corporate governance.pdf
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corporate governanceTRANSCRIPT
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Bob Tricker
Chapter 2Governance and management
Corporate Governance Principles, Policies and Practices 2e
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Tricker: Corporate Governance 2e
in which we recognise: definitions of corporate governance the scope of corporate governance the significance of constitutions for corporate
entities the difference between governance and
management the performance and conformance aspects of
governance alternative board structures
Governance and management
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Tricker: Corporate Governance 2e
Definitions of corporate governance
Definitions vary according tot the perspective of the user operational relationship stakeholder financial economics societal
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance operational
Corporate governance is the process by which companies are directed and controlled
Cadbury Report 1992 and OECD 1999
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance relationshipis the relationship among various participants in
determining the direction and performance of corporations. The primary participants are the shareholders, the management and the board of directors Monks and Minow 2001
The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization such as the board, managers, shareholders and other stakeholders and lays down the rules and procedures for decision-making OECD 2002
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance - stakeholder
Corporate governance is the process by which corporations are made responsive to the rights and wishes of stakeholders
Demb and Neubauer, 1992
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance financial economics perspective
Corporate governance deals with the way suppliers of finance assure themselves of getting a return on their investment
Shleifer and Vishny, 1997
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance - societal The whole set of legal, cultural, and institutional
arrangements that determine what (public) corporations can do, who controls them. How that control is exercised, and how the risks and return from the activities they undertake are allocated
Blair, 1995 Corporate governance is concerned with holding the
balance between economic and social goals and between individual and communal goals.
Cadbury, 2000
Governance and management
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Tricker: Corporate Governance 2e
Defining corporate governance overall
Corporate governance is the exercise of power over a corporate entities
Tom Clarke, 2004
Governance and management
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Tricker: Corporate Governance 2e
The spheres of Corporate Governance
Societal influences and other stakeholders
Contractual stakeholders:Suppliers,Customersbankers
External auditors
Shareholders i.e. members
Institutional investorsCG activists
Law courts
Investment analysts
Government and other corporate regulators
Investigative Media
Management
Stock Markets
Market intermediaries Providers of
debt capital
Other sources of finance
Governing body - board of directors
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Tricker: Corporate Governance 2e
Every corporate entity needs a constitution
Governance and Management
THE MEMBERSShareholders in a limited company Members of the profession in a professional bodyClub members in a sports, arts or other private clubRegistered members in a trades union Members of academic bodiesVoting members of other corporate entities
THE CORPORATE ENTITYLimited liability company Professional organisationSports, arts or other clubTrades union University or collegeOther corporate entities
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Tricker: Corporate Governance 2e
Incorporating a joint stock limited liability company
Companies Registrar
Memorandum- name of company- objectives- registered office- share capital- liability of shareholders limited
Articles of Association- detailed rules for running the entity- Table A
Governance and Management
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Tricker: Corporate Governance 2e
Types of limited liability company
Private companies limited by shares Private companies limited by guarantee (Private unlimited companies) Public companies
offer to general public in UK title XYZ Plc prospectus needed to offer shares
Governance and Management
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Tricker: Corporate Governance 2e
Other forms of incorporation Savings and loans association, building societies Co-operatives: supplier (Canada), customer (UK) State corporate entities
Federal National Mortgage Association (Fannie Mae) QUANGOs Quasi-autonomous non-governmental
organisation
Not for profit entitiese.g. Charities, sports associations, arts and cultural societies Trust law, friendly societies law, charities law etc.
