Role of media in corporate governance

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AARKEY CREATIVE WORKS

VASISTA ARTS

Corporate Governance

RAMA KRISHNA dot A

ROLE OF MEDIA

Outlines ◦ Role of Media in ensuring Corporate Governance◦ Media can play role in CG by effecting in three ways;

Pressure on politicians to go for corporate law reforms Pressure on managers to take care of the shareholders

money Pressure on managers to take care of the societal norms

Role of Media in ensuring Corporate Governance

◦ Importance of media Can play role even in the absence of legal act

◦ Harms of using advertisement as a media tool. Misrepresentation of facts

◦ Media and corporate governance Should be broadened rather than just legal and

contractual aspects Managers focus should be shareholders but also the

societal norms


◦ Individual as well as institutional investors can use press to fight with the management.

◦ Selective coverage and media credibility Sometimes foreign newspapers are more credible

than the local. The issue of credibility can question the investigation

made by the newspaper


Management side deals can increase the query of credibility.

A single credible newspaper can’t fight with lots more incredible newspapers.

◦ Adverse effects of advertising dishonesty Fear appeals

◦ Positive effects of advertising Guidance to children in making decisions Developing skills


Outlines ◦ Problems faced by developing and transition

or change economies Still in process of basic market institutions to

regulate Internal owner vs. external owner Inflow of new capital is not facilitated Lack of property rights, contract violations and self-

dealing are the core issues, not just the owners and controllers relationship

Corporate Governance in Developing and Transition Economies

Act are there but it is hard to implement. Judiciary, bureaucracy and regulatory bodies are not

alert to stop corporate misgovernance.

◦ Summary of problems facing these economies Low economic growth Public sectors dominance i.e. CG is for private

sectors Lack of effectiveness of privatization Lack of awareness among shareholders Govt. influence Internal owners are more influential than external

owner (no voting powers) More concentration toward family-owned

corporations.


Lack of legal protection for investors No inflow of new capital Low property rights and contract laws. Lack of well regulatory banking sector Exit mechanism, bankruptcy and foreclosure (taking

possession of mortgage property) norms are absent. No sound securities market Lack of competition Corruption and mismanagement Non-uniform guidelines by the govt. for all

companies


◦ Corporate Governance Models Insider system

Insider own majority of the company shares Voting rights Power to monitor management Keep their investment for long period in a firm Support decisions for long period of time Dominant owners can use the firms’ assets by colluding

with the management, at the expense of minority shareholders.

Irresponsible exercise of power resulting waste resources and drain company productivity levels.


Outsider system Large number of owners hold small number of company

shares Can’t monitor management Can’t involve in management decisions Common law countries (UK, USA) own this system Independent board members to monitor managerial

behaviour More accountable and less corrupt Having dispersed ownership structure with some weaknesses

Looking for short term maximization

Conflicts between directors and owners


Outlines◦ 1. Introduction

Monopoly is that one person or company controls 1/3 of the local or national market

Abuses or mistreatment of monopolies are High prices Wrong allocation of resources Abuse of investors/markets by giving wrong information. Preventing or stop inventions Economic instability Corruption and bribery Economic power in the hands of few

Corporate Governance under limited Competition

◦ Anti-monopoly laws Prevents firms to make monopoly Prevent unfair price discrimination

◦ Competitive firm is preferred because Low prices Avoid wastages for competition Efficiency Consumers’ tastes and preferences

Monopoly, Competition and Corporate Governance

◦ Benefits of competition Competition in the product market

Quality products Low prices

Competition in the capital market Relationship of firms and financial institutions

Economic Power and Political Influence Firms can take political influence for their benefits Monopolistic market can lead toward the political influence,

would results in bad governance. Competition is the only solution.


◦ Challenges to Good Enforcement Resources Meaningful sanctions A real big challenge

◦ Competition Agencies and Competition Policies To prevent anti-competitive practices To resist the lobbying of interest groups Competition policy should be at the top. Adequate resources to investigate anti-competitive

practices.


Education

Role of media in corporate governance