CG_II-Wk1_Lec1 - Corporate Governance Corporate Week 1 01...

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Unformatted text preview: Corporate Governance Corporate Week 1 01 June 09 Introduction Awais Alam Khan Access: awais.khan@ymail.com Office: Faculty Room No: B07, Basement, Academic Block Web access: https://sites.google.com/site/imspeshawargrou 2 Consider the following Consider NICL Scam Mehran Bank Enron Madoff Scandal Union Carbide Satyam Computers 3 Corporate Governance What is a corporation? Some BS!!! Different definitions from different perspectives. “The business corporation is an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments” (Eisenberg 2004) • Emphasis on corporation’s profit and gain for the shareholders. 4 What is a Corporation? “A corporation is an artificial being, invisible, intangible, and existing only in the contemplation of law. Being the mere creature of the law, it posses only those properties which the charter of its creation confers on it, either expressly or as incidental to its very existence”. (John Marshall) “A body of persons granted a charter legally recognising them as a separate entity having its own rights, privileges, and liabilities distinct from those of its members”. American Heritage Dictionary 5 What is a Corporation? In summary, corporation is a mechanism established to allow different parties to contribute capital, expertise, and labour, for the maximum benefit of all of them. • Investors invest without responsibility • Management manages without personal funding Similarly this entity must have to be relate with a wide variety of constituents e.g., directors, employees, managers, shareholders, customers, creditors, suppliers, community and government. 6 What is a Corporation? Each of these relationships affects the direction and focus of the corporation And the study of corporate governance (CG) is the study of the connection of those relationships to the corporation and to one another. 7 Evolution of the Corporate Evolution Structure Structure In their earliest Anglo­Saxon form, municipal and educational corporations were granted control over their functions. Seventeenth century, corporations were created by the state for specific purposes like the settlement of India and American Colonies e.g., East India Company Is considered as success of Europe during that era. Coming to the present state of the corporations As there was need for more capital, technology was advancing, therefore modern corporations evolved. 8 Four Characteristics of Four Corporations Corporations The four characteristics essential to the vitality and appeal of the corporate forms are (Robert Clark): • Limited liability for investors • Free transferability of investor interests • Legal personality (entity­attributable powers, life span, and purpose) • Centralized management 9 The Purpose of a Corporation Different purposes for the entity of a corporation such as: • Human satisfaction (fulfilment, success, security for creative expression and for competitive spirit) • Social structure (offers lasting and resilient social structures) • Efficiency and efficacy (ideas transformed into products and services) • Ubiquity and flexibility (more permanent and more versatile). • Identity (have identities, personalities, powers, rights) 10 10 The Corporation as a Moral Person It is expected of the corporation, that it will follow the laws of a country in which it is operating. Will use sense of judgement and morality in decision making. E.g. Body Shop, Patagonia Union Carbide Bhopal Incident 11 11 The Corporation in Society What a society wants from a corporation? Jobs, creativity, rewards, environment, etc etc. Two common sets of laws govern the relationships b/w society and corporations • Government laws • Private law (agreements) b/w corporation and its constituents such as employees, suppliers, investors and community • Both needs to be balanced to keep the interests of maximum stakeholders intact. 12 12 Corporate Power and Performance “Power corrupts and absolute power corrupts absolutely” How a government’s power is rationalised? The same applies here in the corporations in form of corporate governance e.g. (Accountability, BOD,) Corporate penalties in case it violates the law e.g. SECP penalized different companies or Competition Commission penalized different Banks for monopoly in the market. 13 13 Measuring Performance & Measuring Corporate Value Corporate First and foremost Generally Accepted Accounting Principles (GAAP) Independent Audits Market Value and Rankings such as Fortune 100, or 500 Earnings Per Share (EPS) Economic Value Added (EVA) Are these sufficient to evaluate performance and corporate value? Some BS!!! 14 14 Measuring Performance & Measuring Corporate Value Corporate Human Capital? Knowledge Capital? Or combined known as Intellectual Capital (IC) Prof. Brauch Lev (NYU) Thomas Stewart Sveiby Edvinsson 15 15 Reference Reference Monks, R. A. G. and Minow, N. (2004). Corporate Governance. Oxford: Blackwell Publishing Limited (pp 01 to 70) 16 16 ...
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This note was uploaded on 03/07/2012 for the course FINANCE 245 taught by Professor Hameed during the Spring '12 term at IMSciences.

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