CG in Public Sector Seven Principles of Public Life Selflessness Integrity Objectivity Accountability Openness Honesty Leadership
Dominant Personality Aspect Principal cause of CG issues Characteristics of a dominant leader Charismatic Powerful Intolerant Often seemingly sincere Does not nurture subordinates
Stakeholders Board of Directors elected by shareholders Controlling (Majority / Minority) Non-controlling (individual / institutional) Lenders (individual / institutional) Management / Employees Clients / Suppliers Society (includes government)
Key Persons Mr Shareholder Individual / Institutional Investor Chairman Board Members Executive / Non-executive Independent / Nominees CEO Other Managers / Employees
Agency Problem Minority Controller Majority Controller Cost of agency monitoring
Key Issues of CG Financial Reporting and Auditing Directors Remuneration Risk Taking Effective Communication between: Board and shareholders Company and stakeholders Corporate Social Responsibility
Financial Reporting Force of Law Influence of professional bodies Audit Report – how valid is it? Does it work? Role of Institutional Investor Professional analysts What is the real solution?
Directors Remuneration Big issue in West, not here Who sets it? Why do shareholders complain after approving? Disunity in shareholders?
Company-Stakeholders Relations Structure of the Board Is it representative? Does it have sufficient Independents? Articles of Association Contents? Allocation of power to stakeholders Actual use of powers
Risk Management WHO CARES: To take risk or not to take risk? How much risk to take? How to minimize / manage risks? NATURE OF RISKS Operational Takeovers
Communication What needs to be communicated? Frequency Set pattern, or need basis Why communicate?
Legislation for CG Company Law Regulations for listed companies Specific CG related laws? Social pressure can often have the same force as law.
Questions asked when companies fail Was it management incompetence? Why was it not noticed before disaster? Dishonesty Did the dishonest person get away with it? How? Why? Eventually, this boils down to poor governance.
Approaches to CG Shareholder Value approach Enlightened Shareholder Approach Pluralist Approach Ethical conduct and Code of ethics in CG Assignment of this week
Shareholders Approach Board cares for only shareholders Shareholder means: All shareholders, or Majority shareholders only, or Vocal shareholders only? Balanced treatment Between shareholders and others
Enlightened Shareholders Approach Balance between the interest of all stakeholders, but basic attention to shareholders. Issues: Which shareholders People who wear two or more caps
Integrated/Pluralist Approach Accountability To shareholders, but also to others Responsibility To all stakeholders. Means of enforcement
The Corporate Sins Sloth (unwillingness to take risk/initiative) Greed Fear
What is the Best Approach? Which Why Where