stakeholders approach of corporate governance of Banks-The German Model

Muhammad Saad hayat ( MAJU) Aleem ( LUMS) shazaib ( LUMS)

Introduction
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled.

governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.
The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.

The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between entities, including family owned businesses and stateowned/controlled enterprises, and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. Draft of Corporate Governance Principles

Benefits To Society
Helps create competitive, modern and healthy companies. An effective tool against corruption.

Helps attract investment.

Helps foster healthy competition. Helps prevent banking crises.

Perspective of the Corporation

Maximizing value subject to meeting the corporations financial, legal and contractual obligations. Board of directors must balance the interests of shareholders with stakeholders: employees, customers, suppliers, investors, communities in order to achieve long-term sustained value.
(World Bank)

Stakeholder
Stakeholder theory can be defined as any group or individual who can affect or is affected by the achievement of the organizations objectives.

Stakeholders to be Accountable To.

Banks and creditors Institutional investors Employees

Defending Stakeholder Interests: Banks and Creditors Transparency -- or full disclosure of financial and key performance information. Laws/regulations preventing conflicts of interest involving boards of directors and managers. Procedures for bankruptcy. Enforcement of creditor rights.

Defending Stakeholder Interests: Institutional Investors Transparency and disclosure.

Duties of the auditor and professional care in the conduct of audits. Protection of minority shareholder rights.
Procedures for bankruptcy. Access to information.

Defending Stakeholder Interests: Employees

o

Transparency and disclosure

o Ethical codes Management

for

directors

and

senior

o Whistleblower protection o Well-defined role for employees in corporate governance structures

Three Models of Corporate Governance from Developed Capital Markets

1.The Anglo-American model: This is also known as unitary board model, in which all directors participate in a single board comprising both executive and nonexecutive directors in varying proportions.

2.The Japanese model : This is the business network model, which reflects the culture relationships seen in Japanese keiretsu network in which board tend to be large, predominantly executive and often ritualistic. In this model the financial institution has accrual role in governance. The shareholders and the main bank together appoint board of directors and the president.
3.The German model : Corporate governance in the German model is exercised through two boards, in which the upper board supervises the executive board on behalf of stakeholders and is typically societal oriented.

Obligation
1.Obligation to society at large:
National interest : . Political non-alignment Legal Compliances : . Rules of Law : Honest and ethical conduct : Corporate Citizenship :. Ethical behaviour : Social concern Healthy and safe working environment : Competition :. Timely Responsiveness :

1.

Obligation to investor:

Towards shareholder Measures promoting transparency and informed shareholder participation Financial reporting and records 2 Obligation to employees Fair employment practices

Equal opportunities
Humane treatment

Five Golden Rules Our Five Golden Rules of best Corporate governance practices are:

Ethics: a clearly ethical basis to the business

Align Business Goals: appropriate goals, arrived at through the creation of a suitable stakeholder decision making model Strategic management: an effective strategy process which incorporates stakeholder value. Organisation: an organisation suitably structured to effect good corporate governance

Reporting: reporting systems structured to provide

Conclusion The regulatory approach to the subject would regard governance as something on its own, to do with ensuring a balance between the various interested parties in a companys affairs, or more particularly away of making sure that the chairman or chief executive is under control, producing transparency in reporting or curbing over-generous remuneration packages. This indeed is what the Cadbury recommendations and the subsequent reports and code are all about. The essence of success in business is: having a clear and achievable goal ,having a feasible strategy to achieve it ,Creating an organization appropriate to deliver ,Having in place a reporting system to guide progress. Best corporate governance practice is about achieving the stakeholders goal, and delivering success in an ethical way. Hence it follows that it must entail a holistic application of good management. To demonstrate the totality, and the need for a holistic approach, we present below an illustration showing the pressures on a large organization.

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