Adarsh

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adarshadarshIIIIndnd BBA BBA

Corporate GovernanceCorporate Governance

Corporate governanceCorporate governance is "the system by is "the system by which companies are directed and controlled". It which companies are directed and controlled". It involves regulatory and market mechanisms, and the involves regulatory and market mechanisms, and the roles and relationships between a company’s roles and relationships between a company’s management, its board, its shareholders and other management, its board, its shareholders and other stakeholdersstakeholders, and the goals for which the corporation , and the goals for which the corporation is governed. In contemporary business corporations, is governed. In contemporary business corporations, the main external stakeholder groups are the main external stakeholder groups are shareholders, debtholders, trade shareholders, debtholders, trade creditorscreditors, suppliers, , suppliers, customers and communities affected by the customers and communities affected by the corporation's activities. Internal stakeholders are the corporation's activities. Internal stakeholders are the board of directorsboard of directors, , executivesexecutives, and other employees., and other employees.

INTRODUCTIONINTRODUCTION

There has been renewed interest in the There has been renewed interest in the corporate governance practices of modern corporate governance practices of modern corporations, particularly in relation to accountability, corporations, particularly in relation to accountability, since the high-profile collapses of a number of large since the high-profile collapses of a number of large corporations during 2001-2002, most of which corporations during 2001-2002, most of which involved accounting fraud.involved accounting fraud.[4][4] Corporate scandalsCorporate scandals of of various forms have maintained public and political various forms have maintained public and political interest in the regulation of corporate governance. In interest in the regulation of corporate governance. In the U.S., these include the U.S., these include Enron CorporationEnron Corporation and and MCI Inc.MCI Inc. (formerly WorldCom). Their demise is associated with (formerly WorldCom). Their demise is associated with the the U.S. federal governmentU.S. federal government passing the passing the Sarbanes-Oxley ActSarbanes-Oxley Act in 2002, intending to restore in 2002, intending to restore public confidence in corporate governance. public confidence in corporate governance. Comparable failures in Australia (Comparable failures in Australia (HIHHIH, , One.TelOne.Tel) are ) are associated with the eventual passage of the associated with the eventual passage of the CLERP 9CLERP 9 reforms. Similar corporate failures in other countries reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g., stimulated increased regulatory interest (e.g., ParmalatParmalat in Italy). in Italy).

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.Interests of other stake holders: Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment

PRINCIPLES OF CORPORATE GOVERNANCE

Integrity and ethical behaviorIntegrity and ethical behavior:Integrity should be a :Integrity should be a fundamental requirement in choosing corporate officers and board fundamental requirement in choosing corporate officers and board

members. Organizations should develop a code of conduct for their members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible directors and executives that promotes ethical and responsible decision making. decision making. Disclosure and transparencyDisclosure and transparency: Organizations should clarify and : Organizations should clarify and make publicly known the roles and responsibilities of board and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to be timely and balanced to ensure that all investors have access to clear, factual information. clear, factual information.

Continental EuropeContinental Europe Some continental European countries, including Germany and the Some continental European countries, including Germany and the

Netherlands, require a two-tiered Board of Directors as a means of Netherlands, require a two-tiered Board of Directors as a means of improving corporate governance.improving corporate governance.[20][20] In the two-tiered board, the In the two-tiered board, the Executive Board, made up of company executives, generally runs day-Executive Board, made up of company executives, generally runs day-to-day operations while the supervisory board, made up entirely of non-to-day operations while the supervisory board, made up entirely of non-executive directors who represent shareholders and employees, hires executive directors who represent shareholders and employees, hires and fires the members of the executive board, determines their and fires the members of the executive board, determines their compensation, and reviews major business decisions.compensation, and reviews major business decisions.[21][21] See also See also AktiengesellschaftAktiengesellschaft..

IndiaIndia India's India's SEBISEBI Committee on Corporate Governance defines corporate Committee on Corporate Governance defines corporate

governance as the "acceptance by management of the inalienable rights governance as the "acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company."between personal & corporate funds in the management of a company."[22][22] It has been suggested that the Indian approach is drawn from the It has been suggested that the Indian approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution, but this conceptualization of corporate objectives is Indian Constitution, but this conceptualization of corporate objectives is also prevalent in also prevalent in Anglo-AmericanAnglo-American and most other jurisdictions. and most other jurisdictions.

