CG I

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Financial DisclosureFinancial Disclosureand Corporateand Corporate

GovernanceGovernance

(PGDM-302)(PGDM-302)

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Topic-ITopic-I

Defi ni tio n , Ro le and im po rt anceefi ni tio n , Ro le and im po rt anceoffCor porat e go ve rnanc eor porat e go ve rnanc e

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Corp or ate g overn anceorp or ate g overn ance Co rp orate go vern anceo rp orate go vern ance is the set of processes, customs, policies,is the set of processes, customs, policies,laws, and institutions affecting the way a corporation (or company) islaws, and institutions affecting the way a corporation (or company) is

directed, administered or controlled.directed, administered or controlled.

It is the system by which companies are directed and controlled.It is the system by which companies are directed and controlled.Boards of directors are responsible for the governance of theirBoards of directors are responsible for the governance of their

companies. The stockholders' role in governance is to appoint thecompanies. The stockholders' role in governance is to appoint thedirectors...directors...

Corporate governance also includes the relationships among the manyCorporate governance also includes the relationships among the manystakeholders involved and the goals for which the corporation isstakeholders involved and the goals for which the corporation isgoverned.governed.

The principal stakeholders are the shareholders/members,The principal stakeholders are the shareholders/members,

management, and the board of directors. Other stakeholders includemanagement, and the board of directors. Other stakeholders includelabor (employees), customers, creditors (e.g., banks, bond holders),labor (employees), customers, creditors (e.g., banks, bond holders),suppliers, regulators, and the community at large.suppliers, regulators, and the community at large.

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Topic IITopic II

Pr inc ipl es of Cor por at e Gove rnanc er inc ipl es of Cor por at e Gove rnanc e

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Gen eral Pr inc ipl es o f C orp or ateen eral Pr inc ipl es o f C orp or ateGovernanceovernance Key elements of good corporate governanceKey elements of good corporate governance

principles includeprinciples include HonestyHonesty TrustTrust OpennessOpenness Performance orientationPerformance orientation Responsibility and accountabilityResponsibility and accountability Mutual respectMutual respect Commitment to the organization.Commitment to the organization.

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Commonly accepted principles ofCommonly accepted principles of

corporate governance include:corporate governance include:1 Ri ght s and eq uita bl e trea tmen t of sh ar eh old er sRi ght s and eq uita bl e trea tmen t of sh ar eh old er s ::

SShareholders are principal people for whom the corporationis run. Organizations should respect the rights ofOrganizations should respect the rights ofshareholders and help shareholders to exercise those rights.shareholders and help shareholders to exercise those rights.

They can help shareholders exercise their rights byThey can help shareholders exercise their rights byeffectively communicating information that iseffectively communicating information that isunderstandable and accessible and encouragingunderstandable and accessible and encouragingshareholders to participate in general meetings.shareholders to participate in general meetings.

2 Int ere st s of other st akeh old er sInt ere st s of other st akeh old er s :: the second principle isthat the corporation should be run for the benefit of otherinterest groups. Organizations should recognize that theyOrganizations should recognize that theyhave legal and other obligations to all legitimatehave legal and other obligations to all legitimate

stakeholders.stakeholders.

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3 R ole a nd r esponsi bi lit ies of th e boa rdR ole a nd responsi bi lit ies of th e boa rd :: TheTheboard needs a range of skills and understanding toboard needs a range of skills and understanding tobe able to deal with various business issues andbe able to deal with various business issues and

have the ability to review and challengehave the ability to review and challengemanagement performance. It needs to be ofmanagement performance. It needs to be ofsufficient size and have an appropriate level ofsufficient size and have an appropriate level ofcommitment to fulfill its responsibilities and duties.commitment to fulfill its responsibilities and duties.

4 Int egr it y a nd eth ica l beha viorInt egr it y a nd eth ica l beha vior :: Ethical andEthical andresponsible decision making is also a necessaryresponsible decision making is also a necessaryelement. Organizations should develop a code ofelement. Organizations should develop a code ofconduct for their directors and executives thatconduct for their directors and executives thatpromotes ethical and responsible decision making.promotes ethical and responsible decision making.

