What is Corporate What is Corporate Governance? Governance? Alison Dillon Kibirige Alison Dillon Kibirige
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What is CorporateWhat is Corporate
Governance?Governance?Alison Dillon KibirigeAlison Dillon Kibirige
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Corporate GovernanceCorporate Governance
Contemporary corporate governanceContemporary corporate governance
started in 1992 with the Cadbury report instarted in 1992 with the Cadbury report in
the UKthe UK
Cadbury was the result of several highCadbury was the result of several highprofile company collapsesprofile company collapses
is concerned primarily with protectingis concerned primarily with protecting
weak and widely dispersed shareholdersweak and widely dispersed shareholdersagainst selfinterested Directors andagainst selfinterested Directors and
managersmanagers
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Corporate Governance PartiesCorporate Governance Parties
!hareholders " those that own the!hareholders " those that own the
companycompany
Directors " #uardians of the Company$sDirectors " #uardians of the Company$sassets for the !hareholdersassets for the !hareholders
%anagers who use the Company$s assets%anagers who use the Company$s assets
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Corporate GovernanceCorporate Governance
&rimarily concerned with public listed&rimarily concerned with public listed
companies i'e' those listed on a !tockcompanies i'e' those listed on a !tock
()change()change
*ocused on preventing corporate collapses*ocused on preventing corporate collapses
such as (nron+ &olly &eck and the %a)wellsuch as (nron+ &olly &eck and the %a)well
companiescompanies
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Corporate GovernanceCorporate Governance
,hat relevance does it have to Africa,hat relevance does it have to Africa
where there are few public listedwhere there are few public listed
companiescompanies
%ost companies are nonlisted+ private%ost companies are nonlisted+ private
family owned businesses where thefamily owned businesses where the
shareholders and the managers are oftenshareholders and the managers are often
the same peoplethe same people
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Four PillarsFour Pillars
of Corporate Governanceof Corporate Governance AccountabilityAccountability
*airness*airness
-ransparency-ransparency
.ndependence.ndependence
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Accountability Accountability
(nsure that management is(nsure that management is
accountable to the /oardaccountable to the /oard
(nsure that the /oard is accountable(nsure that the /oard is accountable
to shareholdersto shareholders
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FairnessFairness
&rotect !hareholders rights&rotect !hareholders rights
-reat all shareholders including minorities+-reat all shareholders including minorities+
e0uitablye0uitably
&rovide effective redress for violations&rovide effective redress for violations
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TransparencyTransparency
(nsure timely+ accurate disclosure on all(nsure timely+ accurate disclosure on all
material matters+ including the financialmaterial matters+ including the financial
situation+ performance+ ownership andsituation+ performance+ ownership and
corporate governancecorporate governance
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IndependenceIndependence
&rocedures and structures are in place so&rocedures and structures are in place so
as to minimise+ or avoid completelyas to minimise+ or avoid completely
conflicts of interestconflicts of interest
.ndependent Directors and Advisers i'e'.ndependent Directors and Advisers i'e'
free from the influence of othersfree from the influence of others
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Corporate Governance in AfricaCorporate Governance in Africa
.n 199+ -he King eport in !outh Africa.n 199+ -he King eport in !outh Africa
also included within its Code of Corporatealso included within its Code of Corporate
#overnance re0uirements on sustainability#overnance re0uirements on sustainability
and ethical standardsand ethical standards
-his was due to the conte)t of a-his was due to the conte)t of a
developing country and business ethics indeveloping country and business ethics in
AfricaAfrica
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SustainabilitySustainability
3o generally accepted definition3o generally accepted definition
%ost commonly used is from the%ost commonly used is from the
/rundtland eport for the ,orld/rundtland eport for the ,orldCommission on (nvironment andCommission on (nvironment and
Development 1945 which defines it as6Development 1945 which defines it as6
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SustainabilitySustainability
7 7development that meets the needsdevelopment that meets the needs
of the present without compromisingof the present without compromising
the ability of future generationsthe ability of future generations
to meet their own needs$ to meet their own needs$
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StakeholdersStakeholders
!ustainability recogni8es stakeholder!ustainability recogni8es stakeholder
rights i'e' the rights of interested partiesrights i'e' the rights of interested parties
e'g' employees+ the community+ suppliers+e'g' employees+ the community+ suppliers+
customers etc'customers etc'
(ncourage cooperation between the(ncourage cooperation between the
company and its stakeholders in creatingcompany and its stakeholders in creating
wealth+ obs and economic stabilitywealth+ obs and economic stability
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Business thicsBusiness thics
(stablished values and principles a(stablished values and principles a
company uses to inform and conduct itscompany uses to inform and conduct its
activitiesactivities
!hould permeate a company$s culture and!hould permeate a company$s culture and
drive its strategy+ business goals+ policiesdrive its strategy+ business goals+ policies
and activitiesand activities
Usually found in a code of ethicsUsually found in a code of ethics
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le!ents of Corporate Governancele!ents of Corporate Governance
#ood /oard practices#ood /oard practices
Control (nvironmentControl (nvironment
-ransparent disclosure-ransparent disclosure
,elldefined shareholder rights,elldefined shareholder rights
/oard commitment/oard commitment
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Good Board PracticesGood Board Practices
Clearly defined roles and authoritiesClearly defined roles and authorities
Duties and responsibilities of DirectorsDuties and responsibilities of Directors
understoodunderstood
/oard is well structured/oard is well structured
Appropriate composition and mi) of skillsAppropriate composition and mi) of skills
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Good Board proceduresGood Board procedures
Appropriate /oard proceduresAppropriate /oard procedures
Director emuneration in line with bestDirector emuneration in line with best
