Professional Documents
Culture Documents
SEPTEMBER 2016
BBCG 4103
CORPORATE GOVERNANCE
CONTENTS
MATRICULATION NO:
86071530116001
860715305116
TELEPHONE NO.
016-7144431
thava1986@oum.edu.my
LEARNING CENTRE
PAGE
1.0 INTRODUCTION.................................................................................. 2, 3
- Definition and Importance of corporate governance
5.0 SUMMARY......................................................................................... 14
1.0 INTRODUCTION
- Definition and Importance of corporate governance
Corporate Governance refers to the way and technique a corporation is controlled, directed and
managed an organisation. It means conducting the business as per the stakeholders interest.
Corporate governance actually controlled by the board of Directors and ensures the companys
stakeholders benefit well concerned. It is balancing individual and societal, economic and social
goals. The other mechanisms include monitoring the actions, policies, practices, and decisions of
corporations, their agents, and stakeholders.
Corporate Governance is a communication between shareholders, board of directors, and
companys management in creating corporations performance and the way it is proceeding
towards. Then, the relationship between the owners and the managers in an organisation must be
healthy without any conflict. The owners must see that individuals actual performance is
according to the standard practice. These dimensions of corporate governance should not be
overlooked. While, Sir Adrian Cadbury advocates that "Corporate governance is concerned with
holding the balance between economic and social goals and between individual and communal
goals...the aim is to align as nearly as possible the interests of individuals, corporations and
society" (Corporate Governance Overview, 1999, World Bank Report).
Moreover, corporate governance deals properly with the financial matters to getting a fair return
on their investment. Corporate Governance clearly distinguishes between the owners and the
managers.
Corporate Governance also deals with determining ways to take effective strategic decisions and
gives importance and complete responsibility to the Board of Directors. Corporate Governance is
essential to develop added value to the stakeholders. Corporate Governance has large aims which
are social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as
well as ethical environment.
In todays market- oriented economy, the need for corporate governance arises because the
importance such:1) Create a proper management
Corporate governance ensures the management of an organisation takes important decisions
which could benefit shareholder, directors, employees and social welfare. That is, they lead the
management to become more efficient, transparent, and accountable. They will request the
management to make consumer-friendly policies, to protect all social groups and to protect the
environment. So, the changing ownership structure and rules has resulted in corporate
governance.
2) Create success and economic growth organisation.
Good corporate governance helps to prevent corporate scandals, fraud, and potential civil and
criminal liability of the organisation. They always care the integrity of the management and
managers. They want the performance of the company is transparency, fairness and
accountability that all business activities run smoothly without any frauds. It helps can maintain
investors confidence and company can raise capital efficiently and effectively.
3) Guide Globalisation
Now, most big companies are selling their goods in the global market through face to face or
online business. So, they have to attract foreign investor and foreign customers while follow
foreign rules and regulations. So that, corporate governance requires fulfilling the requirements
and guiding them to enter, survive and succeed in the global market
recorded organizations and not more than 15 directorships in non-recorded organizations. The
normal is for the chief to play out his/her obligations successfully with less responsibility, assets
and time accessible. There are diverse attributes of top managerial staff honed by the
organizations everywhere throughout the world that predetermined the corporate administration
structure of every firm.
Article#2
Loh Leong Hua & Ragayah Haji Mat Lin, Akademia 71(Julai 2007) corporate governanceTheory and some Insights into the Malaysian Practices- (http://www.ukm.my/)
This article also discussed about MCCG, stakeholders relationship, shareholders activities and
remuneration as the factors of development of corporate governance. For example we take
remuneration which motivate the top management have been portrayed as a critical component
of corporate governance as it guarantees the arrangement of the administration and the
shareholders intrigue. It is a component for determining the contention of enthusiasm among the
supervisors and shareholders. The compensation is in the form of cash and stock and is termed as
Deferred Compensation or Deferred Stock.
According to Adams and Mehran (2002), nearly 95% of the firms have deferred compensation
plans for their directors. However, only 31% of the firms offer a choice of stock or cash to their
directors. The Malaysian Code on Corporate Governance requires that directors remuneration
should be appreciable and should reflect the responsibility and commitment of the directors. In
the case of executive director, remuneration should link rewards to corporate and individual
performance while in the case of non-executive directors, it should connect rewards to
experience and level of responsibilities. The level of remuneration for the executive directors
should be decided by the remuneration committee consisting wholly and mainly of nonexecutive directors. On the other hand, remuneration of the non-executive directors should be
determined by the board as a whole. The company is also required to disclose the details of the
remuneration of each director in its annual reports. This will encourage the develop and success
of corporate governance.
3.0 THEORIES
There are several theories associated with the development of corporate governance. Figure 3.0.1
lists the four main theories.
Stewardship Theory
Agency Theory
Corporate
Governance
Transaction Cost
Economics
Stakeholder Theory
According to the journal, the author mentioned that the progression of theories or models of
corporate governance, it is one of the new dimensions taken in a very crux of social ethics that is
minimal and profit making took center stage. In this competitive world, companies are trying to
inculcate the wisdom of good governance into their corporate organisation.
6
problem, which includes an efficient market for corporate control, management labor and
corporate information (Clarke, 2004).
Retrieved from the article:
4.0 ANALYSIS
-Relationship between separation of ownership and control.
