Page 182 - DCOM106_COMPANY_LAW

Unit 11: Corporate Governance

may include organisational plans, business plans, marketing plans, policy and procedures Notes
manuals, risk management reviews and/or quality assurance manuals. The features are:
Strategy setting and planning

Risk management
Consultation
Roles and responsibilities
Skills, independence and resources

Conduct and ethics
Performance
Succession planning
Financial and operational reporting

Audit committees.
Good corporate governance is important to professional investors. Major institutions rank
corporate governance on par with the firm’s financial indicators when evaluating investment
decisions. A McKinsey study found that professional investors are even prepared to pay large
premiums for investments in firms with high governance standards. Premiums ranged from an
average of 13 percent in North America and even Western Europe to 20 or 25 percent in Asia and
Latin America and even higher in Easter Europe and Africa. On average when moving from
poorest to best on corporate governance, firms could expect an increase of 10 to 12 percent in
market value.

A number of bodies have published guidelines for good corporate governance. One found very
useful was the organization for Economic Co-operation and Development’s 1999 publication
“OECD Principles for Corporate Governance,” which defined corporate governance as “providing
the structure for determining organizational objectives and monitoring to ensure that objectives
are attained”. The OECD emphasized that “there is no single model of good corporate
governance,” but it noted that in many countries corporate governance is vested in a supervisory
board that is responsible for protecting the rights of shareholders and other stakeholders
(employees, customer, creditors, and so on). The board, in turn, works with a senior management
team to implement governance principles that ensure the effectiveness of organizational processes.

Corporate and Key Asset Governance

A framework for linking corporate and IT governance is proposed. The top of the framework
(Figure 11.1) depicts the board’s relationships. The senior executive team, as the board’s agent,
articulates strategies and desirable behaviors to fulfill board mandates.
Strategy is viewed as a set of choices. Who are the targeted customers? What are the products and
service offerings? What is the unique and valuable position targeted by the firm? What core
processes embody the firm’s unique market position?

Task In the US, corporate governance became a high profile issue as a result of corporate
scandals and business failures, such as Enron and WorldCom. However, internationally,
similar scandals have made corporate governance an issue that all organizations have
made a business priority. Discuss.

LOVELY PROFESSIONAL UNIVERSITY 177