Global Modern Corporate Governance Principles and Models After World Economic Crisis (Part I)
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About this ebook
In this edition, the book has some updated information in: adding a new implementation form for corporate governance, as well as proposed new case questions for academic purpose. Welcome any ideas from readers.
Dinh Tran Ngoc Huy MBA
Author Dinh Tran Ngoc Huy, MBA in Intl. Management from International University of Japan, has recently published several international corporate governance and finance articles on several International journals such as: European Journal of Economics, Finance and Administrative Sciences, and Asian Journal of Management Research, as well as ISI, Scopus journals,etc... The previous edition of this book was sold at International U of Japan at price of 250 USD.
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Global Modern Corporate Governance Principles and Models After World Economic Crisis (Part I) - Dinh Tran Ngoc Huy MBA
GLOBAL MODERN CORPORATE
GOVERNANCE PRINCIPLES AND MODELS
ECONOMIC CRISIS
(PART I)
DINH TRAN NGOC HUY, MBA, DO THI SANG, VO KIM NHAN, MBA, DUONG THI
HONG NHUNG, MBA, NGUYEN THI PHUONG HONG, DR., PHAM MINH DAT,
DR., THAN VAN HAI, DR., NGUYEN THANH VU, DR., PHAN MINH DUC,
DR., NGUYEN VAN THUY, DR., PHAM QUANG HUY,
DR., DINH TRAN NGOC HIEN
62309.pngCopyright © 2019 by Dinh Tran Ngoc Huy.
ISBN: Softcover 978-1-5437-5557-2
eBook 978-1-5437-5558-9
All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews.
Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.
www.partridgepublishing.com/singapore
ABOUT THE BOOK
The book aims to provide top management team, board, business consultant, officer and relevant shareholders in both public and private companies, profit and non-profit firms, academic, social firms and businesses with updated knowledge of corporate governance system after financial crisis. With limited and solid contents and three (3) sessions, it also tries to support academic people, including but not limited to, professors and university students, esp. last year undergraduates, Master/MBA students or researchers, and administrative staff from low to upper-intermediate levels with around-the-world corporate governance systems and practical matters through cases studies and comparative analysis. Additionally, it aims to put questions on the table of international organization and people who is responsible for making policies for a sound code of corporate governance.
The book is organized into three (3) main parts:
Part I: Theories on Corporate Governance Issues and Standards after Financial Crisis
Part II: Six (6) Global Case Studies on Corporate Governance Issues and Standards after Financial Crisis
Part III: Conclusion and Recommended General Principles of Corporate Governance – Analysis on Viet Nam corporate governance
Generally, typical following people is directly involved and relevant in this book:
Chairman - CEO-Executive President – Chief Executive - CFO – Finance Director - Board of Directors –Executives – Non Executives - Independent Directors – Supervisory Board – Supervisory Management – Senior Administrators – Officers - Management Team – management Board - Corporate Secretary – Compliance Officer –Internal Auditor – External Auditor – Audit Committee – Numeration or Compensation Committee – Nominating Committee – Shareholders – Stakeholders – Employee – Company as a whole entity –Audit firm people – Consultant and Business Compliance Officer.
The book uses some contents of same author’s papers A Set of Asian Pacific Corporate Governance Standards After Financial Crisis
, and The Summarized Evaluation of US and Latin American Corporate Governance Standards After Financial Crisis
which have been accepted for publication in EJEFAS (Eurojournals) and accepted both for the 36th Economic and Historical Business Society Conference, Ohio, USA and for the Global Accounting, Finance and Economics Conference at Monash University, Melbourne, Australia, as well as posted at Corporate Finance: Governance, Corporate Control & Organization eJournal, 2011.
In this new edition, the book has implemented new changes such as: Adding Appendix 3 for an guideline on CG implementation form for companies, and an Appendix 4 for reference on CFA Code 2005. Last but not least, it adds a new case study on China Corporate governance. And it also includes a short analysis on Viet Nam corporate governance situation after recommendation in part 3.