Article#1
Devinaga Rasiah (The Separation of Ownership and Control in Malaysian Domestic Companies)
vol.38 (2012) Faculty of Business and Law Multimedia University (Malacca Campus)http://www.ipedr.com/vol38/024-ICEBI2012-A10014.pdf
Article#2
NOOR AFZA AMRAN & AYOIB CHE AHMAD Effects of Ownership Structure on Malaysian
Companies Performance Asian Journal of Accounting and Governance 4: 5160 (2013)
http://www.ukm.my/ajag/vol4ch5.pdf
Article#3
Ayoib Che Ahmad, Zuaini Ishak and Nor Aziah Abd Manaf( CORPORATE GOVERNANCE,
OWNERSHIP STRUCTURE AND CORPORATE DIVERSIFICATION: EVIDENCE FROM
THE MALAYSIAN LISTED COMPANIES) Asian Academy of Management Journal, Vol. 8,
No. 2, 6789, July 2003
The relationship between separation of ownership and control was discussed clearly in the above
3 journals.
4.1 Definition of separation of ownership and control
The most well known description of the separation of ownership and control was given by
Marks,(1999), for he states that it refers to the affairs related with publicly held business
corporations where the shareholders, also known as the residual claimants, have indirect or very
few control over management decisions.
In Malaysia, researchers such as Ali (2008) and Claessens (1999), was provided evidence on
Malaysian ownership structures and the degree of separation, respectively. In discussing
ownership structures, Schleifer and Vishny, (1997), explained that it is made up of ownership
concentration and composition. Loh and Zin, (2007), acknowledged the two elements and
explained why they were linked to corporate performance.
10
11
scale in production and decision making, which is mostly associated with goal congruence of
shareholders and management (Marks, 1999).
Another advantage from isolating proprietorship and control would be as far as firm size. It is
expressed that the ideal firm size of organizations that practice high partition of possession and
control can be somewhat extensive.). At long last, when shareholders are not engrossed with
administration work, they have sufficient energy to build up an ideal venture technique where
they will have the capacity to differentiate and pool. All things considered, this makes it
workable for the proprietors of the organization to change their assignments as needs be with the
changing business sector environment. With the collaboration from all these three components,
an extensive estimated organization that receives various leveled structures and enhances its
speculations is probably going to have value-based, enlightening and profitable efficiencies.
These criteria would then give the organization a focused edge over other corporate structures.
supervisors may act to their greatest advantage instead of securing shareholders' advantage.
Henceforth, partition of proprietorship and control is considered as conveying along good peril
issues to the association.
13
5.0 SUMMARY
At this point, we understand that corporate governance is very important for creating a successful
organisation. There are many factors or forces influence the development of corporate
governance such as rules and regulation by MCCG, company structure, board of directors and
stakeholders relationship, remuneration and also proper management system. For the theories of
corporate governance agency theory is most important because its related to the organisation
structure. Followed by stewardship theory, shareholders theory and transaction cost economics.
Meanwhile, separation of ownership and control defined as the divergence of interest between
ownership and control had created a division of functions. Within the corporation, shareholders
had only interests in the enterprise while the directors had power over it (Sheikh and Chatterjee,
1995). There are positive and negative outcomes through implementing the separation owner and
control. So that by taking proper way and ideas an organisation can have a leading corporate
governance.
(3381 words)
14
6.0 REFERENCES
1. Abdul Hadi bin Zulkafli 1 M.Fazilah bt. Abdul Samad 2 Md Ishak Ismail 3CORPORATE GOVERNANCE IN MALAYSIA by - http://www.gomalaysiatour.com/
2. Ayoib Che Ahmad, Zuaini Ishak and Nor Aziah Abd Manaf Asian Academy of
Management CORPORATE GOVERNANCE, OWNERSHIP STRUCTURE AND
CORPORATE DIVERSIFICATION: EVIDENCE FROM THE MALAYSIAN LISTED
COMPANIES * Journal, Vol. 8, No. 2, 6789, July 2003 Universiti Utara Malaysiahttp://web.usm.my/aamj/8.2.2003/AAMJ%208-2-4.pdf
3. Corporate governance From Wikipedia,
https://en.wikipedia.org/wiki/Corporate_governance
4. Devinaga Rasiah -The Separation of Ownership and Control in Malaysian Domestic
Companies + Faculty of Business and Law Multimedia University (Malacca Campus)http://www.ipedr.com/vol38/024-ICEBI2012-A10014.pdf
5. Haslinda Abdullah, Benedict Valentine Fundamental and Ethics Theories of Corporate
Governance Middle Eastern Finance and Economics, Issue 4 (2009)
http://www.eurojournals.com/MEFE.htm
6. Joel Tham Kah Marn, Dondjio Fomedjou Romuald JOURNAL FOR THE
ADVANCEMENT OF SCIENCE & ARTS, VOL. 3, NO. 1, 2012 31 The Impact of
Corporate Governance Mechanism and Corporate performance: A study of Listed
Companies in Malaysia. 1.2 UCSI UNIVERSITY UCSI University,
http://www.ucsiuniversity.edu.my/
7. Kamini Singam -Bond Law Review Volume 15 Issue 1 Special Issue: Comparative
Corporate Governance Article 13 2003 Corporate Governance in Malaysia http://epublications.bond.edu.au/
8. Loh Leong Hua & Ragayah Haji Mat Lin -Corporate governance- Theory and some
Insights into the Malaysian Practices- (http://www.ukm.my/)
9. NOOR AFZA AMRAN & AYOIB CHE AHMAD- Effects of Ownership Structure on
Malaysian Companies Performance http://www.ukm.my/ajag/vol4ch5.pdf
15
10. Nazrul Hisyam Ab Razaka ,Rubi Ahmad (PhD)b , Huson Joher Aliahmed (PhD)cGOVERNMENT OWNERSHIP AND PERFORMANCE: AN ANALYSIS OF LISTED
COMPANIES IN MALAYSIA By
http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan050510.pdf
16