CORPORATE GOVERNANCE MODELS AROUND THE CORPORATE GOVERNANCE MODELS AROUND THE WORLDWORLD

United States, United KingdomUnited States, United Kingdom The so-called "Anglo-American model" of corporate governance The so-called "Anglo-American model" of corporate governance

emphasizes the interests of shareholders. It relies on a single-emphasizes the interests of shareholders. It relies on a single-tiered Board of Directors that is normally dominated by non-tiered Board of Directors that is normally dominated by non-executive directors elected by shareholders. Because of this, it is executive directors elected by shareholders. Because of this, it is also known as "the unitary system. Within this system, many also known as "the unitary system. Within this system, many boards include some executives from the company (who are ex boards include some executives from the company (who are ex officio members of the board). Non-executive directors are officio members of the board). Non-executive directors are expected to outnumber executive directors and hold key posts, expected to outnumber executive directors and hold key posts, including audit and compensation committees. The United States including audit and compensation committees. The United States and the United Kingdom differ in one critical respect with regard to and the United Kingdom differ in one critical respect with regard to corporate governance: In the United Kingdom, the CEO generally corporate governance: In the United Kingdom, the CEO generally does not also serve as Chairman of the Board, whereas in the US does not also serve as Chairman of the Board, whereas in the US having the dual role is the norm, despite major misgivings having the dual role is the norm, despite major misgivings regarding the impact on corporate governance.regarding the impact on corporate governance.

In the United States, corporations are directly governed by In the United States, corporations are directly governed by state laws, while the exchange (offering and trading) of securities state laws, while the exchange (offering and trading) of securities in corporations (including shares) is governed by federal in corporations (including shares) is governed by federal legislation. Many US states have adopted the legislation. Many US states have adopted the Model Business Corporation ActModel Business Corporation Act, but the dominant state law for , but the dominant state law for publicly-traded corporations is publicly-traded corporations is DelawareDelaware, which continues to be the , which continues to be the place of incorporation for the majority of publicly-traded place of incorporation for the majority of publicly-traded corporations.corporations.[26][26] Individual rules for corporations are based upon Individual rules for corporations are based upon the the corporate chartercorporate charter and, less authoritatively, the corporate and, less authoritatively, the corporate bylawsbylaws..[26][26] Shareholders cannot initiate changes in the corporate Shareholders cannot initiate changes in the corporate charter although they can initiate changes to the corporate bylaws.charter although they can initiate changes to the corporate bylaws.

REGULATIONREGULATIONLegal environment - GeneralLegal environment - General Corporations are created as Corporations are created as legal personslegal persons by the laws and by the laws and

regulations of a particular jurisdiction. These may vary in many regulations of a particular jurisdiction. These may vary in many respects between countries, but a corporation's legal person respects between countries, but a corporation's legal person status is fundamental to all jurisdictions and is conferred by status is fundamental to all jurisdictions and is conferred by statute. This allows the entity to hold property in its own right statute. This allows the entity to hold property in its own right without reference to any particular real person. It also results in without reference to any particular real person. It also results in the perpetual existence that characterizes the modern the perpetual existence that characterizes the modern corporation. The statutory granting of corporate existence may corporation. The statutory granting of corporate existence may arise from general purpose legislation (which is the general arise from general purpose legislation (which is the general case) or from a statute to create a specific corporation, which case) or from a statute to create a specific corporation, which was the only method prior to the 19th century.[was the only method prior to the 19th century.[citationcitation needed needed]]

In addition to the statutory laws of the relevant In addition to the statutory laws of the relevant jurisdiction, corporations are subject to jurisdiction, corporations are subject to common lawcommon law in some in some countries, and various laws and regulations affecting business countries, and various laws and regulations affecting business practices. In most jurisdictions, corporations also have a practices. In most jurisdictions, corporations also have a constitution that provides individual rules that govern the constitution that provides individual rules that govern the corporation and authorize or constrain its decision-makers. This corporation and authorize or constrain its decision-makers. This constitution is identified by a variety of terms; in English-constitution is identified by a variety of terms; in English-speaking jurisdictions, it is usually known as the Corporate speaking jurisdictions, it is usually known as the Corporate Charter or the [Memorandum and] Articles of Association. The Charter or the [Memorandum and] Articles of Association. The capacity of shareholders to modify the constitution of their capacity of shareholders to modify the constitution of their corporation can vary substantially.corporation can vary substantially.

