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Corporate Corporate GovernanceGovernance

Presented ByPresented ByImran Tariq Imran Tariq Roll No 8559Roll No 8559M.Com 4M.Com 4thth

GC University FaisalabadGC University Faisalabad

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What is it about?What is it about? CorporateCorporate GovernanceGovernance

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CompanyCompany What is a company?What is a company? Characteristics of a CompanyCharacteristics of a Company Types of CompaniesTypes of Companies

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Characteristics of a Characteristics of a CompanyCompany

Ownership in sharesOwnership in shares Freely transferable sharesFreely transferable shares Separate entity apart from Separate entity apart from

shareholdersshareholders Liability of shareholdersLiability of shareholders Indefinite lifeIndefinite life Board of directorsBoard of directors

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Types of CompaniesTypes of Companies Limited or UnlimitedLimited or Unlimited Limited by shares or by guaranteeLimited by shares or by guarantee Private or PublicPrivate or Public Listed or UnlistedListed or Unlisted

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Hierarchy of a CompanyHierarchy of a Company ShareholdersShareholders

Own the company, do not run it.Own the company, do not run it. Board of DirectorsBoard of Directors

Elected by and reporting to Elected by and reporting to shareholdersshareholders

ManagementManagement Appointed by and reporting to directorsAppointed by and reporting to directors Includes executive directorsIncludes executive directors

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Top Players Top Players Shareholders: Voting powerShareholders: Voting power Chairman: Chairman:

May be executive or non-executiveMay be executive or non-executive DirectorsDirectors

May be executive or non-executiveMay be executive or non-executive Chief Executive OfficerChief Executive Officer

May or may not be a directorMay or may not be a director Senior Managers:Senior Managers:

May or may not be directorsMay or may not be directors

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Classification of Classification of StakeholdersStakeholders

OwnersOwners LendersLenders EmployeesEmployees Business AssociatesBusiness Associates

Suppliers and CustomersSuppliers and Customers SocietySociety

Includes governmentIncludes government

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Opportunity to protect Opportunity to protect individual interestsindividual interests

Managers and Employees have the Managers and Employees have the greatest opportunity to protect their greatest opportunity to protect their interest(s)interest(s)

Suppliers and Clients essentially go Suppliers and Clients essentially go by each transaction or contract.by each transaction or contract.

Lenders and Shareholders are most Lenders and Shareholders are most vulnerable.vulnerable.

Society depends entirely on lawSociety depends entirely on law

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Classified on Classified on basis of Rolebasis of Rolein the Companyin the Company

Classified on basis of opportunity to protect individual interestsClassified on basis of opportunity to protect individual interestsThose with Those with

Full OpportunityFull OpportunityThose with aThose with a

Partial OpportunityPartial OpportunityThose withThose withVirtually No Virtually No

opportunityopportunity

OwnersOwners ControllingControllingShareholdersShareholders

Institutional Institutional InvestorsInvestors

with Board with Board representationrepresentation

Minority and Minority and individualindividual

shareholders with no shareholders with no boardboard

RepresentationRepresentation

LendersLenders

Financial Financial institutionsinstitutions

with elaborate with elaborate lendinglending

ContractsContracts

Buyers of listed Buyers of listed bondsbonds

with trustee with trustee arrangementsarrangements

Other lendersOther lenders

EmployeesEmployees Executive Executive DirectorsDirectors Senior ManagersSenior Managers

Other employeesOther employeeson regular oron regular orcontract termscontract terms

Business Business AssociatesAssociates

Suppliers who sellSuppliers who sellonly on cash only on cash

termsterms

Major Suppliers andMajor Suppliers andclients with clients with

contractscontractsSmaller suppliers Smaller suppliers and smaller clientsand smaller clients

SocietySociety GovernmentGovernment Public at largePublic at large

Classification of StakeholdersClassification of Stakeholders

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Need for Corporate Need for Corporate GovernanceGovernance

To protect and serve individual To protect and serve individual interest of each stakeholderinterest of each stakeholder

To protect and serve the collective To protect and serve the collective interest of all stakeholdersinterest of all stakeholders

To ensure no one benefits at the To ensure no one benefits at the expense of anotherexpense of another

To ensure no stakeholder has To ensure no stakeholder has monopoly of decision-making.monopoly of decision-making.

