Corporate Governance Principles

Corporate Governance

Definition

• Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.
• It involves the relationships between a company's management, board of directors, shareholders, and stakeholders.

Key Principles

• Accountability: The board of directors is accountable to the company and its shareholders.
• Transparency: The company's activities and decisions should be transparent and disclosed to stakeholders.
• Fairness: The company should treat all stakeholders fairly and equally.
• Responsibility: The board of directors and management should act in the best interests of the company and its stakeholders.
• Stewardship: The board of directors and management should act as stewards of the company's assets.

Board of Directors

• Roles and Responsibilities:
  • Set the company's strategy and direction
  • Oversee the management of the company
  • Ensure compliance with laws and regulations
  • Make key decisions on behalf of the company
• Composition:
  • Independent directors
  • Executive directors
  • Non-executive directors
  • Chairperson

Shareholders

• Rights:
  • Right to vote on company matters
  • Right to receive dividends
  • Right to inspect company records
  • Right to attend general meetings
• Role:
  • Provide capital to the company
  • Hold the board of directors and management accountable

Stakeholders

• Definition: Any individual or group that has a vested interest in the company's success.
• Examples:
  • Employees
  • Customers
  • Suppliers
  • Creditors
  • Environment
  • Community

Corporate Governance Models

• Anglo-American Model: Focuses on shareholder value and profit maximization.
• German Model: Emphasizes co-determination and worker participation.
• Japanese Model: Focuses on long-term relationships and social responsibility.

Corporate Governance Codes

• Definition: A set of guidelines or principles that outline the company's governance practices.
• Examples:
  • UK Corporate Governance Code
  • US Sarbanes-Oxley Act
  • Australian Securities Exchange (ASX) Corporate Governance Council Principles

Corporate Governance

Definition

• Corporate governance is the system of rules, practices, and processes that direct and control a company, involving relationships between management, the board of directors, shareholders, and stakeholders.

Key Principles

Accountability

• The board of directors is accountable to the company and its shareholders.

Transparency

• The company's activities and decisions should be transparent and disclosed to stakeholders.

Fairness

• The company should treat all stakeholders fairly and equally.

Responsibility

• The board of directors and management should act in the best interests of the company and its stakeholders.

Stewardship

• The board of directors and management should act as stewards of the company's assets.

Board of Directors

• Sets the company's strategy and direction
• Oversees the management of the company
• Ensures compliance with laws and regulations
• Makes key decisions on behalf of the company
• Comprises:
  • Independent directors
  • Executive directors
  • Non-executive directors
  • Chairperson

Shareholders

Rights

• Right to vote on company matters
• Right to receive dividends
• Right to inspect company records
• Right to attend general meetings

Role

• Provide capital to the company
• Hold the board of directors and management accountable

Stakeholders

Definition

• Any individual or group with a vested interest in the company's success.

Examples

• Employees
• Customers
• Suppliers
• Creditors
• Environment
• Community

Corporate Governance Models

Anglo-American Model

• Focuses on shareholder value and profit maximization.

German Model

• Emphasizes co-determination and worker participation.

Japanese Model

• Focuses on long-term relationships and social responsibility.

Corporate Governance Codes

Definition

• A set of guidelines or principles outlining the company's governance practices.

Examples

• UK Corporate Governance Code
• US Sarbanes-Oxley Act
• Australian Securities Exchange (ASX) Corporate Governance Council Principles

Share Capital

Definition

• Represents the amount of money raised by a company through issuing shares to its shareholders

Types of Share Capital

• Authorized Share Capital: Maximum amount of share capital a company can issue, stated in its Memorandum of Association
• Issued Share Capital: Amount of share capital issued to shareholders
• Called-Up Share Capital: Amount of share capital called up by the company from its shareholders
• Paid-Up Share Capital: Amount of share capital paid up by shareholders

Classes of Shares

• Ordinary Shares: Carry voting rights and are entitled to dividends
• Preference Shares: Have a fixed dividend rate and priority over ordinary shares in winding up
• Deferred Shares: Have a lower claim on assets and dividends compared to ordinary shares

Issue of Shares

• Private Placement: Issue of shares to a select group of people
• Public Issue: Issue of shares to the general public through a prospectus
• Rights Issue: Issue of shares to existing shareholders in proportion to their existing holdings

Alteration of Share Capital

• Increase in Authorized Share Capital: Requires approval from shareholders in a general meeting
• Reduction of Share Capital: Requires approval from the court and fulfillment of certain conditions

Dividend Payment

• Interim Dividend: Dividend paid out of profits during the financial year
• Final Dividend: Dividend paid out of profits at the end of the financial year
• Dividend Distribution: Dividend paid out of profits, subject to certain restrictions