CODES AND GUIDELINESCODES AND GUIDELINES

One of the most influential guidelines has been One of the most influential guidelines has been the the OECDOECD Principles of Corporate Governance— Principles of Corporate Governance—published in 1999 and revised in 2004. The OECD published in 1999 and revised in 2004. The OECD guidelines are often referenced by countries guidelines are often referenced by countries developing local codes or guidelines. Building on the developing local codes or guidelines. Building on the work of the OECD, other international organizations, work of the OECD, other international organizations, private sector associations and more than 20 national private sector associations and more than 20 national corporate governance codes formed the corporate governance codes formed the United NationsUnited Nations Intergovernmental Working Group of Experts on InternIntergovernmental Working Group of Experts on International Standards of Accounting and Reportingational Standards of Accounting and Reporting (ISAR) to produce their Guidance on Good Practices in (ISAR) to produce their Guidance on Good Practices in Corporate Governance Disclosure. This internationally Corporate Governance Disclosure. This internationally agreed benchmark consists of more than fifty distinct agreed benchmark consists of more than fifty distinct disclosure items across five broad categories:disclosure items across five broad categories:

AuditingAuditing Board and management structure and processBoard and management structure and process Corporate responsibility and complianceCorporate responsibility and compliance Financial transparency and information disclosureFinancial transparency and information disclosure Ownership structure and exercise of control rightsOwnership structure and exercise of control rights The investor-led organization International Corporate The investor-led organization International Corporate

Governance Network (ICGN) was set up by individuals Governance Network (ICGN) was set up by individuals centered around the ten largest pension funds in the world centered around the ten largest pension funds in the world 1995. The aim is to promote global corporate governance 1995. The aim is to promote global corporate governance standards. The network is led by investors that manage 18 standards. The network is led by investors that manage 18 trillion dollars and members are located in fifty different trillion dollars and members are located in fifty different countries. ICGN has developed a suite of global guidelines countries. ICGN has developed a suite of global guidelines ranging from shareholder rights to business ethics.ranging from shareholder rights to business ethics.

The The World Business Council for Sustainable DevelopmentWorld Business Council for Sustainable Development (WBCSD) has done work on corporate governance, (WBCSD) has done work on corporate governance, particularly on particularly on accountability and reportingaccountability and reporting, and in 2004 , and in 2004 released released Issue Management Tool: Strategic challenges for business inIssue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and fr the use of corporate responsibility codes, standards, and frameworksameworks. This document offers general information and a . This document offers general information and a perspective from a business association/think-tank on a few perspective from a business association/think-tank on a few key codes, standards and frameworks relevant to the key codes, standards and frameworks relevant to the sustainability agenda.sustainability agenda.

In 2009, the International Finance Corporation and In 2009, the International Finance Corporation and the UN Global Compact released a report, the UN Global Compact released a report, Corporate Governance - the Foundation for CorporatCorporate Governance - the Foundation for Corporate Citizenship and Sustainable Businesse Citizenship and Sustainable Business, linking the environmental, social and governance , linking the environmental, social and governance responsibilities of a company to its financial responsibilities of a company to its financial performance and long-term sustainability.performance and long-term sustainability.

Most codes are largely voluntary. An issue raised in Most codes are largely voluntary. An issue raised in the U.S. since the 2005 Disney decision is the the U.S. since the 2005 Disney decision is the degree to which companies manage their degree to which companies manage their governance responsibilities; in other words, do they governance responsibilities; in other words, do they merely try to supersede the legal threshold, or merely try to supersede the legal threshold, or should they create governance guidelines that should they create governance guidelines that ascend to the level of best practice. For example, ascend to the level of best practice. For example, the guidelines issued by associations of directors, the guidelines issued by associations of directors, corporate managers and individual companies tend corporate managers and individual companies tend to be wholly voluntary but such documents may to be wholly voluntary but such documents may have a wider effect by prompting other companies to have a wider effect by prompting other companies to adopt similar practices.adopt similar practices.

