Corporate governance
Malikov Abdulaiz BR-81
Objectives and importance of
corporate governance
 Corporate governance is the means by which a company is operated and
controlled.
 The aim of corporate governance is to ensure that companies are run well
in the interests of their shareholders, employees, and other key stakeholders
such as the wider community.
 The aim is to try and prevent company directors from abusing their power
which may adversely affect these stakeholder groups.
Good corporate governance principles
 Greater transparency
 Greater accountability
 Efficiency of operations
 Better able to respond to risks
 Less likely to be mismanaged.
Six principles were produced by the
Organisation for Economic Co-operation
and Development (OECD)
 Ensuring the basis of an effective corporate governance framework
 The rights of shareholders and key ownership functions
 The equitable treatment of shareholders
 The role of stakeholders in corporate governance
 Disclosure and transparency
 The responsibilities of the board.
Corporate governance structure
Board composition
It means that board decisions are not influenced by
one group of directors.
Executive
Headed up by
the CEO
Non-executive
Chairman
BoD
The roles of the chairman and CEO should be held by two separate people to
avoid concentration of power.
Chairmen’s vs CEO’s roles
 Head of the non-executive
directors;
 Ensures the effective operation of
the company.
 Enables flow of information and
discussion at board meetings;
 Head of the executive directors.
 Ensures satisfactory channels of
communication with the external
auditors;
 Ensures effective operation of
board sub-committees;
 The chairman should be
independent to enhance
effectiveness.
ED vs NED
 The ED have responsibility for
running the company on a day to
day basis.
 The NED monitor the executive
directors and contribute to the
overall strategy and direction of
the organisation;
 usually employed on a part-time
basis;
 do not take part in the routine
executive management of the
company.
Committees
Committees
Remuneration
committee
Risk
committee
Nomination
committee
Audit
Committee
Remuneration committee
 The role of the remuneration committee is to set the remuneration
packages for the ED.
 The committee should comprise NED
Advantages
 Decisions are based on agreement of several people, reducing the risk of
bribes from directors in return for a higher package.
 No director is involved in setting his own pay.
 Performance related elements will be included to avoid the risk that
directors are rewarded for poor performance.
Risk committee
The risk committee will be responsible:
 for advising the board on the company’s risk appetite;
 reviewing and approving the risk management strategy; and,
 advising the audit committee and board on risk exposures.