S5 6_CG_handouts - Business Ethics ‐ Truong Thi Nam Thang 1 CORPORATE GOVERNANCE Dr Truong Thi Nam Thang Corporate Governance Defined 2

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Unformatted text preview: 3/9/2010 Business Ethics ‐ Truong Thi Nam Thang 1 CORPORATE GOVERNANCE Dr. Truong Thi Nam Thang Corporate Governance Defined 2 ¡ “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”, The Journal of Finance , Shleifer and Vishny [1997, page 737 page 737] ¡ "Corporate governance is about promoting corporate fairness, transparency and accountability" J. Wolfensohn, President of the Word Bank , as quoted by an article in Financial Times , June 21, 1999. Raised Issues 3 ¡ Separation of ownership & control : problem exists whenever owners themselves do not engage in the direct management of the firm. ¡ Self-interest before enterprise’ interest : when some owners or managers view their self-interest before the interest of the enterprise, all shareholders and stakeholders. What are the basis? 4 ¢ Effective Corporate Governance System = £ Good Corporate Performance £ Full Accountability to Shareholders/Stakeholders £ Competitiveness in accessing low-cost finance ¢ Core Components of a Good Governance System £ Control and determination by stakeholders of overall strategic decisions. £ Oversight and Monitoring over management performed by the board of directors (or a supervisory board) on behalf of stakeholders, and also directly by stakeholders (creditors and institutional investors). £ Transparency based on Disclosure of relevant, reliable, timely and comprehensive information about managerial actions and company performance. £ Incentives for motivating management to perform to the best of their ability and in the owners' best interest. 3/9/2010 Business Ethics ‐ Truong Thi Nam Thang 2 Governance bodies of a firm 5 ¡ Corporate governance typically structured through a firm's three main constituent decision-making bodies ¢ Shareholders' annual general meeting (the “SM”) ¢ Board of directors (the “BOD”) (and Supervisory Board (the “SB”)) ¢ Management (the ”MB”) Determinants of a CG System £ Ownership concentration or dispersal. £ Board attributes. ¢ Adequacy and enforceability of the legal and regulatory frameworks 6 Internal Enforcement Mechanisms External Enforcement Mechanisms £ Supporting checks and balances. ¢ Accounting standards ¢ Product market competitiveness. ¢ Efficiency and competitiveness of financial markets ¢ Competitiveness of managerial job markets ¢ Cultural and historical factors Main Objectives: Improving corporate performance and maximising returns to shareholders and other investors 7 ¾ New Study show that well-run companies responsive to shareholders = Earn Higher Returns on Investment ¡ Raising investors' confidence and enhancing the ability of firms to access low-cost finance Si ifi tl d i th i k f t f il b ¡ Significantly reducing the risk of corporate failures, abuses and malpractices ¡ Promoting the development of sound, efficient and stable financial markets ¡ Facilitating the development of...
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This note was uploaded on 07/19/2011 for the course ECON 101 taught by Professor Wood during the Spring '07 term at University of California, Berkeley.

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S5 6_CG_handouts - Business Ethics ‐ Truong Thi Nam Thang 1 CORPORATE GOVERNANCE Dr Truong Thi Nam Thang Corporate Governance Defined 2

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