PARTIES TO CORPORATE GOVERNANCEPARTIES TO CORPORATE GOVERNANCE The most influential parties involved in corporate governance The most influential parties involved in corporate governance

include government agencies and authorities, stock include government agencies and authorities, stock exchanges, management (including the board of directors and exchanges, management (including the board of directors and its chair, the its chair, the Chief Executive OfficerChief Executive Officer or the equivalent, other or the equivalent, other executives and line management, shareholders and auditors). executives and line management, shareholders and auditors). Other influential stakeholders may include lenders, suppliers, Other influential stakeholders may include lenders, suppliers, employees, creditors, customers and the community at large.employees, creditors, customers and the community at large.

All parties to corporate governance have an interest, whether All parties to corporate governance have an interest, whether direct or indirect, in the direct or indirect, in the financial performancefinancial performance of the of the corporation. Directors, workers and management receive corporation. Directors, workers and management receive salaries, benefits and reputation, while investors expect to salaries, benefits and reputation, while investors expect to receive financial returns. For lenders, it is specified interest receive financial returns. For lenders, it is specified interest payments, while returns to equity investors arise from dividend payments, while returns to equity investors arise from dividend distributions or capital gains on their stock. Customers are distributions or capital gains on their stock. Customers are concerned with the certainty of the provision of goods and concerned with the certainty of the provision of goods and services of an appropriate quality; suppliers are concerned services of an appropriate quality; suppliers are concerned with compensation for their goods or services, and possible with compensation for their goods or services, and possible continued trading relationships. These parties provide value to continued trading relationships. These parties provide value to the corporation in the form of financial, physical, human and the corporation in the form of financial, physical, human and other forms of capital. Many parties may also be concerned other forms of capital. Many parties may also be concerned with with corporate social performancecorporate social performance..

MECHANISMS AND CONTROLSMECHANISMS AND CONTROLS

Corporate governance mechanisms and Corporate governance mechanisms and controls are designed to reduce the controls are designed to reduce the inefficiencies that arise from inefficiencies that arise from moral hazardmoral hazard and and adverse selectionadverse selection. For example, to . For example, to monitor managers' behavior, an monitor managers' behavior, an independent third party (the independent third party (the external auditorexternal auditor) attests the accuracy of information ) attests the accuracy of information provided by management to investors. An provided by management to investors. An ideal control system should regulate both ideal control system should regulate both motivation and ability.motivation and ability.

Monitoring by the board of directorsMonitoring by the board of directors: The board of directors, with : The board of directors, with its legal authority to hire, fire and compensate top management, its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, that lead to financial performance outcomes, ex anteex ante. It could be . It could be argued, therefore, that executive directors look beyond the financial argued, therefore, that executive directors look beyond the financial criteria.criteria.

Internal control procedures and internal auditorsInternal control procedures and internal auditors: Internal control : Internal control procedures are policies implemented by an entity's board of directors, procedures are policies implemented by an entity's board of directors, audit committee, management, and other personnel to provide audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity's organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting.internal control procedures and the reliability of its financial reporting.

INTERNAL CORPORATE GOVERNANCE CONTROLSINTERNAL CORPORATE GOVERNANCE CONTROLS

Balance of powerBalance of power: The simplest balance of power is very : The simplest balance of power is very common; require that the President be a different person common; require that the President be a different person from the Treasurer. This application of separation of power from the Treasurer. This application of separation of power is further developed in companies where separate divisions is further developed in companies where separate divisions check and balance each other's actions. One group may check and balance each other's actions. One group may propose company-wide administrative changes, another propose company-wide administrative changes, another group review and can veto the changes, and a third group group review and can veto the changes, and a third group check that the interests of people (customers, check that the interests of people (customers, shareholders, employees) outside the three groups are shareholders, employees) outside the three groups are being met.being met.