practicepractice
/oard selfevaluation and training/oard selfevaluation and training
conductedconducted
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Control nviron!entControl nviron!ent
.nternal control procedures.nternal control procedures
isk management framework presentisk management framework present
Disaster recovery systems in placeDisaster recovery systems in place
%edia management techni0ues in use%edia management techni0ues in use
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Control nviron!entControl nviron!ent
/usiness continuity procedures in place/usiness continuity procedures in place
.ndependent e)ternal auditor conducts.ndependent e)ternal auditor conducts
auditsaudits
.ndependent audit committee established.ndependent audit committee established
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Control nviron!entControl nviron!ent
.nternal Audit *unction.nternal Audit *unction
%anagement .nformation systems%anagement .nformation systems
establishedestablished
Compliance *unction establishedCompliance *unction established
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Transparent "isclosureTransparent "isclosure
*inancial .nformation disclosed*inancial .nformation disclosed
3on*inancial .nformation disclosed3on*inancial .nformation disclosed
*inancials prepared according to*inancials prepared according to
.nternational *inancial eporting.nternational *inancial eporting
!tandards :.*!;!tandards :.*!;
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Transparent "isclosureTransparent "isclosure
Companies egistry filings up to dateCompanies egistry filings up to date
<igh=uality annual report published<igh=uality annual report published
,ebbased disclosure,ebbased disclosure
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Well#"efined Shareholder $i%htsWell#"efined Shareholder $i%hts
%inority shareholder rights formalised%inority shareholder rights formalised
,ellorganised shareholder meetings,ellorganised shareholder meetings
conductedconducted
&olicy on related party transactions&olicy on related party transactions
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Well#"efined Shareholder $i%htsWell#"efined Shareholder $i%hts
&olicy on e)traordinary transactions&olicy on e)traordinary transactions
Clearly defined and e)plicit dividend policyClearly defined and e)plicit dividend policy
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Board Co!!it!entBoard Co!!it!ent
-he /oard discusses corporate governance-he /oard discusses corporate governance
issues and has created a corporateissues and has created a corporate
governance committeegovernance committee
-he company has a corporate governance-he company has a corporate governancechampionchampion
A corporate governance improvement planA corporate governance improvement plan
has been createdhas been created
Appropriate resources are committed toAppropriate resources are committed to
corporate governance initiativescorporate governance initiatives
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Board Co!!it!entBoard Co!!it!ent
&olicies and procedures have been&olicies and procedures have been
formalised and distributed to relevant staff formalised and distributed to relevant staff
A corporate governance code has beenA corporate governance code has been
developeddeveloped A code of ethics has been developedA code of ethics has been developed
-he company is recognised as a corporate-he company is recognised as a corporate
governance leadergovernance leader
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&ther ntities&ther ntities
Corporate #overnance applies to all typesCorporate #overnance applies to all types
of organisations not ust companies in theof organisations not ust companies in the
private sector but also in the not for profitprivate sector but also in the not for profit
and public sectorsand public sectors
()amples are 3#>s+ schools+ hospitals+()amples are 3#>s+ schools+ hospitals+
pension funds+ stateowned enterprisespension funds+ stateowned enterprises
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Country PerspectiveCountry Perspective
Corporate #overnance is by way ofCorporate #overnance is by way of
legislation or best practice Codelegislation or best practice Code
U! adopted legislation in 2??2 !arbanesU! adopted legislation in 2??2 !arbanes
>)ley Act>)ley Act %ost other developed and emerging%ost other developed and emerging
market countries have adopted bestmarket countries have adopted best
practice Codes e'g' Combined Code in thepractice Codes e'g' Combined Code in the
UK+ Cromme Code in #ermany and theUK+ Cromme Code in #ermany and the
King .. Code in !outh AfricaKing .. Code in !outh Africa
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Country perspective # CodesCountry perspective # Codes
-hese Codes are voluntary and are-hese Codes are voluntary and are
enforced by shareholdersenforced by shareholders
%ost of them operate on a 7comply or%ost of them operate on a 7comply or
e)plain$ approache)plain$ approach -he %edia also play a part in highlighting-he %edia also play a part in highlighting
good or bad practicesgood or bad practices
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Country PerspectiveCountry Perspective
Countries in Africa have tended to adopt aCountries in Africa have tended to adopt a
hybrid approach whereby they havehybrid approach whereby they have
followed the 7comply and e)plain$followed the 7comply and e)plain$
approach but have enshrined some of theapproach but have enshrined some of theprinciples in law to assist in enforceabilityprinciples in law to assist in enforceability
-he reason is the weakness of the-he reason is the weakness of the
shareholder base and of the mediashareholder base and of the media
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Why Corporate Governance?Why Corporate Governance?
/etter access to e)ternal finance/etter access to e)ternal finance
@ower costs of capital " interest rates on@ower costs of capital " interest rates on
loansloans
.mproved company performance ".mproved company performance "sustainabilitysustainability
<igher firm valuation and share<igher firm valuation and share
performanceperformance educed risk of corporate crisis andeduced risk of corporate crisis and
scandalsscandals
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Why Corporate Governance?Why Corporate Governance?
.n 2??2+ @ Klapper and . @ove from the ,orld.n 2??2+ @ Klapper and . @ove from the ,orld/ank found evidence that improving a company$s/ank found evidence that improving a company$scorporate governance has proportionately greatercorporate governance has proportionately greaterimpact in countries with weak legalimpact in countries with weak legal
environments'environments'
-hey have suggested that companies can partially-hey have suggested that companies can partiallycompensate for ineffective laws and enforcementcompensate for ineffective laws and enforcementby establishing good corporate governance at theby establishing good corporate governance at thecompany level and providing credible investorcompany level and providing credible investorprotectionprotection