BRIEF DESCRIPTION OF ITS APPLICATION
Basically the book has four (4) immediate uses or application: 1) case studies or reference material for teaching and studying at undergraduate and Master or MBA levels or postgraduate research implications; 2) reading material and reference for business officers at all levels with an attention on management team and directors; 3) governance framework and guidelines for government and non-government, academic and non-academic institutions and people, or any person who is interested this continuing subjects in relation to changes in the social economic market conditions; and lastly 4) reference material for auditing firm specialists and analysts in developing products and services to serve better and wider needs of company customers.
For the purpose of case studies discussion, below are, but not limited to, among recommended case questions for appropriate Professors to use in case write-ups, class discussion, presentation, analytical paper, homework or group meting:
ABOUT THE AUTHOR
Image36820.jpgMr. Dinh Tran Ngoc Huy born in 1980, currently a PhD candidate with about 200 articles published in prestigous Intl. Journals (ISI, Scopus,…), in Finance and Management field. He teaches many courses: English (Cambridge), Corporate Finance, Leadership, Risk management, Commercial Bank, Principles of Banking, Business Communication, etc…He also held an MBA in Intl Management from Graduate School of International Management, International U of Japan from 2005-2007 with full ADB scholarship. He used to be an exchange MBA student at Arhus business school, Denmark and at Tuck school of business, Dartmouth College, USA, in 2006. In previous years, 1998-2002, he got a Bachelor of Economics from Banking University in Ho Chi Minh city where he received partial tuition scholarship. In 2007, He and his colleagues have presentation at Urasa Conference, Japan(www.iuj.ac.jp/platform/pdf/s7-2.pdf). In 2010, he received full IT scholarship at SKT Telecom IT training centre, Viet Nam and full Master scholarship for MSc in International Banking and Finance from Lingnan University, Hong Kong. From 2010 to 2012, he is a member of Royal Journal in the UK.
Among his papers is Should SA Tour, a Singapore travel company, uses external financing to expand MICE business in China and Singapore markets
, accepted at the 1st International Conference on Business and Management placed in Turkey. Another paper A Set of Limited Asian Pacific Corporate Governance standards After Financial Crisis
is accepted for the 36th Annual Economic & Business Historical Society Conference in Columbus, Ohio, USA in Jan 2011 and at the Advances in Business-Related Scientific Research Conference 2011, Italy. Next paper Corporate Restructuring Under Holding Company Structure – NTT Case
with his IUJ’s group is accepted for presentation at International Conference on Social Science and Humanity – ICSSH 2011, Singapore. His recent paper series of Corporate governance standards
are posted on various e-journals such as: Corporate Finance: Governance, Corporate Control & Organization eJournal, International Corporate Finance eJournal, IO: Firm Structure, Purpose, Organization & Contracting eJournal, Organizations & Markets: The Firm as a Nexus of Contracts (Boundaries of the Firm) eJournal and Cognitive Social Science eJournal.
While his study is in overseas, mostly his jobs are in Viet Nam. He used to work for several companies such as: BIDV (Bank for Investment and Development of Viet Nam), Citibank-Viet Nam, and Saigon Commercial Bank-Viet Nam where he worked in Risk and ISO department. Besides, he used to be Visiting Finance lecturer at University of Economics, Hung Vuong, IT and Van Lang University, Ho Chi Minh city. He took several trips to Itochu Group, Japan and Deutsche Bank AG, Japan in 2007. In 2008, he received an ISO 9001:2008 Lead Auditor Certificate from GIC, UK, as well as a SMEs Management Assessment Certificate from Asian Productivity Org, Japan. Before 2005, he held a Certificate for Modern Banking training by Professor Vilanova, Toulouse University, France.
In April 2011, his paper is accepted both the 1st Intl Conference on Business and Management, Turkey and at the 36th Economic and Historical Business Society Conference, Ohio, USA. And his first publication is the book title The Backbone of Corporate Governance Standards Around The World : Case Studies and Analysis, First Edition
in Jan 2011.
