ASSIGNEMENT

1. Risk of Foreignment and the measures that can be taken by the host state to avoid such risks. Corporate Governance and Nepalese Companies Act and the reason of corporate governance failure in Enron and Parmalat.

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Corporate Governance

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When?
It is reasonably difficult to determine From the time of separation of ownership and control When companies started playing pivotal role of the corporate form in generating wealth for nations; When they started developing huge corporate powers When those powers started affecting peoples life When consequences that flow from collapses of large public corporations. 3/12/13 when beyond maximization of profits

-Why

After debacle of Enron in 2001 and further led to Worldcom, Pramlet, Quest, Global crossing triggered the developments of corporate governance issue in the corporate world. The number of scams and frauds that have surfaced in the corporate world shook the confidence of investors. Further, there is an increasing need among the companies to tap international markets for capital need in the new globalised and liberalised scenario. This 3/12/13 entails them to observe high standards of

Outcomes

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Therefore investors today for the security of their money, are demanding more transparency in business operations, adequate and qualitative financial and non financial information and more accountability of companys board and management. The society is expecting the companies contribution towards the society as it exploits societal resources. Shareholders is expecting high profits
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Delegation of power Independent monitoring Good communication Risk management Satisfaction of every concerned.

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What is Corporate Governance?

One thing that is clear about the concept of corporate governance is that there is no set definition as to what it means.
Commentators often speak of corporate governance as an indefinable term, something like love and happiness which we essentially know the nature of, but for which words do not provide an accurate picture.
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Many have attempted to lay down a general working definition of corporate governance, yet one definition varies from another, and this often leads to confusion. Others, like the UK Cadbury Report (1992) and the South African King Report (1994), basically only say that corporate governance is the system by which companies are directed and controlled. Milton Friedman; The conduct of business in accordance with shareholders desires which generally is to make as much money as possible, while conforming to the basic rules of the society embodued in law and local customs 3/12/13

Parkinson says; ..the process of supervision and control intended to ensure that the companys management acts in accordance with the interest of shareholders James D Wolfensohn, Former President of World Bank; Coporate governance is about promoting fairness, transparency and accountability. OECD Defines; 3/12/13 A system by which business

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Directors Duties and Other Obligations under the Corporations Act (November 2001), Australia: Corporate governance refers generally to the legal and organizational framework within which, and the principles and processes by which, corporations are governed. It refers in particular to the powers, accountability and relationships of those who participate in the direction and control of a company.

Corporate governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimized.
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The ASXs Principles of Good Corporate Governance and Best Practice Recommendations :

Corporate governance specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders, stakeholders and spells out the rules and procedures for corporate decision making.
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John Farrar, Corporate Governance and the Judges (2003) Bond Law Review 49;

the process of controlling management and of balancing the interests of all internal stakeholders and other parties who can be affected by the corporations conduct in order to ensure responsible behaviour by corporations and to achieve the maximum level of efficiency and profitability for a corporation.
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Thus, Corporate Governance

is a process of controlling and directing the company. the process of controlling management and of balancing the interests of all stakeholders who can be affected by the corporations conduct; aims at ensuring responsible behaviour by corporations; has the ultimate goal of achieving the maximum level of efficiency and 3/12/13 profitability for a corporation.

PRINCIPLES OF CORPORATE GOVERNANCE

Transparency Disclosure Accountability Performance of responsibility Separation of powers Rule of law/ fairness Social, regulatory and environmental concern
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Board of Director in the Corporate Governance

Coordination between ownership and control Clear definition of role and powers of the board:

The board as a main functionary is primary responsible to ensure value creation for its stakeholders. The absence of clearly designated role and powers of Board Weakens accountability mechanism and threatens the achievement of organisational goals.
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Therefore, The foremost requirement of good corporate governance is the clear identification of powers, roles, responsibilities and accountability of Board, CEO and the Chairman of the Board.

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Board Skills

To undertake functions efficiently, the Board must possess the necessary blend of qualities, skills, knowledge and experience. Each of the director should make quality contribution.

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A Board should have:

Operational or technical expertise, commitment to establish leadership Financial skills Legal skills and Knowledge of government and regulatory requirement

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Board appointments:

Should appoint competent people and position should be filed through extensive search. Appointment should satisfy all legal and administrative requirements. Should be provided letter of appointment and details of their dutis and responsibilities
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Board induction and training:

Director must have broad understanding of the area of operation of the companys business, corporate strategy and challenges. Continue education and professional development programmes is essential

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Board Independence:

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Independence is must for sound corporate governance. By appointing independent board of director. Independent director will ensure that there are no actual or perceived conflicts of interests. It also ensures that Board is effective in supervisiing the activities of Mgmt.

Board Meeting:

Director must devote sufficient time and give due attention to meet their obligations. Attending board meeting regularly and preparing thoroughly increases the quality of interaction Meetings enable directors to discharge their responsibilities
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Code of conduct:

Code of conducts of corporations are to be communicated to all stakeholders and should ensure that they are understood and followed by each member of the corporation

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Strategy Setting:

Objective of the company must clearly documented in long term corporate strategy including annual business plan. Business and community responsibilities: Business entity is basically for commercial motive yet it must also take communitys obligations.
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Effect of good corporate Governance

Stakeholders

Entrepreneurs

Investor s protectio n 3/12/13

Social Welfare

Growth in business

Better Good will

NATION: Overall Economic

Problems of Corporate Governance

Ownership vs control Ineffective leadership of the board A ship cannot reach the shore without the able guidance of its captain (Crew members) Lack of competence of board of members A ship cannot reach the shore without the able guidance of its Crew members. Lack of trust among the board members.
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No clear definition of functions, roles responsibilities. This leads to lack of clarity between role of management and the board. Appointment of inappropriate board of members. Lack of appropriate size of board. Lack of communication
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Non disclosure or wrong disclosure of financial and companys report. Lack of appropriate audit. Less remuneration and more works. Lack of interest to contribute society

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Legislation

Clear and unambiguous legislation and regulations are fundamental to effective corporate governance. Legislation that requires continuing legal interpretation or is difficult to interpret on a day-to-day basis can be subject to deliberate manipulation or inadvertent misinterpretation
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Management Environment

Setting up clear objectives, establishing due process, providing for transparency and clear enunciation of responsibility and accountability. Implementing sound business planning, encouraging business risk assessment. Having right people and right skill for the jobs, establishing performance evaluation measures and recognition of individual and group contribution.
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