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5 D is clo sure and tra nspa renc yD is clo sure and tra nspa renc y ::Organizations should clarify the roles andOrganizations should clarify the roles and

responsibilities of board and management to provideresponsibilities of board and management to provide

shareholders with a level of accountability.shareholders with a level of accountability.

They should also implement procedures toThey should also implement procedures to

independently verify and safeguard the integrity of theindependently verify and safeguard the integrity of the

company's financial reporting.company's financial reporting.

Disclosure of material matters concerning theDisclosure of material matters concerning the

organization should be timely and balanced to ensure thatorganization should be timely and balanced to ensure that

all investors have access to clear, factual information.all investors have access to clear, factual information.

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Factors influencing CGFactors influencing CG

1 Corporate Management1 Corporate Management2 Investors/Shareholders2 Investors/Shareholders

3 Trade Unions3 Trade Unions

4 Board of directors4 Board of directors

5 Employees5 Employees

6 pressure resulting from internationalization6 pressure resulting from internationalization

and globalizationand globalization

7 pressure exerted by the state in the form of7 pressure exerted by the state in the form of

legal regulation.legal regulation.

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Topic IVTopic IV

Corporate StrategyCorporate Strategy

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Corporate strategyCorporate strategy

AAstrategytrategy is a plan of action designed tois a plan of action designed toachieve a particular goal.achieve a particular goal.

Corpor at e str at egyorpor at e str at egy is the examination ofis the examination ofthe current and anticipated factorsthe current and anticipated factors

associated with customers and competitorsassociated with customers and competitors

(external environment) and the firm itself(external environment) and the firm itself(internal environment),(internal environment),

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Cor pora te St rat eg yor pora te St rat eg y

It is concerned with the overall purpose andIt is concerned with the overall purpose andscope of the business to meet stakeholderscope of the business to meet stakeholderexpectations.expectations.

Corporate strategy is the direction anCorporate strategy is the direction anorganization takes with the objective of achievingorganization takes with the objective of achievingbusiness success in the long termbusiness success in the long term

This is a crucial level since it is heavily influencedThis is a crucial level since it is heavily influenced

by investors in the business and acts to guideby investors in the business and acts to guidestrategic decision-making throughout thestrategic decision-making throughout thebusiness. Corporate strategy is often statedbusiness. Corporate strategy is often statedexplicitly in a "mission statement".explicitly in a "mission statement".

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Topic VTopic V

Relationship between CG andRelationship between CG and

Financial PerformanceFinancial Performance

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Relationship between CG andRelationship between CG and

Financial PerformanceFinancial Performance

Numerous stakeholders (internal and external) exist in anybusiness enterprise. Some of these include; customers,shareholders, financiers, government among others.Internal stakeholders such as the employees and external

stakeholders like Shareholders ,Customers, Tax Authorities,and Bank Supervisors. These all expect organisation to

be financially transparent and disclose adequatefinancial information.

Shareholders, particularly have a variety of rights interms of receiving a dividend and appointing managingdirector.

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Corporate governance is about building credibility,ensuring transparency and accountability as wellas maintaining an effective channel of information

disclosure that would foster good corporateperformance.

It is also about how to build trust and sustain

confidence among the various interest groups thatmake up an organisation.

TheThe major pillars ofpillars of corporate governance are:

Financial Transparency,Disclosure andTrust

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I) Transparency

Transparency is integral to corporategovernance, higher transparency reducesthe information asymmetry between afirms management and financialstakeholders.

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III) Trust includes

Openness: Openness is the extent to which relevantinformation is shared; it is process by which individualsmake themselves vulnerable to others.

Competence: Competence is the ability to perform asexpected and according to standards

appropriate to task at hand, many organisational tasks relyon competence Benevolence: confidence that ones well being or something

one cares about will be protected and not harmed by thetrusted party

Honesty: Honesty is the persons character, integrity andauthenticity. Reliability: confidence that ones well being or something

one cares about will be protected and not harmed by thetrusted party

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So, Transparency, disclosure and trust, which constitute the integralpart of corporate governance, can provide pressure for improvedfinancial performance

Pillars of Corporate governance

Financial Transparency

Disclosure

Trust

Financial Performance

Asset quality Earnings Liquidity

Capital adequacy