What+is+Corporate+Governance+Presentation Alison+Day+One

8/2/2019 What+is+Corporate+Governance+Presentation Alison+Day+One

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What is Corporate

Governance?Alison Dillon Kibirige


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Corporate Governance

Contemporary corporate governancestarted in 1992 with the Cadbury report inthe UK

Cadbury was the result of several highprofile company collapses

is concerned primarily with protectingweak and widely dispersed shareholdersagainst self-interested Directors andmanagers


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Corporate Governance Parties

Shareholders those that own thecompany

Directors Guardians of the Companysassets for the Shareholders

Managers who use the Companys assets


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Primarily concerned with public listedcompanies i.e. those listed on a StockExchange

Focused on preventing corporate collapsessuch as Enron, Polly Peck and the Maxwellcompanies


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What relevance does it have to Africawhere there are few public listedcompanies

Most companies are non-listed, privatefamily owned businesses where theshareholders and the managers are oftenthe same people


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Four Pillarsof Corporate Governance

Accountability

Fairness

Transparency

Independence


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Accountability

Ensure that management isaccountable to the Board

Ensure that the Board is accountableto shareholders


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Fairness

Protect Shareholders rights

Treat all shareholders including minorities,

equitably

Provide effective redress for violations


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Transparency

Ensure timely, accurate disclosure on all

material matters, including the financialsituation, performance, ownership and

corporate governance


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Independence

Procedures and structures are in place soas to minimise, or avoid completelyconflicts of interest

Independent Directors and Advisers i.e.free from the influence of others


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Corporate Governance in Africa

In 1994, The King Report in South Africaalso included within its Code of CorporateGovernance requirements on sustainability

and ethical standards

This was due to the context of adeveloping country and business ethics inAfrica


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Sustainability

No generally accepted definition

Most commonly used is from the

Brundtland Report for the WorldCommission on Environment andDevelopment 1987 which defines it as:


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Sustainability

development that meets the needs

of the present without compromising

the ability of future generations

to meet their own needs


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Stakeholders

Sustainability recognizes stakeholderrights i.e. the rights of interested partiese.g. employees, the community, suppliers,

customers etc.

Encourage co-operation between thecompany and its stakeholders in creatingwealth, jobs and economic stability


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Business Ethics

Established values and principles acompany uses to inform and conduct itsactivities

Should permeate a companys culture anddrive its strategy, business goals, policiesand activities

Usually found in a code of ethics


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Elements of Corporate Governance

Good Board practices

Control Environment

Transparent disclosure

Well-defined shareholder rights

Board commitment


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Good Board Practices

Clearly defined roles and authorities

Duties and responsibilities of Directors

understood

Board is well structured

Appropriate composition and mix of skills


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Good Board procedures

Appropriate Board procedures

Director Remuneration in line with best

practice

Board self-evaluation and training

conducted


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Control Environment

Internal control procedures

Risk management framework present

Disaster recovery systems in place

Media management techniques in use


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Control Environment

Business continuity procedures in place

Independent external auditor conductsaudits

Independent audit committee established


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Control Environment

Internal Audit Function

Management Information systems

established

Compliance Function established


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Transparent Disclosure

Financial Information disclosed

Non-Financial Information disclosed

Financials prepared according toInternational Financial Reporting

Standards (IFRS)


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Transparent Disclosure

Companies Registry filings up to date

High-Quality annual report published

Web-based disclosure


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Well-Defined Shareholder Rights

Minority shareholder rights formalised

Well-organised shareholder meetings

conducted

Policy on related party transactions


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Well-Defined Shareholder Rights

Policy on extraordinary transactions

Clearly defined and explicit dividend policy


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Board Commitment

The Board discusses corporate governanceissues and has created a corporategovernance committee

The company has a corporate governancechampion

A corporate governance improvement planhas been created

Appropriate resources are committed tocorporate governance initiatives


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Board Commitment

Policies and procedures have beenformalised and distributed to relevant staff

A corporate governance code has been

developed A code of ethics has been developed

The company is recognised as a corporate

governance leader


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Other Entities

Corporate Governance applies to all typesof organisations not just companies in theprivate sector but also in the not for profit

and public sectors

Examples are NGOs, schools, hospitals,pension funds, state-owned enterprises


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Country Perspective

Corporate Governance is by way oflegislation or best practice Code

US adopted legislation in 2002 - Sarbanes

Oxley Act Most other developed and emerging

market countries have adopted bestpractice Codes e.g. Combined Code in theUK, Cromme Code in Germany and theKing II Code in South Africa


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Country perspective - Codes

These Codes are voluntary and areenforced by shareholders

Most of them operate on a comply or

explain approach The Media also play a part in highlighting

good or bad practices


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Country Perspective

Countries in Africa have tended to adopt ahybrid approach whereby they havefollowed the comply and explain

approach but have enshrined some of theprinciples in law to assist in enforceability

The reason is the weakness of theshareholder base and of the media


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Why Corporate Governance?

Better access to external finance

Lower costs of capital interest rates onloans

Improved company performance sustainability

Higher firm valuation and share

performance Reduced risk of corporate crisis and

scandals


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Why Corporate Governance?

In 2002, L Klapper and I Love from the WorldBank found evidence that improving a companyscorporate governance has proportionately greaterimpact in countries with weak legal

environments.

They have suggested that companies canpartially compensate for ineffective laws andenforcement by establishing good corporate

governance at the company level and providingcredible investor protection


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What+is+Corporate+Governance+Presentation Alison+Day+One