Visit his personal information at: www.dinhslife.blogspot.com and welcome any email to dtnhuy2010@gmail.com. One of his ambitions is developing the book into more detailed chapters by cooperating with many experienced graduate lecturers and Professors, and expand his luxurious hostel chains in HCM city Vietnam.
2nd Co-Author
9th.jpgMs Do Thi Sang: She was born in 1990 in Binh Dinh city Vietnam, a close kind friend of main author Dinh Tran Ngoc Huy and put lots of efforts in supporting the publish of this book version. Her area is modern educational methods for kids.
3rd Co-Author
Image36854.JPGMBA Vo Kim Nhan, teaching at Tien Giang University, majoring in Business Administration and International Business, is a full-time PhD student at the University of Economics Ho Chi Minh City. She studied science and teaching in the field of international business, tourism management, research econometric tools in economics such as PLS-SEM, SPSS, AMOS.
Email: vokimnhan@gmail.com
4th Co-Author
Image36898.JPGMBA Duong Thi Hong Nhung, currently working at Section of tourism enterprises management, Faculty of Tourism and Hospitality, Thuongmai University
Email: nhungksdl@tmu.edu.vn
5th Co-Author
5th.jpgDr Nguyen Thi Phuong Hong, currently working at University of Economics Ho Chi Minh city (UEH) Vietnam with 20 years experience in teaching accounting and auditing. She got Backelor, Master and PhD at UEH, has published many articles in accounting and auditing field and is the main author of an auditing book.
Email: hongntp@ueh.edu.vn
6th Co-Author
Image36934.JPGDr. Pham Minh Dat, currently working at Thuongmai University Vietnam
Email: minhdat@tmu.edu.vn
7th Co-Author
Image36968.JPGDr. Nguyen Thanh Vu, currently working at Nguyen Tat Thanh University Vietnam. He was born in 1979, holds a Ph.D. in Business Administration in 2016 from Ho Chi Minh City University of Economics. He is a research expert in economic fields and experts in economic zones, industrial parks and export processing zones. He has been a graduate lecturer in Human Resource Management, Organizational Behavior Management, International Business Administration, Investment Project Management, Financial Management, Risk Management, and Administration, public finance, public policy and corporate culture at local universities. He has published in many prestigious international journals (Scopus), participated in international seminar forums, and published in domestic journals of economics and management, business, research econometric tools in economics such as PLS-SEM, SPSS, AMOS. In addition, he has made many contributions to the start-up work of Vietnamese businesses.
8th Co-Author
Image37005.JPGDr. Than Van Hai graduated with a PhD in Business Administration from Ho Chi Minh City University of Economics in 2019. He is a research and teaching specialist in the field of marketing, sports marketing, media and risk management. In addition, he has had more than 20 years of practical start-up practice and successful management of leading media enterprises in Vietnam market
9th Co-Author
Image37038.JPGDr. Phan Minh Duc is currently the Head of the Department of Banking and Finance - Faculty of Economics and Business Administration of Dalat University, and is the main lecturer of the subjects: Corporate Finance Management, Risk Management, Economics economics, econometrics. Graduated Doctorate in Business Administration 2016 in Ho Chi Minh City University of Economics. He is a research and teaching specialist at both undergraduate and graduate levels at Dalat University and other universities in the country. Recently, he has made many domestic and foreign announcements in the field of Economics, actively participating in prestigious international seminar forums.
10th Co-Author
10th.jpgDr Nguyen Van Thuy, currently working at training Division at Banking Academy, Ha noi Vietnam. His area is IT and Management Information System.
