CORPOTARE GOVERNANCEDEFINITION

• Goal • Stakeholders• Definitions• Other Views

3.GOAL OF CORPORATE GOVERNANCE

Linked to corporations or business enterprises, the goal of CG broadly is to strive for ensuring welfare of the corporations or business enterprises and stakeholders

4. STAKEHOLDERS

External Stakeholder Groups:• Shareholders• Debtholders• Trade Creditors• Suppliers• Customers• Communities affected by the

corporation’s activities (Continued…)

(..Continued) 5. STAKEHOLDERS

Internal Stakeholders• Board of Directors• Executives• Other Employees

6. DEFINING CORPORATE GOVERNANCE-1

Cadbury’s Definition:Most famous definition by Sir Adrian Cadbury provided in “Global Corporate Governance Forum” in 2000.“Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The Corporate Governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.”

7. DEFINING CORPORATE GOVERNANCE-2

Major moments of Cadbury’s definition 2000:• Balance between economic and social goals• Balance between individual and communal

goals• Efficient resource use• Accountability at different levels• Aligning optimally the interests of individuals,

corporations and society

8. DEFINING CORPORATE GOVERNANCE-3

Cadbury Committee’s Definition of CG 1992:

“The system by which companies are directed and controlled”. The system involves:

• Regulatory and market mechanisms• The roles and relationships between a company’s

management, its board, its shareholders, and other stakeholders; and

• The goals for which the corporation is governed

9. DEFINING CORPORATE GOVERNANCE-3 Public Accounts and Estimates Committee 2002:“Structures and processes for decision making, accountability, control and behavior at the governing body.”Major moments:• Confined within the activities, attitude and behavior of the governing body• Other stakeholder, as well as social and community concerns are not addressed•The need for corporations’ accountability to broader stakeholder segments and social responsibilities are not explicitly addressed

10. DEFINING CORPORATE GOVERNANCE-4

Pound 1995: “Corporate Governance is about ‘finding ways’ to ensure effective decision making.”

• Confined within decision making• Other social and community aspects are ignored• Accountability and transparency issues are not taken into account• The stakeholder participation aspect is ignored.

DEFINING CORPORATE GOVERNANCE-6

Neil Kokemuller:Corporate governance has traditionally been the way a corporation protects the interests of its shareholders and other financiers. However, with heightened attention on corporate social responsibility (CSR) in the 21st century, the definition of corporate governance has evolved. More focus goes to balancing shareholder interests with those of other key stakeholder groups, including customers, communities and suppliers.

DEFINING CORPORATE GOVERNANCE-7

Susan S. Davis:Corporate governance relates to complying with legal rules and regulations in a country or specific jurisdiction. Corporate governance issues address dilemmas in the context of business growth and prosperity. Corporate governance affects how a company's director, shareholder, stakeholders, regulators, suppliers and employees' interests may be best expressed, aligned and reconciled. (cont..)

DEFINING CORPORATE GOVERNANCE-8

Susan S. Davis:Worldwide corporate governance includes regulatory influences and solutions devised to correct and prevent perceived economics system defects across the globe. Issues such as cost controls and fair trade are addressed so as to support regional and local initiatives that may improve the economic climate of low- and middle-income countries. The goal is to create an optimal governance system that serves to balance the benefits of reducing costs without creating guidelines that are so stringent as to interfere with overall economic growth.

11. DEFINING CORPORATE GOVERNANCE-8

In a nutshell Corporate Governance needs to ensure conditions whereby a firm’s directors and managers are held accountable to all stakeholders, and continuously strive to ensure effective protection to all stakeholder interests and rights.

12. OTHER VIEWS

• Some of the social scientists, such as Koccurek (2003) believe that to counter the accounting, leadership, and governance scandals, organizations are rushing to institutionalize Corporate Governance, which may even be counterproductive. • The corporations generally view governance as a legal challenge rather than a way to improve performance.• Governance should begin inside the boardroom, among the directors