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Introductionto Corporate Governance
© Derek Hendrikz Consulting
derekhendrikz
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Copyright © 2016
Derek Hendrikz Consulting
www.derekhendrikz.com
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Corporate Governance…
A system of rules and practices by which organizational institutions are directed and
controlled.
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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.
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Core functions of Corporate Governance...
Strategic Direction
Compliance &
Accountability
Risk & Strategy
Monitoring
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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).
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External Stakeholders…
• Shareholders
• Debt Holders (holder of a bond)
• Trade Creditors
• Suppliers
• Customers
• Affected Communities© Derek Hendrikz Consulting
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Internal Stakeholders…
• Board of Directors
• Executives
• Employees
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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
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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
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Anglo American shareholder modelvs.
Multi Stakeholder Model
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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
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Anglo American Shareholder Model
Power belongs to the
Shareholders
Board represents that Power
Delegates
Accountable
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Multi Stakeholder Model
Power belongs to the
Stakeholders
Board represents that Power
Delegates
Accountable
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Shareholders
Board
Delegates Governance Powers
Stakeholders
Accountable
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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
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Board of Directors…
A body who, independently from the executive team, represents organizational
shareholders in the governance and monitoring of the organization.
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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
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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
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Where Boards have failed…
• Enron• Worldcom• Adelphia Communications• AOL• Athur Andersen• Global Crossing• Tyco
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Seven Principles of Good Governance…
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1. Discipline
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2. Transparency
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3. Accountability
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4. Independence
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5. Responsibility
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7. Social Responsibility
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