11th Co-Author
11th.jpgDr. Pham Quang Huy is a Senior Lecturer at the School of Accounting, University of Economics Ho Chi Minh City, Vietnam. He has graduated in doctoral student with Accounting major. He also earned the Vietnamese Certified Public Accountant from Ministry of Finance and has strong expertise in accounting and management in public sector. Regard to scientific research, he has finished publishing numerous peer-reviewed local as well as international journals and created a significant contribution to the management in public sector through several scientific research projects in Vietnam. He has awarded the Young Scientific Talen in Vietnam that issued by Ministry of Education and Training together with Typical Young Teachers in Ho Chi Minh City with 6 consecutive years (i.e. from 2012 to 2017). He has recently worked on the project targeting at exploring the new management application in performance enhancement in Vietnam public sector organizations under the support of State budget. To the teaching fields, he has responsibility to give the lecture with the academic subjects, as following: International Accounting, Public Sector Accounting, Accounting Principles, State Audit, Internal Control in Public Sector, etc. His current studies consist of performance measurement and management in public sector, internal control and quality of financial statement information in public education sector as well as the impact of technological initiatives on the orientations and operations in public sector.
12th Co-Author
Image37071.jpgMr Dinh Tran Ngoc Hien born in 1986, used to be an Apprentice at P&G Vietnam (2010) and living in Ho Chi Minh city at the present time, is the experienced Sale Manager for Qubetrix Singapore Co., who is the co-author of the book Modern International Coporate Governance Principles and Models After Global Economic Crisis
. He graduated from Technical University Ho Chi Minh city, with his thesis Smart House Solution
.
ACKNOWLEDGEMENT
After the previous three (3) governance series papers "A Set of Limited Asian Pacific Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation", accepted at the 36th Economic and Historical Business Society Conference, Ohio, USA, and "The Backbone of European Corporate Governance Standards after Financial Crisis, Corporate Scandals and Manipulation", and The Summarized Evaluation of The US and Latin Corporate governance Standards
posted at several ejournals such as Corporate Finance: Governance, Corporate Control & Organization eJournal, 2011, in a systematic series, this is an opportunity to look at the research environment.
One of this book’s scopes is to provide CEOs, COOs and busienss consultants of relevant companies with proper controversial corporate governance matters.
I would like to take this opportunity to express my warm thanks to Dr. Yea-Mow Chen and Dr. Yu Hai-Chin at Chung Yuan Christian University for class lectures, Dr. Borucki at Temple University, also my ex-Corporate Governance sensei, Dr. Shingo Takahashi, sensei Jay and sensei Xing at International University of Japan. My sincere thanks are for Jade, Jenny Tucker, Darcey, Brittany W. and the editorial office, for their helpful work during my research. And this is also my chance to send special thanks to my ex-Executives, Mr. Tran Van Vinh at BIDV-HCM City, Mr. Le Dang Xu at COFICO – HCM city, Ex-GD. Pham Anh Dung, Nguyen The Linh and his colleagues at SCB-HCM city, as well as Mr. Nguyen Ba Vuong, Dinh Ngoc Son, Nguyen Quoc Sy and colleagues at WTB- HCM city, Viet Nam. I also would like to express warm thanks to the help of Dr. Ngo Huong, Dr. Ho Dieu, Dr. Nguyen Thi Nhung and my Lecturers at Banking Universities – HCM city, as well as SKT Telecom Viet Nam Board.
Lastly, thank you very much with special emotion for my family, mother Tran Thi Manh and father Dinh Van Tai, uncles, aunts and relatives, my colleagues, officers, and brother in assisting convenient conditions for this edition. And we would like, also, to show great thanks to our uncle, business consultant Tran Huy Phuoc, for his strong support this publication as well as Mr.Dung and editotial office at Kinh Te bookstore, for their in-need help.