RemunerationRemuneration: Performance-based remuneration is : Performance-based remuneration is designed to relate some proportion of salary to individual designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash performance. It may be in the form of cash or non-cash payments such as payments such as sharesshares and and share optionsshare options, , superannuationsuperannuation or other benefits. Such incentive schemes, or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic mechanism for preventing mistakes or opportunistic behavior, and can elicit myopic behavior.behavior, and can elicit myopic behavior.

Monitoring by large shareholdersMonitoring by large shareholders and/or and/or monitoring monitoring by banks and other large creditorsby banks and other large creditors: Given their large : Given their large investment in the firm, these stakeholders have the investment in the firm, these stakeholders have the incentives, combined with the right degree of control and incentives, combined with the right degree of control and power, to monitor the management.power, to monitor the management.

External corporate governance controlsExternal corporate governance controls External corporate governance controls External corporate governance controls

encompass the controls external encompass the controls external stakeholders exercise over the organization. stakeholders exercise over the organization. Examples include:Examples include:

CompetitionCompetition Debt covenantsDebt covenants Demand for and assessment of performance Demand for and assessment of performance

information (especially information (especially financial statementsfinancial statements)) Government regulationsGovernment regulations Managerial labour marketManagerial labour market Media pressureMedia pressure TakeoversTakeovers

INTERNAL CORPORATE GOVERNANCE CONTROLSINTERNAL CORPORATE GOVERNANCE CONTROLS

SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCESYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE

Demand for information: In order to influence the directors, Demand for information: In order to influence the directors, the shareholders must combine with others to form a the shareholders must combine with others to form a voting group which can pose a real threat of carrying voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.resolutions or appointing directors at a general meeting.

Monitoring costs: A barrier to shareholders using good Monitoring costs: A barrier to shareholders using good information is the cost of processing it, especially to a information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is small shareholder. The traditional answer to this problem is the the efficient market hypothesisefficient market hypothesis (in finance, the efficient (in finance, the efficient market hypothesis (EMH) asserts that financial markets are market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will efficient), which suggests that the small shareholder will free ride on the judgments of larger professional investors.free ride on the judgments of larger professional investors.

Supply of accounting information: Financial accounts form Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the governance. This should, ideally, be corrected by the working of the external auditing process.working of the external auditing process.

EXECUTIVE REMUNERATION/COMPENSATIONEXECUTIVE REMUNERATION/COMPENSATION

Research on the relationship between firm performance and Research on the relationship between firm performance and executive compensationexecutive compensation does not identify consistent and significant does not identify consistent and significant relationships between executives' remuneration and firm performance. relationships between executives' remuneration and firm performance. Not all firms experience the same levels of agency conflict, and Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for external and internal monitoring devices may be more effective for some than for others.some than for others.

Some researchers have found that the largest CEO performance Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The results firm performance was dependent on the level of ownership. The results suggest that increases in ownership above 20% cause management to suggest that increases in ownership above 20% cause management to become more entrenched, and less interested in the welfare of their become more entrenched, and less interested in the welfare of their shareholders.shareholders.

Some argue that firm performance is positively associated with share Some argue that firm performance is positively associated with share optionoption plans and that these plans direct managers' energies and plans and that these plans direct managers' energies and extend their decision horizons toward the long-term, rather than the extend their decision horizons toward the long-term, rather than the short-term, performance of the company. However, that point of view short-term, performance of the company. However, that point of view came under substantial criticism circa in the wake of various security came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of academic Erik Lie and reported by James Blander and Charles Forelle of the the Wall Street JournalWall Street Journal..

Even before the negative influence on public opinion Even before the negative influence on public opinion caused by the 2006 backdating scandal, use of options caused by the 2006 backdating scandal, use of options faced various criticisms. A particularly forceful and long faced various criticisms. A particularly forceful and long running argument concerned the interaction of executive running argument concerned the interaction of executive options with corporate stock repurchase programs. options with corporate stock repurchase programs. Numerous authorities (including U.S. Federal Reserve Numerous authorities (including U.S. Federal Reserve Board economist Weisbenner) determined options may Board economist Weisbenner) determined options may be employed in concert with stock buybacks in a manner be employed in concert with stock buybacks in a manner contrary to shareholder interests. These authors argued contrary to shareholder interests. These authors argued that, in part, corporate stock buybacks for U.S. Standard that, in part, corporate stock buybacks for U.S. Standard & Poors 500 companies surged to a $500 billion annual & Poors 500 companies surged to a $500 billion annual rate in late 2006 because of the impact of options. A rate in late 2006 because of the impact of options. A compendium of academic works on the option/buyback compendium of academic works on the option/buyback issue is included in the study issue is included in the study ScandalScandal by author by author M. M. GumportGumport issued in 2006. issued in 2006.

