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Theories, Definitions, Models,

and Frameworks of CorporateGovernance

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Wikipedia

- is the set of processes, customs, policies, laws, and institutionsaffecting the way a corporation (or company) is directed,administered or controlled

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- is an internal system that encompasses polices, processes, people,and which makes sure the needs of shareholders and otherstakeholders are met in full. This will be accomplished by directingand controlling managing activities using good business practices,

objectivity, accountability and, of course, integrity. Effectivecorporate governance relies on certain laws to be passed, as wellas a certain commitment from the marketplace, and also a healthyboard culture, as this will make sure policies and processes remainconstant.

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Agency Theory

What Does Agency Theory Mean? A theory concerning the relationship between a principal(shareholder) and an agent of the principal (company's managers).

Investopedia explains Agency Theory Agency theory is a very academic term. Essentially it involves thecosts of resolving conflicts between the principals and agents andaligning interests of the two groups.

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Stak eholder Theory - the theory that it is possible for

an organization to promote the interests of itsshareholders without harming the interests of its otherstakeholders such as its employees, suppliers and thewider community

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Shareholders are stakeholders in a corporation,

but stakeholders are not always shareholders. A shareholder owns part of a company throughstock ownership, while a stakeholder is

interested in the performance of a company for

reasons other than just stock appreciation.

http://www.investopedia.com/ask/answers/08/difference-between-a-shareholder-and-a-stakeholder.asp

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St ew a rdship Theory

This theory is an alternative view of agency theory, inwhich managers are assumed to act in their own selfinterests at the expense of shareholders.

In American politics, the Stewardship theory is where apresident practices a governing style based on beliefthey have the duty to do whatever is necessary in

national interest, unless prohibited by the UnitedStates Constitution.

http://dictionary.sensagent.com/stewardship+theory/en-en/

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Ensuring the Basis for an EffectiveCorporate Governance Framework

- The corporate governance framework should promotetransparent and efficient markets, be consistent withthe rule of law and clearly articulate the division ofresponsibilities among different supervisory, regulatoryand enforcement authorities.

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T he Rights of Shareholders and Key

Ownership Functions- The corporate governance framework should protect andfacilitate the exercise of shareholders· rights.

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The Equitable Treatment of Shareholders

- The corporate governance framework should ensure theequitable treatment of all shareholders, includingminority and foreign shareholders. All shareholdersshould have the opportunity to obtain effective redressfor violation of their rights.

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T he Role of Stakeholders in CorporateGovernance

- The corporate governance framework should recognizethe rights of stakeholders established by law or throughmutual agreements and encourage active co-operationbetween corporations and stakeholders in creating

wealth, jobs, and the sustainability of financially soundenterprises.

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D isclosure and Transparency- The corporate governance framework should ensure that

timely and accurate disclosure is made on all materialmatters regarding the corporation, including thefinancial situation, performance, ownership, andgovernance of the company.

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T he Responsibilities of the Board

- The corporate governance framework should ensure thestrategic guidance of the company, the effectivemonitoring of management by the board, and theboard·s accountability to the company and theshareholders.

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F or Fu r ther Re a ding«F or Fu r ther Re a ding«V isit

http://www.inconsult.com.au/ Articles/Improving%20Your%20Corporate%20Governance

%20Framework.htm

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