CONTENTS
About the book
Brief Description of Its Application
About the Author
Acknowledgement
Abstract
Part 1 :Theories on Corporate Governance Issues and
Standards after Financial Crisis
I – Corporate Governance
II – Good Corporate Governance
III – Participants In Corporate Governance System
IV – An Example Of Corporate Governance Operation
V – Determinants Of Corporate Governance
VI – Corporate Governance And Accounting
VII – Corporate Governance And Auditing
VIII – Corporate Governance And Risk Management
IX – Corporate Governance And Mangement Control
X- Corporate Governance And Directorate Governance
XI – Corporate Governance And Compliance
XII – Corporate Governance And Communication
XIII – Corporate Governance And Training
XIV – Corporate Governance And Committees
XV – The Role Of Corporate Governance In Economy
XVI–Challenges Of Establishing Corporate Governance
XVII–Corporate Governance And It Governance
XVIII–Corporate Governance And Business Performance
XIX–Corporate Governance Appraisal
XX–Corporate Governance And Firm System
XXI–Other Relevant Corporate Governance Theories
XXII–Corporate Governance And Financial Crisis
XXIII–Corporate Governance And Company Scandals
XXIV–Corporate Governance And Manipulation
XXV–Contemporary Corporate Governance Debates
XXVI– Corporate Governance, Marketing And Csr
XXVII– Corporate Governance And Business Culture
XXVIII– Corporate Governance And Competition & Change
XXIX– Corporate Governance In China
XXX– Stakeholder Relationship In Corporate Governance
XXXI–Corporate Governance And Tqm
XXXII–Corporate Governance And Lean Manufacturing
XXXIII–Corporate Governance And Mgt Accounting System
XXXIV–Corporate Governance And Business Communication
XXXV–Corporate Governance And Company Training
XXXVI–Corporate Governance And Human Resource Mgt
XXXVII–Corporate Governance And Operation Management
XXXVIII–Corporate Governance And Implementation
XXXIX–Corporate Governance And Mdm
XXXX–Corporate Governance And Consulting
XXXXI–Corporate Governance, Mgt And Ownership
XXXXII–Corporate Governance And Ob
XXXXIII–Corporate Governance And Strategic Mgt
XXXXIV–Corporate Governance And Corporate Finance
XXXXV–Corporate Governance And Leadership
XXXXVI–Corporate Governance And E-Commerce Mgt
XXXXVII–Corporate Governance And Ceo Compensation
XXXXVIII–Corporate Governance, Csr And Sale
XXXXIX–Corporate Governance, Csr And Npd
XXXXX–Corporate Governance And R&D
XXXXXI–Corporate Governance And Customer Service
XXXXXII–Corporate Governance In Family- Owned Business
XXXXXIII–Corporate Governance And Environment Protection
XXXXXIV–Corporate Governance And Supply Chain Management
XXXXXV–Corporate Governance And Health Care
Part 2 : Six (6) Global Case Studies on Corporate Governance
Issues and Standards after Financial Crisis
Case Questions
Glossary And Abbreviation
Case No.1 Corporate Governance Issues And The Construction Of A Set Of Limited Asian Pacific Corporate Governance Standards After Financial Crisis, Corporate Scandals And Market Manipulation
Case No. 2 The Backbone of European Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation
Case No. 3 The Summarized Evaluation of The US and Latin America Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation
Case No. 4 The Appraisal of Comparative Africa Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation
Case No. 5 A Set of Comparative International Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation
Case No. 6 A Comparison of Comparative China Corporate Governance Standards After Financial Crisis, Corporate Scandals and Manipulation
Part III: Conclusion and Recommended General Principles
of Corporate Governance – Relevant Analysis on Viet Nam
corporate governance
Appendix 1 -ICGN Global Corporate Governance Principles: Revised (2009)
Appendix 2 -User Manual
Appendix 3 -Implementation Form of Twenty (20) Comparative International CG Principles
Appendix 4 -CFA 2005 Code
Appendix 5 -OECD Corporate Governance Principles 2004
Appendix 6 -Resume
Appendix 7 Author Resume – Dinh Tran Ngoc Hien
Reference
ABSTRACT
Globalization trend has both strong and weak features that include development, growth, sustainability, integration, challenges, crises and scandals. The financial crisis in 1997-1999 and 2007-2009 are among vital attributes to failures in corporate governance system in enterprises. Accompanying and following its impacts were corporate scandals such as Tyco, Worlcom, Enron, Adelphia, Vivendi, AIG, Bradford & Bingley, which put new innovative challenges on enterprises’ governance system.
The recent corporate governance trend is affected by and shown in the title for part one of this book: Theories on Corporate Governance Issues and Standards after Financial Crisis, then, its following Practices are presented in next parts.