Governance and Management
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Tricker: Corporate Governance 2e
The essence of governance
Governance and Management
The members
Governing body
Management
Corporate entity
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Tricker: Corporate Governance 2e
Governance and Management
Management involves an organisational hierarchy
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Tricker: Corporate Governance 2e
Governance is different from management
Governance and Management
governance
management
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Tricker: Corporate Governance 2e
Governance and Management
Board Structure INED
ED
InvestmentManager
Co. Secretary(ComplianceOfficer)
GeneralManager
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Tricker: Corporate Governance 2e
Management runs the business: the board ensures that the business is well run
and running in the right direction
Governance and Management
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Tricker: Corporate Governance 2e
Wherever management is separate from ownership or membership, organisations need governing Public listed company board of directors Small/medium company - board of directors Subsidiary/associate/joint venture board Company limited by guarantee University, college council, governing body Charity, club, hospital board, committee Quasi-governmental bodies council, committee, board Family firm
Many corporate governance ideas are universal and can be applied to any governing body
(contrast organisations where management and governance are in the same hands sole traders, small partnerships)
Governance and Management
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Tricker: Corporate Governance 2e
The basic board processes
Governance and Management
Accountability Strategy formulation
Supervising executive activities Policy making
Outward looking
Inward looking
Past and present focused Future focused
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Tricker: Corporate Governance 2e
Governance and Management
Outwardlooking Providing
AccountabilityStrategy
Formulation
Approve and work withand through the CEO
Inwardlooking
Monitoring andSupervising
PolicyMaking
FuturePast andpresent focused focused
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Tricker: Corporate Governance 2e
The conformance and performance roles of the unitary board
Governance and Management
conformance performance
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Tricker: Corporate Governance 2e
Guidelines for a board strategy seminar or workshop Careful planning, well in advance, is essential Agree a time when all directors can attend Fix a location where all directors can participate Define the objectives clearly, for example:
- to explore the strategic situation- to discuss the implications- to consider alternative strategies- to determine the next steps to be taken(but not to take strategic decisions immediately)
All directors must be fully informed about the objectives All directors should be supportive of the event All directors need briefing with relevant data in advance
Governance and Management
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Tricker: Corporate Governance 2e
Guidelines for a board strategy seminar or workshop (continued)
Do not hold the event in the board-room (the board-room culture is decision orientated)
Decide who is going to run the event (this need not be the chairman) Decide whether other people should be invited to participate
(senior executives to brief the directors, external experts to give briefings, experts to contribute to process)
At the first session establish the ground-rules- this is not a board meeting to make decisions, but a free-ranging exchange of views and insights- strategic decisions will not be made- call for imaginative contributions however unusual - discourage negative comment ('we tried that - it won't work', 'no good for us')
The output of the strategy session should be an agreed list of next actions, and who is responsible for taking them and by when.
Governance and Management
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Tricker: Corporate Governance 2e
All executive board Majority executive board Majority non-executive board All non-executive board
Supervisory board Two-tier board
Board structures around the world Some complex structures
Alternative board structures
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Tricker: Corporate Governance 2e
The all-executive board
O = executive directors
OO O
O O
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Tricker: Corporate Governance 2e
The majority-executive board
O executive directorsN non-executive directors
N
N N O O
O O O
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Tricker: Corporate Governance 2e
The majority non-executive board
N non-executive directors O executive directors
NN N
N N O
O O
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Tricker: Corporate Governance 2e
Board Structure ExerciseBoard Structure ExerciseGroup 1Group 1
ED NED INED Total
MCM 3 8 0 11 BCOM 3 3 0 6 Excel Technology 4 1 3 8 Esprit Holding 5 2 3 9 Giordano 3 4 0 7
Percentage
Directors and board architecture
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Tricker: Corporate Governance 2e
Two-tier board
N non-executive directors O executive directors
Directors and board architecture
NN N
N NN N
N N
OO O
O
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Tricker: Corporate Governance 2e
We have considered definitions of corporate governance the scope of corporate governance the significance of constitutions for corporate
entities the difference between governance and
management the performance and conformance aspects of
governance alternative board structures
Governance and management
Corporate Governance Principles, Policies and Practices 2eGovernance and managementGovernance and managementGovernance and managementGovernance and managementGovernance and managementGovernance and managementGovernance and managementGovernance and managementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and ManagementGovernance and Management Governance and ManagementGovernance and ManagementAlternative board structuresDirectors and board architectureGovernance and management