TOPICS

1. What is corporate governance

2. Principles of corporate governance
3. Approaches to corporate governance
4. What is whistle blowing and its importance
5. Process of whistle blowing
6. Corporate social responsibility and its importance
to companies
WHAT IS CORPORATE GOVERNANCE

Corporate Governance refers to the system of rules, practices, and

processes by which a company is directed and controlled.

It sets out how decisions are made, who has authority, and how
accountability is ensured between shareholders, the board of directors,
management, and other stakeholders.

The main goal of corporate governance is to ensure that the company is

run in a fair, transparent, ethical, and responsible manner while
protecting the interests of shareholders and balancing them with those of
employees, customers, suppliers, and the wider community.

FEATURES/PRINCIPLES OF GOOD CORPORATE GOVERNANCE

1. Accountability

Directors and managers must be answerable to shareholders and other

stakeholders for their actions and decisions. They should explain how they
have used company resources and fulfilled their duties. Accountability
ensures that leaders act responsibly and in the best interests of the
organization.

2. Transparency

All significant company activities, decisions, and financial performance

should be openly disclosed. Transparency allows stakeholders to
understand how the company is performing and reduces the risk of fraud
or mismanagement. It builds trust between the company and its investors,
employees, and the public.

3. Fairness

All stakeholders, including shareholders, employees, and creditors, should

be treated equitably. No group should be given undue preference or
ignored in decision-making. Fairness ensures trust, reduces conflicts, and
promotes a positive business reputation.
4. Responsibility

The company and its leaders must act legally, ethically, and in the best
interest of everyone affected. They should think about employees,
customers, and the community. Responsibility ensures decisions are
careful and thoughtful.

5. Independence

Boards and committees should have independent members who can make
decisions without undue influence from management or controlling
shareholdersIt ensures decisions are made objectively for the benefit of
the company.

6. Integrity

All corporate actions and communications should be honest and ethical.

Directors and employees are expected to act with moral soundness and
avoid fraudulent or unethical behavior.

7. Strategic Vision

Boards should plan for the company’s long-term goals and growth. They
make sure current decisions help the business succeed in the future.
Strategic vision keeps the company on the right path.

8. Compliance

Companies must comply with all relevant laws, regulations, and codes of
conduct. Compliance ensures that the company avoids legal penalties and
reputational damage.
APPROACHES TO CORPORATE GOVERNANCE

📌 1. Shareholder Value Approach

Focus: Maximizing wealth of shareholders (the owners).

This approach says the main purpose of a company is to maximize wealth

for its shareholders. The board and managers focus mainly on profits,
dividends, and share price growth. Other stakeholder interests are
considered only if they help increase shareholder value.

1. Primary objective → The company exists mainly to increase

shareholder wealth through profits, dividends, and share price
growth.

2. Board accountability → Directors and managers are accountable

mainly to shareholders, not other groups.

3. Short-term financial performance → Often emphasizes quarterly

profits, return on equity, and share price movements.

4. Disciplinary role of markets → Poor performance is punished by

shareholders selling stock, which lowers prices and pressures
management.

5. Agency problem focus → Governance aims to reduce conflict

between owners (shareholders) and managers (agents).

6. Investor-driven culture → Institutional investors (like pension

funds) have significant influence.

7. Criticism → Can ignore wider responsibilities to other stakeholders

(employees, environment, community).

📌 2. Stakeholder / Pluralist Approach

Focus: Balancing the interests of all stakeholders, not just

shareholders.

Here, the company is seen as responsible to a wide group of stakeholders,

not just shareholders. Employees, customers, suppliers, communities, and
regulators are all considered in decision-making. The goal is to balance
interests and create long-term, sustainable value for everyone.
 1. Broader accountability → The board is responsible not only to
shareholders, but also to employees, customers, suppliers, creditors,
regulators, and the community.

2. Value creation for all → The goal is sustainable value that benefits
multiple groups, not just maximizing profit.

3. Employees’ role → Employee welfare, fair wages, training, and job

security are given importance.

4. Corporate social responsibility (CSR) → Companies are

expected to care about the environment, ethics, and social impact.

5. Risk management → Broader view of risks, including reputational,

environmental, and social risks.

6. Decision-making → Involves considering different stakeholder

voices; may involve worker participation in governance.

7. Reduced conflict → By balancing stakeholder needs, companies

may reduce strikes, lawsuits, or reputational damage.

8. Criticism → Can slow down decision-making because of many

interests to balance.

📌 3. Enlightened Shareholder Value Approach

Focus: Shareholders first, but with recognition that long-term

success depends on considering other stakeholders too.

This approach keeps shareholders at the center but recognizes that long-
term shareholder success depends on caring for other stakeholders.
Directors are expected to consider employees, customers, the
environment, and the community when making decisions. By doing this,
the company protects its reputation and ensures sustainable shareholder
returns.