We can infer from it that corporate governance principles and standards are causes for a corporate culture in which it is affected by processes, corporate rules, individual roles and organization structure. Moreover, the reason to publish it is that through the financial crisis and corporate scandals that have negative impacts on organization productivity, this book aims to provide a corporate governance structure with principles after performing comparative analysis that partially, enhance governance and partially, contribute to productivity.
To achieve a set of limited comparative international corporate governance standards, we divide the book into three (3) sessions in which session two (2) presents our findings on corporate governance issues and general principles in four (4) regions: Asian Pacific, Europe, Africa and America.
PART ONE
THEORIES ON CORPORATE GOVERNANCE ISSUES AND STANDARDS AFTER FINANCIAL CRISIS
The contents are presented in the following order:
1. Corporate governance
2. Good Corporate governance
3. Participants in Corporate governance system
4. An example of Corporate governance operation
5. Determinants of Corporate governance
6. Corporate governance and Accounting system
7. Corporate governance and Auditing
8. Corporate governance and Risk management
9. Corporate governance and Management control
10. Corporate governance and Directorate governance
11. Corporate governance and Compliance
12. Corporate governance and Communication
13. Corporate governance and Training
14. Corporate governance and Committees
15. The role of Corporate governance in economy
16. Challenges in establishing a good Corporate governance system
17. Corporate governance and IT governance
18. Corporate governance and Business performance
19. Corporate governance appraisal
20. Corporate governance and Firm system
21. Other corporate governance theories
22. Corporate governance and Financial crisis
23. Corporate governance and Company scandals
24. Corporate governance and Manipulation
25. Contemporary Corporate governance debates
26. Corporate governance, Marketing and CSR
27. Corporate governance and Business culture
28. Corporate governance and Competition & Change
29. Corporate governance in China
30. Stakeholder relationship in Corporate governance
31. Corporate governance and Total Quality Management (TQM)
32. Corporate governance and Lean manufacturing
33. Corporate governance and Management Accounting System
34. Corporate governance and Business communication
35. Corporate governance and Company training
36. Corporate governance and Human Resource Management
37. Corporate governance and Operation Management
38. Corporate governance and Implementation
39. Corporate governance and Management Decision Making
40. Corporate governance and Consulting
41. Corporate governance, Management and Ownership
42. Corporate governance and Organizational Behavior
43. Corporate governance and Strategic Management
44. Corporate governance and Corporate Finance
45. Corporate governance and Leadership
46. Corporate governance and E-Commerce management
47. Corporate governance and CEO Compensation
48. Corporate governance, CSR and sale activity
49. Corporate governance, CSR and New Product Development (NPD)
50. Corporate governance and Research & Development
51. Corporate governance and Customer service
52. Corporate governance in Family-Owned Business
53. Corporate governance and Environment Protection
54. Corporate governance and Supply Chain Management
55. Corporate governance and Health Care
I – CORPORATE GOVERNANCE
Generally speaking, Corporate governance comprises of two (2) parts: 1) hardware
which composes of sets of rules, procedures and processes governing a company or organization to achieve their goals, and 2) software
which includes different relationships, communication and interaction among various participants: between company, board and shareholders, or between company and its stakeholders to preserves and enhances values for them.
In many countries and organization, the corporate governance principles promulgated by the Organization for Economic Cooperation and Development (OECD) can be used as a benchmark by governments as they evaluate and improve their laws and regulations. They also can be used by private sector parties that have a role in developing corporate governance systems and best practices, though a comparative analysis will be performed in later sessions.
II – GOOD CORPORATE GOVERNANCE
Corporate governance relates to the internal means by which corporations are operated and controlled. A good corporate governance requires:%%
- The company has its own business philosophy, as a whole entity, with actions in the long term best interests of its shareholders and suitable in a modern social economic market.
- A clear division of responsibilities among Chairman, CEO, Board, Supervisor, Management team and shareowners.
