Corporate Governance

other director issues

a director must give the corporation the right of first refusal on corporate opportunities - investments in activites that are within the corporation's normal business activities

fiduciary duty

a fiduciary has a legal duty to act primarily for the benefit of another person ( the corporation), requires the directors to ( act in the corporation's best interest, be loyal, use due diligence in exercising duties, disclose conflicts of interest)

Four pillars of corporate governance

accountability, fairness, transparency, independence

board of directors

all major decisions are made or approved by the board

annual shareholder meeting

amend articles of incopration, vote on matters (mergers or other fundamental changes), elect (or remove) board of directors

Audit Committee Responsibilities

overseeing the financial reporting and disclosure process, monitoring choice of accounting policies and principles, overseeing hiring performanc and independence of the external auditors

Audit committee responsibilities

oversight of regulatory compliance ethics and whistlblower hotlines, monitoring the internal control process, overseeing the performance of the interal audit function , discussing risk mgmt policies and practices with mgmt

business judgment rule

an officer or director is not held personally liable if he/she; acted in good faith, was not motivated by fraud or conflict of interest, was not grossly negligent (must educate themselves about issues, must be free of conflicts of interest, must have a rational basis to support their position), directors may rely on info from officers

Audit Committees

are required for all SEC registrants, 3-6 independent outside directors, at least one financial expert, may not receive compensation other than director's fees

benefits of stron corporate governance

better to access to external finance, lower costs of capital - interest rates on loans, improved company performance- profitability and sustainability, higher firm valuation and share performance, reduced risk of corporate crisis and scandals

good board structure

clearly defined roles and authorities (duties and responsibilities of directors understood, committees) appropriate composition and mix of skills (independent directors), compensation in line with best interest of the company, well-defined nomination and election process, mechanism to report conflicts of interest, board self-evaluation and training conducted

other entities

corporate governance applies to all types of organizations ( non-proits, schools, hospitals, pension funds, charities)

independent directors

directors with no other role in the company (not mgmt) remember to think about the CEO and chairman of the board

other countries

most other developed and emerging market countries have adopted best practice codes ( combined code in the UK, kodex in Germany, King code in south africa, OECD principles of Corporate Governance

accountability

ensure that mgmt is accountable to the board; ensure that the board is accountable to shareholders

transparency

ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership and corporate governance (OECD principles, chapter 5)

directors

guardians of the company's assets for the shareholders

control environment

internal control procedures, independent external auditor conducts audits, indpendent audit committee established, internal audit department, code of ethics

well-defined shareholder rights

minority shareholder rights formalized, well-organized shareholder meetings conducted, policy on related party transactions, policy on extraoridnary transactions, clearly defined and explicit dividend policy

independence

procedures and structures are in place so as to minimize conflicts of interest, independent directors

fairness

protect shareholders rights, treat all shareholders including minorities equitably, provide effective redress for violations, see OECD princples chapter 2

Transparent disclosure

relevant financial info disclosed, relevant non-financial info disclosed, financials prepared according to appropriate standards (GAAP), company's registry filings up to date, high-quality annual report published

Corporate Governance Structure

see slide 7

duties of the board

selection and removal of officers, decisions about capital structure, initiation of fundamental changes, decisions regarding dividends, setting management compensation, coordinating audit activities, avaluating and managing risk

stakeholders

shareholders, customers, vendors, community, employees, lenders, regulators

corporate governance

the systems and processes an organization has in place to protect and enhance the interest of its diverse stakeholder groups

shareholders

those that own the company common shareholders have voting rights

managers

those who use the company's assets