A combination of accounting changes and governance A combination of accounting changes and governance issues led options to become a less popular means of issues led options to become a less popular means of remuneration as 2006 progressed, and various remuneration as 2006 progressed, and various alternative implementations of buybacks surfaced to alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash challenge the dominance of "open market" cash buybacks as the preferred means of implementing a buybacks as the preferred means of implementing a share repurchaseshare repurchase plan. plan.

CONCLUSIONCONCLUSION The questionnaire survey shows that diffused ownership is relatively The questionnaire survey shows that diffused ownership is relatively

rare in all the countries under study except for Malaysia. Professional rare in all the countries under study except for Malaysia. Professional managers in CEO positions are found in less than 60% of the managers in CEO positions are found in less than 60% of the Malaysian firms and only in 40-50% of the respondent firms in three Malaysian firms and only in 40-50% of the respondent firms in three other countries. This confirms that the major corporate governance other countries. This confirms that the major corporate governance concern in listed firms is indeed to prevent controlling owners from concern in listed firms is indeed to prevent controlling owners from expropriating minority shareholders.expropriating minority shareholders.

The surveyed firms are doing relatively well in recognizing the rights The surveyed firms are doing relatively well in recognizing the rights of shareholders. This may be due to the fairly elaborate laws and of shareholders. This may be due to the fairly elaborate laws and regulations on shareholders’ rights and the operation of shareholders’ regulations on shareholders’ rights and the operation of shareholders’ meetings. Nevertheless, there is substantial room for improvement. meetings. Nevertheless, there is substantial room for improvement. Given the high ownership concentration in most firms, for minority Given the high ownership concentration in most firms, for minority shareholders to address their concerns by calling a special shareholders to address their concerns by calling a special shareholders’ meeting or putting issues on a meeting agenda seems shareholders’ meeting or putting issues on a meeting agenda seems to be difficult. Shareholders are inadequately protected with such to be difficult. Shareholders are inadequately protected with such rights as priority capital subscription, approval of major related-party rights as priority capital subscription, approval of major related-party transactions, and dissenters’ rights. Moreover, voting by mail is transactions, and dissenters’ rights. Moreover, voting by mail is largely unavailable, and minority shareholders seem to take little part largely unavailable, and minority shareholders seem to take little part in the process of selecting board members. Sample firms perform in the process of selecting board members. Sample firms perform relatively poorly in relation to information disclosure and relatively poorly in relation to information disclosure and transparency, particularly for matters potentially involving selfdealing transparency, particularly for matters potentially involving selfdealing or other conflicts of interest. In Indonesia and Thailand, web sites are or other conflicts of interest. In Indonesia and Thailand, web sites are not yet fully utilized as a way to disclose information in a timely not yet fully utilized as a way to disclose information in a timely manner and enhance transparency. manner and enhance transparency.

REFERENCESREFERENCES (Cadbury Committee, 1992) European (Cadbury Committee, 1992) European

Corporate Governance InstituteCorporate Governance Institute aa bb "OECD Principles of Corporate "OECD Principles of Corporate

Governance, 2004". Governance, 2004". OECDOECD. . http://www.oecd.org/dataoecd/32/18/31557http://www.oecd.org/dataoecd/32/18/31557724.pdf. Retrieved 2011-07-20.724.pdf. Retrieved 2011-07-20.

Tricker, Adrian, Tricker, Adrian, Essentials for Board Essentials for Board Directors: An A-Z GuideDirectors: An A-Z Guide, Bloomberg Press, , Bloomberg Press, New York, 2009, ISBN 978-1-57660-354-3New York, 2009, ISBN 978-1-57660-354-3