corporate governance by derek hendrikz
TRANSCRIPT
Introductionto Corporate Governance
© Derek Hendrikz Consulting
derekhendrikz
Copyright © 2016
Derek Hendrikz Consulting
www.derekhendrikz.com
Corporate Governance…
A system of rules and practices by which organizational institutions are directed and
controlled.
© Derek Hendrikz Consulting
Objectives of Corporate Governance…
1. Definition and distribution of rights and responsibilities
amongst participants within an organization.
2. Specification of rules for decision-making.
3. Guidance in an appropriate strategy and structure that will
facilitate the achievement of objectives.
4. Being a monitoring mechanism.
5. Alignment of stakeholder interests.
© Derek Hendrikz Consulting
Core functions of Corporate Governance...
Strategic Direction
Compliance &
Accountability
Risk & Strategy
Monitoring
© Derek Hendrikz Consulting
Primary drivers of Corporate Governance…
1. Membership rights and privileges provided to members
(shareholder- vs. stakeholder system).
2. Content of rights provided to members (decision-making
powers, access to information, distribution of surplus, etc.)
3. Modes of representation made available to members
(direct, indirect or ‘proxy’ representation).
© Derek Hendrikz Consulting
External Stakeholders…
• Shareholders
• Debt Holders (holder of a bond)
• Trade Creditors
• Suppliers
• Customers
• Affected Communities© Derek Hendrikz Consulting
Internal Stakeholders…
• Board of Directors
• Executives
• Employees
© Derek Hendrikz Consulting
Stakeholder Interest…Stakeholder: Interest:Directors, management & employees Salaries, benefits & reputation
Investors Financial returns
Lenders Specified interest payments
Returns to Equity investors Dividend distributions and capital gain of stock
Customers Certainty of provision of goods and services and appropriate quality
Suppliers Compensation for goods and services and continued trade relations
© Derek Hendrikz Consulting
External Controls…
• Competition
• Debt covenants (company / creditor agreements on ratio limits)
• Demand for assessment of performance information (e.g. financial
statements)
• Government regulations
• Managerial labour market
• Media pressure
• Takeovers
© Derek Hendrikz Consulting
Anglo American shareholder modelvs.
Multi Stakeholder Model
© Derek Hendrikz Consulting
Shareholder-Oriented Stakeholder-Oriented
Maximizes shareholder value and looks after shareholder interests
Looks after all stakeholder interests, especially public
Seeks profitability and efficiency Less concerned about profit than value for money
Hard-nosed and commercial Looks for survival, long-term growth and stability
© Derek Hendrikz Consulting
Anglo American Shareholder Model
Power belongs to the
Shareholders
Board represents that Power
Delegates
Accountable
© Derek Hendrikz Consulting
Multi Stakeholder Model
Power belongs to the
Stakeholders
Board represents that Power
Delegates
Accountable
© Derek Hendrikz Consulting
Shareholders
Board
Delegates Governance Powers
Stakeholders
Accountable
© Derek Hendrikz Consulting
Strategic Responsibility…Authority Strategic Responsibility
Board• Purpose & Desired Reality• Philosophy & Theoretical Model• Accountability Rules• Strategy & Scorecard Approval
EXCO
• Strategic Objectives• Master Processes• Master Scorecard• Structure• Systems Requirement• Culture Definition
Management
• Action programmes & projects• Detailed processes & procedures• Target outputs and milestones• Performance assessment• Budgeting• Resource allocation
© Derek Hendrikz Consulting
Board of Directors…
A body who, independently from the executive team, represents organizational
shareholders in the governance and monitoring of the organization.
© Derek Hendrikz Consulting
Objectives of the Board…
1. To independently represent stakeholders of the
organization.
2. To provide strategic direction to the organization.
3. To oversee accountability and compliance.
4. To monitor strategy execution and risk of non-
performance.© Derek Hendrikz Consulting
Responsibility of Board…
• CEO Selection and succession
• Strategic guidance
• Compensation of senior executives
• Monitoring of financial health
• Performance and risk
• Ensuring of accountability to investors and authorities
© Derek Hendrikz Consulting
Where Boards have failed…
• Enron• Worldcom• Adelphia Communications• AOL• Athur Andersen• Global Crossing• Tyco
© Derek Hendrikz Consulting
Seven Principles of Good Governance…
© Derek Hendrikz Consulting
1. Discipline
© Derek Hendrikz Consulting
2. Transparency
© Derek Hendrikz Consulting
3. Accountability
© Derek Hendrikz Consulting
4. Independence
© Derek Hendrikz Consulting
5. Responsibility
© Derek Hendrikz Consulting
7. Social Responsibility
© Derek Hendrikz Consulting