ECG REVISION FINAL (SHIRLYN).docx - 1 Purposes of code of...

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1. Purposes of code of corporate governance for listed companies and the role of agency principle in corporate governance. Corporate governance is defined as the process and structure used to direct and manage the business and affairs of the company towards promoting business prosperity and corporate accountability with the ultimate objective of realising long-term shareholder value while taking into account the interest of other stakeholders. The Corporate Governance Code sets out standards of good practice in relation to issues such as board composition and development, remuneration, accountability and audit, and relations with shareholders. It is basically a set of code that governs the company’s overall operation. There are many purposes of code of corporate governance for listed companies. The main purpose is to ensure that organisations are properly run in the best interests of their stakeholders. Besides that, code of corporate governance aims to align board’s interest with that of shareholders. It is also a framework of control mechanisms that provides system of checks and balances to support the companies in achieving its goals while preventing unwanted conflicts. Furthermore, it identifies the distribution of rights and responsibilities among different stakeholders in the company, monitor stakeholders’ act who controls the resources owned by shareholders. It also outlines the rules and procedures for decision making, internal control and risk management. Lastly, it produces long term value as good corporate governance boosts investors’ confidence. The purposes of such codes are as follows. First, they guide and specify behaviour in matters of governance, internal control and risk management with the objective that by complying with the code, corporate governance will be improved and enhanced. Second, they aim to encourage best practice and to improve management performance by preventing practices that might reduce shareholder value. Third, codes aim to underpin investor confidence in that high levels of compliance ten to be appreciated by shareholders and poor level of compliance are sometimes punished. It enables boards to demonstrate the value they place upon the agency relationship and to more adequately discharge the agency responsibilities placed upon them. Fourth, the codes aim to reduce fraud, waste and inefficiency. Fifth, the codes are thought to be a way of reducing chances of governmental legislation being implemented. Agency principle plays a big role in corporate governance especially in listed companies where there is a separation of ownership and control. The separation of ownership and control is based on the agency theory, which identifies the agency relationship where one party (the principal) delegates work to another party (the agent). In the context of corporation, the owners or shareholders are the principals whereas the board of directors are the agents.
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  • Summer '17
  • mani
  • Business, audit committee, non-executive directors

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