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Governance & Governance & ManagementManagement

How do these terms differ?How do these terms differ? Does Governance include Does Governance include

Management?Management?OrOr Does Management include Does Management include

Governance?Governance?

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Governance & Governance & ManagementManagement

GovernanceGovernance FunctionFunction ManagementManagementApproval of Approval of

PlansPlansPlanningPlanning Preparation of Preparation of

plansplansProviding Providing

overall overall leadershipleadership

LeadingLeading Leading those Leading those who implement who implement

plansplansArranging Arranging resourcesresources

OrganizingOrganizing Tasks division & Tasks division & resource usageresource usage

Controlling Controlling managersmanagers

ControllingControlling Controlling Controlling employeesemployees

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GovernanceGovernance StrategicStrategic Setting ObjectivesSetting Objectives Devising plans to achieve these Devising plans to achieve these

objectivesobjectives Setting rules or parametersSetting rules or parameters Not directly concerned with routine Not directly concerned with routine

affairsaffairs Protection of Interests of all stakeholdersProtection of Interests of all stakeholders

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ManagementManagement Current & Operational AffairsCurrent & Operational Affairs Taking directions from the BoardTaking directions from the Board Implementing the PlansImplementing the Plans Developing Suggestions and Developing Suggestions and

AlternativesAlternatives

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Approaches to Approaches to Corporate GovernanceCorporate Governance

Shareholders ApproachShareholders Approach Stakeholders ApproachStakeholders Approach Enlightened Shareholders ApproachEnlightened Shareholders Approach Which approach is best?Which approach is best?

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Corporate SinsCorporate Sins SlothSloth

Unwillingness to take initiative or risk, Unwillingness to take initiative or risk, prefer status quo, be lazy.prefer status quo, be lazy.

GreedGreed Putting self above companyPutting self above company

FearFear Not annoy or stand up to any Not annoy or stand up to any

stakeholder / investor / boss.stakeholder / investor / boss.

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Agency TheoryAgency Theory What is Agency Theory?What is Agency Theory? Does it apply to companies?Does it apply to companies? Two-party and three-party modelTwo-party and three-party model Principal-Watchdog-AgentPrincipal-Watchdog-Agent

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Key IssuesKey Issues Financial reportingFinancial reporting Directors’ remunerationDirectors’ remuneration Risk managementRisk management Effective communicationEffective communication Corporate Social ResponsibilityCorporate Social Responsibility

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Financial ReportingFinancial Reporting AccuracyAccuracy ReliabilityReliability

Internal and external auditInternal and external audit ComprehensivenessComprehensiveness TimelinessTimeliness

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Directors Related IssuesDirectors Related Issues RemunerationRemuneration PowersPowers Balance between:Balance between:

executive and non-executivesexecutive and non-executives Election and re-electionElection and re-election RepresentationRepresentation

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Risk ManagementRisk Management Risk profileRisk profile What risks to take?What risks to take?

Avoidable and non-avoidable risksAvoidable and non-avoidable risks What not to take?What not to take? How to handle risks taken?How to handle risks taken?

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CommunicationCommunication TransparencyTransparency Regular communicationRegular communication With who?With who? In what format?In what format?

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Corporate Social Corporate Social ResponsibilityResponsibility

Business EthicsBusiness Ethics Being a good citizenBeing a good citizen Doing business responsiblyDoing business responsibly

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Why is CG Important?Why is CG Important? Good reputation is good businessGood reputation is good business Protection of stakeholders’ interestProtection of stakeholders’ interest Support to capital marketsSupport to capital markets Support to societySupport to society Every one winsEvery one wins

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Thank youThank you

Safdar H.TahirSafdar H.Tahir