1. Shareholders remain central → The main duty is still to maximize

shareholder value.

2. Broader perspective → However, directors must consider

stakeholders (employees, customers, community) as a means to
create sustainable shareholder returns.
 3. Long-term orientation → Recognizes that neglecting stakeholders
can harm long-term shareholder value (e.g., bad labor practices =
strikes, poor treatment of environment = fines).

4. Board duty → Directors are expected to think beyond immediate

profit and act in a way that promotes long-term success.

5. Strategic alignment → Business decisions should align financial

goals with ethical, environmental, and social responsibilities.

6. Balance of interests → Seeks to bridge the gap between pure

shareholder primacy and stakeholder pluralism.

7. Corporate reputation → Recognizes that reputation, brand loyalty,

and trust create long-term value for shareholders.

8. Criticism → Still seen as shareholder-centric, and some argue it

does not give stakeholders equal power.

✅ In summary:

 Shareholder Value = Maximize shareholder wealth only.

 Stakeholder/Pluralist = Balance interests of all groups

(shareholders + others).

 Enlightened Shareholder = Shareholder wealth is priority, but

achieved by looking after stakeholders for long-term success.
WHISTLEBLOWING

1. What is Whistleblowing

Whistleblowing is the act of reporting unethical, illegal, or improper

activities within an organization by an employee or stakeholder. It is
usually done to prevent harm, protect stakeholders, or ensure compliance
with laws and ethical standards. Whistleblowers expose activities such as
fraud, corruption, environmental violations, or unsafe practices.

2. Six Importances of Whistleblowing

1. Promotes Accountability

Whistleblowing holds managers and employees responsible for their

actions. It ensures that wrongdoers cannot act with impunity. By exposing
misconduct, organizations reinforce a culture where everyone is
accountable.

2. Prevents Fraud and Corruption

Reporting suspicious or illegal activities can stop fraud, bribery, or

embezzlement early. This helps protect the company’s financial resources
and reputation.

3. Protects Stakeholders

Whistleblowing safeguards shareholders, employees, customers, and the

public from harm. For example, exposing unsafe work practices can
prevent accidents.

4. Encourages Ethical Culture

It promotes honesty, integrity, and transparency within the organization.

Employees see that unethical behavior will not be tolerated. Over time,
this strengthens trust and morale across the organization.

5. Compliance with Laws and Regulations

Whistleblowing helps organizations follow legal and regulatory

requirements. Reporting violations can prevent legal penalties and fines. It
ensures that the company operates within the law.

6. Enhances Corporate Reputation

Organizations that respond positively to whistleblowing are seen as
trustworthy and ethical. A good reputation attracts investors, customers,
and talented employees. Public trust increases when companies
demonstrate accountability and transparency.

3. Steps in the Whistleblowing Process

1. Recognition of Wrongdoing
The employee identifies unethical, illegal, or harmful behavior within
the organization. Awareness and observation of suspicious actions
are the first step.

2. Decision to Report
The whistleblower decides whether to report internally, externally,
or remain silent. They consider the seriousness of the issue,
potential risks, and channels available.

3. Reporting the Issue

The concern is reported to the appropriate authority, such as a line
manager, compliance officer, or dedicated whistleblowing hotline.
Some organizations allow anonymous reporting to protect the
whistleblower.

4. Investigation
The organization or an independent body investigates the
allegation. Evidence is collected, interviews conducted, and facts
verified to determine whether wrongdoing occurred.

5. Action and Resolution

If the claim is substantiated, the organization takes corrective
action, such as disciplining offenders, correcting errors, or changing
policies.

6. Protection of Whistleblower
Throughout the process, the whistleblower should be protected from
retaliation, harassment, or dismissal. Legal frameworks in many
countries ensure whistleblower confidentiality and protection.
CORPORATE SOCIAL RESPONSIBILITY

1. What is Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is when a company takes

care of society, the environment, and people while doing
business. It means the company goes beyond just making money and
tries to do good things for the community, its employees, customers, and
the environment.

Eight Reasons Why CSR is Important to Companies

1. Enhances Reputation and Brand Image

CSR makes the company look good in the eyes of customers, investors,
and the public. A good reputation attracts more people to trust and
support the business.

2. Builds Customer Loyalty

Customers like to buy from companies that care about people and the
environment. This keeps them coming back and recommending the
business to others.

3. Attracts and Retains Employees

Workers enjoy working for companies that do good things. CSR improves
morale, satisfaction, and reduces staff leaving the company.

4. Reduces Risks

By being responsible and ethical, companies avoid legal problems, fines,

and scandals. This protects their financial resources and reputation.

5. Promotes Long-Term Success.

CSR helps the company use resources wisely and plan for the future. This
makes the business more sustainable and resilient.
6. Attracts investors

Investors prefer companies that act responsibly. CSR shows the company
is trustworthy and less risky to invest in.