A set of good general principles to build a good corporate governance (C.G) system is recommended in part three (3). In addition to, operational efficiency is considered another contributing factor to good C.G system. It is determined by several factors:
+ the advancement of technology infrastructure
+ the linkage among various departments at H.Q
+ the connection between H.Q and regional branches
+ the quality of precesses and personel involved
+ whether right distribution of rights and obligations to right people, for example, whether the individual directors make right decision when the business moves too fast or too slow
+ Or, whether the goal of operation is making progress in business culture or only maximizing ROE
+ It also includes size, composition and efficiency of meetings
III – PARTICIPANTS IN CORPORATE GOVERNANCE SYSTEM
They involve, but not limited to: CEO or chief executive, board of directors, chairman, executives and non-executive directors, committees of boards, supervisory board, employee, shareowners or shareholders, and other stakeholders such as: authority, consultant, external auditor, creditors, suppliers, customers and other related-parties. The below figure show us an example for new governance model (by CPFL Energia 2008).
Figure III.1
65020.pngBoard is a vital component in any corporate goervnance model. Among contributing factors which affect corporate board composition are, but not limited to:
+ company size
+ firm performance (though Daily and Dalton in 1998 researched that no significant association b.t board composition and financial performance) and
+ international standards for each industry
IV – AN EXAMPLE OF CORPORATE GOVERNANCE OPERATION
Most of countries in the world follow certain corporate governance guidelines and principles. These principles tend to change over time. We show in the below table an example of corporate governance in Berkshire Hathaway company, USA.
Figure IV.1
Mini-case: Berkshire Hathaway, Co. (2010)
Corporate and Directorate governance matters
- So-called qualified director:
+ Individuals with very high integrity, shareholder orientation and a genuine interest in the Co.
+ Elect a majority of independent directors , aligned with the section 303 A of the the New York Stock Exchange Listed Company Manual
+ And the Governance, Nominating and Compensation Committee is in charged of electing or nominating them
- The Board composition:
+ Will involve 3 Committees: a-Audit; b-Governance, Compensation and Nominating; c-Executive
- The Board establishes additional or different Committee, if necessary.
- The independent directors will serve in Audit, GC and N Committee.
- The Board meetings:
+ Chairman of the Board responsible for the agenda of each Board meeting
+ Once a year, the Board reviews the long-term Co.’s plan and major issues the Co. will face in future
+ Each director is free to raise meeting subjects not on the agenda for that meeting
- The Director compensation:
+ Paid for directors those not employee of the Company/subsidiary or spouse of an employee
+ The Co. not purchase liability insurance for its directors and officers
Do you think that these are good directorate governance standards?
V – DETERMINANTS OF CORPORATE GOVERNANCE
A corporate governance system might be affected or changed within following conditions:
- There are changes in legislation or laws governing business organization rules such as provisions of internal control and accounting practice
- There are new changes in industry or professional code or standards such as GAAP, GAAS or IFRS
- There are changes in macroeconomic factors in various stages of markets such as: financial crisis, economic depression, open economic transition stage, or corporate scandals
- There are changes in size and development stages of the company itself such as: participating in an IPO, adopting a grouping or holding company structure, mergers and acquisitions or divestitures.
- Other conditions. For example: unexpected economic, legislation and environmental risks
VI – CORPORATE GOVERNANCE AND ACCOUNTING
A good corporate governance system can not maintain without a good accounting principles and practices which is following applicable standards. It is failures in the accounting principles and standards that might lead to failures in operational system and in corporate governance system and mechanisms. Weaknesses in an improperly organized accounting system also lead to difficulties in the company’s internal control policies which go against values of company and its shareholders.
VII – CORPORATE GOVERNANCE AND AUDITING
Good auditing mechanisms are an important component to build corporate governance’s best practices. It is the lack of proper auditing mechanisms implementation leading to errors in corporate governance structure and system and one of major business risks, i.e financial risks, and directly harms long term interests and values of company’s stakeholders. Therefore, it is not big surprise that many governmental, non-profit and profit organizations find an appropriate corporate governance system and an audited financial reporting system to increase the market valuation of their companies.
