The Role of The Role of Stakeholders Stakeholders In In Corporate Governance Corporate Governance Dr. Demir Yener Dr. Demir Yener Center for International Private Enterprise Center for International Private Enterprise WashingtonD.C. WashingtonD.C. Fourth Meeting of the Fourth Meeting of the Eur Eur asian Corporate Governance Roundtable asian Corporate Governance Roundtable ‘The Responsibilities of Boards of Directors’The Responsibilities of Boards of Directors’October 29-30, 2003, Bishkek, Kr!"stan October 29-30, 2003, Bishkek, Kr!"stan
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• International Auditing & Accounting Standards (IAS&ISA)International Auditing & Accounting Standards (IAS&ISA)• Securities Markets Legal and Regulatory Frameworks (IS!)Securities Markets Legal and Regulatory Frameworks (IS!)• Financial Sector "artici#ants $ investors% issuers% intermediariesFinancial Sector "artici#ants $ investors% issuers% intermediaries (interaction between #arti(interaction between #arti
• FiFinancial Market Inrastructure and Arc'itecturenancial Market Inrastructure and Arc'itecture• "roduct and Factor !om#etitiveness"roduct and Factor !om#etitiveness• Foreign irect InvestmentsForeign irect Investments• !or#orate !ontrol (!or#orate overnance$ E! "rinci#les)!or#orate !ontrol (!or#orate overnance$ E! "rinci#les)• Enabling% #rudentially regulated business environment% wit' creative incentive struEnabling% #rudentially regulated business environment% wit' creative incentive stru
Enabling EnvironmentEnabling Environment
• International Auditing & Accounting Standards (IAS&ISA)International Auditing & Accounting Standards (IAS&ISA)• Securities Markets Legal and Regulatory Frameworks (IS!)Securities Markets Legal and Regulatory Frameworks (IS!)• Financial Sector "artici#ants $ investors% issuers% intermediariesFinancial Sector "artici#ants $ investors% issuers% intermediaries (interaction between #artici(interaction between #artici
• FiFinancial Market Inrastructure and Arc'itecturenancial Market Inrastructure and Arc'itecture• "roduct and Factor !om#etitiveness"roduct and Factor !om#etitiveness• Foreign irect InvestmentsForeign irect Investments• !or#orate !ontrol (!or#orate overnance$ E! "rinci#les)!or#orate !ontrol (!or#orate overnance$ E! "rinci#les)•
Enabling% #rudentially regulated business environment% wit' creative incentive struEnabling% #rudentially regulated business environment% wit' creative incentive struc
Factors of SoundFactors of SoundCorporate GovernanceCorporate Governance
• S'are'olders rig'ts #rotectionS'are'olders rig'ts #rotection• Rig'ts and res#onsibilities o *oardRig'ts and res#onsibilities o *oard
o irectors and S'are'olderso irectors and S'are'olders• +uality o isclosure+uality o isclosure•
MonitoringMonitoring• E,ectiveness o t'e coreE,ectiveness o t'e core
management unctionsmanagement unctions
Factors of SoundFactors of SoundCorporate GovernanceCorporate Governance
• S'are'olders rig'ts #rotectionS'are'olders rig'ts #rotection• Rig'ts and res#onsibilities o *oardRig'ts and res#onsibilities o *oard
o irectors and S'are'olderso irectors and S'are'olders• +uality o isclosure+uality o isclosure• MonitoringMonitoring• E,ectiveness o t'e coreE,ectiveness o t'e core
management unctionsmanagement unctions
Principal FactorsPrincipal Factors
• Stake'oldersStake'olders
• -akeovers.ac/uisitions-akeovers.ac/uisitions
• *ankru#tcy rameworks*ankru#tcy rameworks
• !ollateral and Foreclosure rules!ollateral and Foreclosure rules
/o To Determine Whether Corporate/o To Determine Whether Corporate
Governance Is Effective0Governance Is Effective0
Two testsTwo tests Is the corporation ma'imi(ingIs the corporation ma'imi(ing
shareholder val!e0shareholder val!e0 Is the net present val!e of the corporation1sIs the net present val!e of the corporation1s
cash flos positive and is it $eing !sed orcash flos positive and is it $eing !sed ordirected for the $enefit of shareholdersdirected for the $enefit of shareholders$ased !pon their pro rata onership$ased !pon their pro rata onershipinterests0interests0
If the corporation1s chief e'ec!tiveIf the corporation1s chief e'ec!tive
officer is not performing ell does theofficer is not performing ell does the$oard of directors have the poer to$oard of directors have the poer toremove him0remove him0
Investor $ehavior is characteri(ed $) theInvestor $ehavior is characteri(ed $) the5fear and greed1 factors5fear and greed1 factors
Corporate governance is not an end inCorporate governance is not an end initself.itself.
CG is a$o!t improving firm performanceCG is a$o!t improving firm performanceand ass!ring access to capital at aand ass!ring access to capital at areasona$le cost.reasona$le cost.
The end game of CG is achieving the mostThe end game of CG is achieving the mostefficient allocation of the scarce reso!rcesefficient allocation of the scarce reso!rces
the firm has availa$le ithin its economicthe firm has availa$le ithin its economicenvironment and gaining access to theenvironment and gaining access to thecapital needed for groth and developmentcapital needed for groth and development
Effective CG ill serve as the carrot ifEffective CG ill serve as the carrot ifprivate sector is convinced that it illprivate sector is convinced that it ill
gain from good governance. I2 thisgain from good governance. I2 this
case reform ill happen.case reform ill happen.
I- private sector is not convincedI- private sector is not convinced
reform ill $e resisted.reform ill $e resisted.
This is the dilemma.This is the dilemma.
The main pla)er in the ma'imi(ationThe main pla)er in the ma'imi(ation
of ealth thro!gh good governanceof ealth thro!gh good governance
The *oardThe *oard has an important role to pla)has an important role to pla)in development and progressin development and progress of the firmof the firm
on $ehalf of its investors.on $ehalf of its investors.
Maximizing the shareholder valueMaximizing the shareholder value is theis the
long term o$%ective of the firm.long term o$%ective of the firm. StakeholdersStakeholders pla) an important role inpla) an important role in
CGCG
4 $oard respectf!l of the legitimate4 $oard respectf!l of the legitimatee'pectations of all the stakeholderse'pectations of all the stakeholders
sho!ld $enefit all parties in the long r!n.sho!ld $enefit all parties in the long r!n.