


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Major Issue in board:

CEO and Chairman should be separate persons

Office of CEO and Chairman can be hold by same person

CEO in the Banking Companies of Pakistan:--No member of the board of directors of banking company holding 5 percent

or more of the paid-up capital of banking company..........shall be

appointed in the bank in any capacity save as the chief executive of

bank......Prudenti al Regulation for Corporate and Commercial Banks G 1(C), 2011

Restriction to become executive in the bank:

--Not more than 25% of the total directors can be paid executives of the

bankCorporate Governance Code of Pakistan


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The Company Secretary(CS)

-- Secretary is a Latin word meaning confidential writer or notary , In

commercial terms, the secretary is an employee entrusted with confidential

correspondence and record

--Any individual appointed to perform the secretarial, administrative or otherduties ordinarily perform the secretarial, administrative or other duties

ordinarily performed is called the secretary of a companyUnder Companies Ordinance 1984

Who appoints and removes the company secretary?

-- Company secretary can be appointed and removed by the CEO with

approval of the boardCorporate Governance Code of Pakistan 2002

--Maintenance of Record of CS under Section 205 of Companies Ordinance

1984, Report within 10 days in case of change--


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Qualifications to become a company secretary:

A member of a recognized body of professional accounts, or;

A member of a recognized body of corporate/chartered secretaries, or;

A lawyer. Or; A graduate from a recognized university having 5 years of relevant

experience in a listed company

Corporate Governance Code of Pakistan 2002

CS in company meetings:

Can attend company meeting

can not cast vote

Can not attend that part which is relating to himCorporate Governance Code of Pakistan 2002


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Limitations for company secretary:

Has no independent authority to bind company by contract

Cannot borrow money on behalf of the company

Can not register transfer until authorize by directors Can not strike a name off from the register of members without authority

Cannot call a general meeting on his own authority

Can not attend meeting relating to agenda item of CEO, CFO and CS

Secretarial Compliance Certificate:

File Secretarial Compliance Certificate within 45 days from the date of

AGM

No meeting than from the last day of the year


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Chief Financial Officer (CFO)

-- The CFO or Chief accountant includes any person, by whatever name called,

who is charged with the responsibility of maintenance of books of account

of a company.

Who appoints CFO?

CEO with the approval of board of directors in case of a listed company

Remuneration, terms and condition of employment is in the hand of CEO

Qualifications to become a CFO:

A member of a recognized body of professional accounts, or;

A graduate from a recognized university having 5 years of relevant

experience in handing financial or corporate affairs of a listed company or

a bank or a financial institution



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Chief Financial Officer (CFO)

Duties of CFO:

Every company should give true and fair view of accounts

The books of accounts must be kept for a period of at least ten years

CFO and CEO are responsible for presenting the financial statements of alisted company

Accounts should be endorsed under their respective signature, for

consideration and approval of the board of directors

Qualifications to become a CFO: A member of a recognized body of professional accounts, or;

A graduate from a recognized university having 5 years of relevant

experience in handing financial or corporate affairs of a listed company or

a bank or a financial institution



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Issuance of FPT Criteria: SBP issued it to make smooth appointments of key bank executives

Included inPrudential Regulation G 1(A) for Corporate and Commercial

Banks, 2011

Issued through a directive BPD Cir No. 11 of 5thApril, 2003

Included in theHand Book of Corporate Governance

For Whom this Criteria was made? Directors


Chief Financial Officer (CFO)/ Head of Faineance/ Head of Accounts

Head of Internal Audit Country Treasurer

Head of Credits/ Risk Management

Head of Operations

Head of Compliance

Head of Human Resource


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Role of SBP regarding FPT:

No prior approval is required from SBP regarding FPT

Bank/DFI is itself is responsible to make sure

Bank/DFI shall report only brief information of such appointments within

7 days of joining according to given format

Non Compliance of FPT :

Inspection by SBP

Strict punitive action against the bank/DFI under BCO 1962

Dispensation from service of concerned officer if recruited afresh

In case of existing employee transferred to original post


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Elements of FPT:

4. Financial Soundness

Not defaulter of payment of dues owed

Not defaulter of taxes in individual capacity or proprietary capacity

5. Conflict of Interest Has not more than one functional areas that give rise

Not hold any directors in his/her personal capacity in a business concern

that is also a client of the bank/DFI or any other FI. Investment Company,

Finance Company,.........


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Management Performance


CEO think of themselves as a leader

Failure in companies like Tyco, WorldCom, Enron, Qwest, Adelphia etc.

and CEOs role

In 1990s saw one of the greatest wealth transfer ...pay of CEOs skyrocketed

.....441 tomes more than average

CEO as a dictator

What do we want from CEO?

Certainty in business

Fair forecasting and predictions

Use skills, experience and qualifications in right direction Corporate Performance Vs. Maximum Security


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The Biggest Challenge:

Challenge is not failure but success

Example of giants of the 1960s Kodak, sears, General Motors etc.

Executive Compensation:

Stock Options Restricted Socks

Shareholder Concerns: Several Ways to Pay Day

The guaranteed bonus

Deliberate Obfuscation The Christmas tree

Compensation plans that are all upside and no downside

Loans

Phoney Cuts

Golden Hellos


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Shareholder Concerns: Several Ways to Pay Day

Transaction bonuses

Retirement benefits


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Sunday, September 07,2014

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Thanks for Patience

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Week 12 &13 Managment as a Key Player in the Corporate Governance