7. Encourages Community Support

CSR programs that benefit the local community build positive

relationships. Communities are more likely to support and cooperate with
the company.

8. Drives Innovation and Competitive Advantage

Trying to solve social and environmental problems can lead to new ideas,
products, or services. This gives the company an edge over competitors.
Organisation for Economic Co-operation and Development (OECD)

 OECD Principles aim to build trust, transparency,

accountability, and fairness in corporate governance, thereby
enhancing long-term investment, financial stability, and sustainable
growth.
 The OECD Principles of Corporate Governance are widely
recognized as an international benchmark for good corporate
governance practices.

PRINCIPLES

1. Ensuring the Basis for an Effective Corporate Governance

Framework

 Countries should have a sound legal, regulatory, and institutional

framework for corporate governance.

 The framework should promote transparent, fair, and efficient

markets.

 It should clearly define responsibilities among authorities

(government, regulators, exchanges).

2. Equitable Treatment of Shareholders

 They should have the right to obtain information, vote on major

issues, and participate in decisions (e.g., mergers, board elections).

 All shareholders, including minority and foreign investors, must be

treated fairly and protected against insider dealing and abusive
actions.

3. Institutional Investors, Stock Markets, and Other

Intermediaries

 Institutional investors (pension funds, insurance firms, asset

managers) should act in the best interest of beneficiaries.
  Stock markets and intermediaries should be transparent, fair, and
avoid conflicts of interest.

4. The Role of Stakeholders in Corporate Governance

 The governance system should recognize the rights of stakeholders

(employees, creditors, customers, suppliers, communities).

 Encourage cooperation between companies and stakeholders to

create sustainable enterprises.

 Protect whistleblowers and allow mechanisms for stakeholder

redress.

5. Disclosure and Transparency

 Companies should disclose timely and accurate information on all

material matters:

o Financial position and performance

o Ownership and control structures

o Board and executive remuneration

 Information must be accessible, reliable, and comparable.

6. The Responsibilities of the Board

 The board should provide strategic guidance, oversee management,

and ensure accountability.

 Key responsibilities include:

o Reviewing corporate strategy, risk policy, budgets, and

business plans

o Overseeing risk management and internal control systems

o Ensuring integrity in accounting and reporting systems

o Acting in the best interest of the company and shareholders,

while considering stakeholders
Institutional Investors (Definition)

Institutional investors are large organizations that invest money on

behalf of others. Instead of individuals directly buying shares or bonds,
these organizations pool funds from many people (or entities) and then
invest those funds in different financial assets such as stocks, bonds,
property, and other investments.

Examples of Institutional Investors

1. Pension funds – Manage retirement savings of workers and invest

them to generate long-term returns.

2. Insurance companies – Collect premiums and invest them to

ensure they can pay future claims.

3. Mutual funds & Unit trusts – Pool money from many small
investors and invest it collectively.

4. Sovereign wealth funds – State-owned investment funds that

invest excess national reserves.

5. Banks & investment firms – Invest both their own money and
that of clients.
Sure! Here’s a simple explanation of 8 main reasons for poor
corporate governance, each in 3 easy-to-understand sentences:

8 Main Reasons for Poor Corporate Governance

1. Weak Board Oversight

The board of directors may not actively supervise management.

Without proper oversight, executives can make poor decisions or act in
their own interest.
Example: Directors approving decisions without asking enough questions.

2. Conflict of Interest

Directors or managers may put personal interests above the company’s.

This can lead to unfair decisions, misuse of resources, or favoritism.
Example: Awarding contracts to family members or friends.

3. Lack of Transparency

Companies may hide information or fail to provide clear reports.

Shareholders and stakeholders cannot make informed decisions.
Example: Not disclosing related-party transactions or financial problems.

4. Poor Risk Management

Companies may fail to identify or manage risks.

This can lead to losses, scandals, or business failure.
Example: Ignoring financial or operational risks in new projects.

5. Weak Internal Controls

Internal control systems may be missing or ineffective.
This allows errors, fraud, or mismanagement to go unnoticed.
Example: No proper checks on cash handling or inventory.

6. Inexperienced or Ineffective Directors

Some directors may lack the skills, knowledge, or commitment needed.

They cannot challenge management or make good strategic decisions.
Example: NEDs unfamiliar with finance failing to spot accounting
problems.

7. Excessive Executive Power

Executives may dominate decision-making without proper checks.

This reduces accountability and can lead to abuse of power.
Example: CEO making major investments without board approval.

8. Poor Corporate Culture

A company may have a culture that ignores ethics or rules.

Employees may follow bad practices because “that’s how things are
done.”
Example: Encouraging aggressive sales targets even if it breaks laws.