VIII – CORPORATE GOVERNANCE AND RISK MANAGEMENT
Corporate governance and Risk management has a positive relationship. A weak risk management policies undoubtedly can, but not limited to, provide company’s leaders and management with weak and insufficient information system that might causes losses and difficulties in time of financial crisis. This is the point to make CEOs nowadays, both in developed and in emerging markets, always have certain concerns on establishing good risk management systems which are affected by, recently, Basel standards.
IX – CORPORATE GOVERNANCE AND MANGEMENT CONTROL
Many people think that they are the same or no significant differences. Management control provides top management team with tools and control mechanisms which enable them to control a business system better in a modern economy. And corporate governance is a wide terminology, which are including internal processes of controlling.
X- CORPORATE GOVERNANCE AND DIRECTORATE GOVERNANCE
Directorate governance, or DG, term is a component of a corporate governance, or CG, system. DG deals with components of board of directors including effectiveness and composition and size of board, or organizational structure, nominating and compensation policies for board, but not limited to, board of directors’ independence. On contrary, CG involves also components of supervisory board such as decision supporting, nomination and removal, and components of information disclosure as well. Our later sessions two (2) and three (3) will clarify this point clearer. Anyhow, a stronger directorates is one key to increase efficiency of corporate governance and makes the difference when the company makes the same profit as its competitors, while an inefficient directorates caused many problems, esp. the recovery ability of the co. after the financial crisis.
XI – CORPORATE GOVERNANCE AND COMPLIANCE
Most of international standards link corporate governance and compliance together. The goals or objectives for operating any business can not go out of track of compliance with laws, regulations and applicable standards. After lots of scandals, accounting frauds, we have enough evidence about how lacking of compliance with rules cause enough troubles for business, economy and society.
XII – CORPORATE GOVERNANCE AND COMMUNICATION
A good corporate governance system can not be operated well if it is lack of good mechanisms for building good corporate communication. The need of organizing good information disclosure with appropriate policies is rising recently together with transparency standards. It is the goal of any organization in satisfying its long term stakeholder and shareholder’s interests that drives the demand for a better communication system between company and investors, between board and shareholders and between chairman and stakeholders.
XIII – CORPORATE GOVERNANCE AND TRAINING
A good corporate governance system can not be operated well if it is lack of good training program and plan to ensure that all managers, directors and employee in company to understand roles, right and responsibilities in each division, in performing tasks as well as in establishing and maintaining relationships with their partners, shareholders and stakeholders.
XIV – CORPORATE GOVERNANCE AND COMMITTEES
It will be a disadvantage if we forget to mention roles and activities of different committees in the corporation. Comittees plays an important role in increasing cooperation and therefore, the directorates efficiency. The committee is good for diversity as well, so, it enrichs the business, but of course, be careful because the committes not surely enhance efficiency
XV – THE ROLE OF CORPORATE GOVERNANCE IN ECONOMY
We have evidence to show that the significance of corporate governance is rising in a modern economy. It is becoming important not only because it concerns with effectiveness, efficiency and profitability of countries’ enterprises, but also because modern corporate governance deals with leadership matters such as leading for profitability and leading for harmony coordination benefits or for resolving conflicts of interests. The financial crisis taking place in 1997-1999 put Asian markets and enterprises under challenges of improving their corporate governance system and again it is the crisis happening in 2007-2009 brings European, and American enterprises back to the corporate governance roundtable.
XVI–CHALLENGES OF ESTABLISHING CORPORATE GOVERNANCE
Despite of its importance, there are certain challenges and difficulties in establishing and maintaining a sound corporate governance system. It is not only the trouble in setting the system in accordance with standards such as being comprehensive, scietific, systematic and feasible, but also it is not an easy going issue. It is difficult to solve, esp.when we look at the corporation as different types of: public and private companies, or profit and non-profit enterprises, or foreign and local firms. Moreover, recently is rising the issue of Who are qualified as supervisor in corporation?
. As stated in The China’s Enterprise Law, the board of supervisors compsed by shareholders and staff representatives with suitable proportion stipulated by the company and elected by the staff democratic election. Is it enough? We can find there are some places where the firm directors need advise before making decision as they might be good at