OVERVIEW ON

CORPORATE
GOVERNANCE
Prepared by: Ms. Noor Shazwani Binti Baharum
 What is Corporate Governance?

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

by which a company is directed and controlled.
◦ It involves balancing the interests of a company's many stakeholders, such as
shareholders, management, customers, suppliers, financiers, government, and
the community.
◦ Corporate governance provides the framework for attaining a company’s
objectives and encompasses practically every sphere of management, from
action plans and internal controls to performance measurement and corporate
disclosure.

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 1. Board of Directors:
Key Role: The board of directors is responsible for
Component overseeing the company’s management and
ensuring that the company is managed in the
s of best interests of its shareholders and other
stakeholders.
Corporate Composition: Typically includes executive
Governance directors (such as the CEO) and non-executive
directors (independent directors).

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 2. Shareholders:

Key Shareholders are the owners of the company

and have the power to vote on important

Component issues, such as the election of the board of

directors and significant corporate policies.
s of 3. Management:

Corporate The management team, led by the CEO, is

responsible for the day-to-day operations of
Governance the company. They implement the board's
strategic plans and ensure the company
achieves its objectives.

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Key 4. Stakeholders:
Component Besides shareholders, other stakeholders

s of include employees, customers, suppliers, and

the community. Effective corporate
Corporate governance considers the interests of all
stakeholders.
Governance

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 ◦ Accountability: Management

Principles must be accountable to the board,

and the board must be

of accountable to shareholders.
◦ Transparency: Companies should
Corporate provide accurate and timely

Governanc disclosure of all material matters

regarding the corporation,

e including its financial situation,

performance, ownership, and
governance.

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 ◦ Fairness: All shareholders,
Principles including minority and foreign
shareholders, should be treated
of equitably.

Corporate ◦ Responsibility: The board and

management should assume
Governanc responsibility for their actions and
decisions, particularly in terms of
e the company’s financial health and
regulatory compliance.

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Why Corporate Governance?

◦ Ensuring Accountability
◦ Enhancing Transparency
◦ Protecting Stakeholders' Interests
◦ Improving Financial Performance
◦ Risk Management
◦ Enhancing Corporate Reputation

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Why Corporate Governance?

◦ Compliance with Laws and Regulations

◦ Facilitating Access to Capital
◦ Promoting Ethical Behavior
◦ Long-term Sustainability

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Benefits of Good Corporate
Governance
◦ Enhanced Reputation:Companies with good corporate governance
practices often enjoy a better reputation, which can attract investors and
enhance shareholder value.
◦ Risk Mitigation:Strong governance can help identify, manage, and
mitigate risks, ensuring the long-term sustainability of the business.
◦ Improved Performance:Effective governance can lead to improved
management and operational performance, benefiting all stakeholders.
◦ Investor Confidence:Good corporate governance builds investor trust and
can lead to a lower cost of capital and better access to funding.
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Challenges in Corporate
Governance
◦ Conflict of Interest:Directors and executives may face conflicts between
their personal interests and their duty to the company and its
shareholders.
◦ Regulatory Compliance:Ensuring compliance with various regulations and
standards can be complex and costly.
◦ Diverse Stakeholder Interests:Balancing the diverse and sometimes
conflicting interests of various stakeholders can be challenging.

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 ◦ National Laws and Regulations
Rules and ◦ Corporate Governance Codes and
Guidelines
Regulatio ◦ Regulatory Bodies and Standards
ns ◦ Best Practices and Voluntary
Codes

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1. National Laws and Regulations

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National Laws and Regulations

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National Laws and Regulations

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2. Corporate Governance Codes
and Guidelines

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2. Corporate Governance Codes
and Guidelines

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2. Corporate Governance Codes
and Guidelines

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3. Regulatory Bodies and
Standards

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3. Regulatory Bodies and
Standards

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3. Regulatory Bodies and
Standards

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4. Best Practices and Voluntary
Codes

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4. Best Practices and Voluntary
Codes

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The Evolution
Early Stages
• Pre-Industrial Era
• In the pre-industrial era, businesses were typically small and family-owned.
Governance was informal and often based on personal relationships.
• Industrial Revolution
• The Industrial Revolution led to the emergence of larger, publicly traded
companies. This necessitated more formal governance structures, including
boards of directors and management teams.

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The Evolution
20th Century
• Great Depression and Regulatory Reforms
• The Great Depression exposed the weaknesses of corporate governance
practices. In response, governments introduced various regulations, such as the
Securities Act of 1933 and the Securities Exchange Act of 1934 in the United
States, to improve corporate transparency and accountability.
• Rise of Shareholder Activism
• The 1960s and 1970s saw a rise in shareholder activism, as investors began to
demand greater involvement in corporate decision-making. This led to a shift in
focus from protecting shareholders' interests to promoting corporate social
responsibility.

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The Evolution
Late 20th and Early 21st Century
• Global Financial Crisis
• The global financial crisis of 2007-2008 highlighted the need for stronger
corporate governance standards. Governments and regulators around the world
implemented reforms to prevent future financial crises.
• Emphasis on Corporate Social Responsibility
• In recent years, there has been a growing emphasis on corporate social
responsibility (CSR). Companies are expected to not only maximize profits but
also contribute to the well-being of society and the environment.
• Technological Advancements
• Technological advancements, such as the internet and social media, have made it
easier for stakeholders to monitor and influence corporate behavior. This has led
to increased transparency and accountability. 26
Trends and Developments
1. Separation of Ownership and Management

• Rise of Publicly Traded Companies: As businesses grew larger and more

complex, the separation of ownership (shareholders) and management became
commonplace. This led to the need for formal governance structures to ensure
that managers acted in the best interests of shareholders.

• Agency Theory: This economic theory posits that there may be a conflict of
interest between managers and shareholders, as managers may prioritize their
own interests over those of the company. Corporate governance mechanisms are
designed to mitigate this agency problem.

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Trends and Developments
2. Regulatory Framework

• Government Intervention: Governments have played a crucial role in shaping

corporate governance standards through legislation and regulations. For
example, securities laws often mandate disclosure requirements, audit standards,
and insider trading restrictions.

• Regulatory Bodies: Regulatory bodies, such as the Securities and Exchange

Commission (SEC) in the United States, play a vital role in enforcing corporate
governance rules and protecting investor interests.

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Trends and Developments
3. Stakeholder Theory

• Beyond Shareholders: Stakeholder theory recognizes that corporations have

obligations to a broader range of stakeholders, including employees, customers,
suppliers, communities, and the environment. This has led to a shift in focus from
solely maximizing shareholder value to considering the interests of all
stakeholders.

• Corporate Social Responsibility (CSR): CSR initiatives have become

increasingly important as companies strive to balance economic, social, and
environmental objectives.

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Trends and Developments
4. International Standards

• Global Convergence: There has been a growing trend towards convergence of

corporate governance standards across different countries. Organizations like the
Organisation for Economic Co-operation and Development (OECD) and the
International Organization of Securities Commissions (IOSCO) have developed
principles and guidelines to promote global consistency.

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Trends and Developments
5. Technology and Innovation

• Transparency and Accountability: Technological advancements, such as the

internet and social media, have increased transparency and accountability in
corporate governance. Stakeholders can now more easily access information about
companies and hold them accountable for their actions.

• Data Analytics: Data analytics can be used to identify risks, improve decision-
making, and enhance corporate governance practices.

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END OF
SLIDES

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