ch02.pptx - CORPORATE GOVERNANCE Chapter II CHAPTER OBJECTIVES \u2022 Identify the corporate governance developments in the post-SOX era \u2022 Understand how

CORPORATE GOVERNANCE Chapter II

CHAPTER OBJECTIVES: • Identify the corporate governance developments in the post-SOX era. • Understand how corporate governance is designed . • Define corporate governance structure and its components of principles, functions, and mechanisms. • Illustrate how corporate governance has evolved from compliance function to a strategic Imperative. • Provide an overview of corporate governance aspects and principles. • List and define the seven essential corporate governance functions. • Identify significant improvements resulting from corporate governance reforms in the United States. • Become familiar with best practices of corporate governance. • Become familiar with corporate governance reporting and its components as well as corporate governance ratings.

KEY TERMS Corporate governance Effectiveness Corporate governance rating Oversight board External governance Mechanisms Integrated aspect Internal governance Transparency Mechanisms Oversight Stakeholder aspect Remuneration Shareholder Shareholder aspect Stakeholder

DEFINITION OF CORPORATE GOVERNANCE The process affected by a set of legislative, regulatory, legal, market mechanisms, listing standards, best practices, and efforts of all corporate governance participants, including the company’s directors, officers, auditors, legal counsel, and financial advisors, which creates a system of checks and balances with the goal of creating and enhancing enduring and sustainable shareholder value, while protecting the interests of other stakeholders.

ASPECTS OF CORPORATE GOVERNANCE In the post-SOX era, Corporate Governance further evolved to the integrated aspects of meeting both compliance requirements and promoting a strategic business imperative. There are three aspects: shareholder aspect, stakeholder aspect, and an integrated aspect. Shareholder Aspect This aspect is based on the premise that shareholders provide capital to the corporations that exists for their benefit. Stakeholder Aspect Stakeholders are now becoming more engaged in a company performance on a variety of economic, governance, ethical, social and environment issues. Integrated Aspect Modern corporate governance emphasizes BOTH financial aspects of increasing shareholders value AND an integrated approach that considers the rights and interests of all stakeholders.

Corporate Governance Structure  Corporate governance is based on three interrelated components: corporate governance principles, functions and mechanisms.

CORPORATE GOVERNANCE PRINCIPLES HONESTY. C orporate communications with both internal and external audiences, including public financial reports, should be accurate, fair, transparent, and trustworthy RESILIENCE. A resilient corporate governance structure is sustainable and enduring in the sense that it will easily recuperate from setbacks and abuses.