Professional Documents
Culture Documents
IBU5GW
Governance
in a Globalising World
Week 1
Background to concepts of
governance
Welcome
Unit co-ordinator: Dr Suzanne Young
Department of Management
E-mail: S.H.Young@latrobe.edu.au
Instance coordinator: Josephine Thi Hoang
Consultations: Thursday 14.00 15.00.
HU3 Building, room 119.
Email: thi.hoang@latrobe.edu.au
Prescribed text:
Steen, T. & Conyon, M., 2012,
Corporate Governance: Mechanisms and
Systems
Berkshire: McGraw-Hill.
Assessments
In order to qualify for a pass this subject, students
must:
submit ALL assessment items AND
achieve a MINIMUM aggregate mark of 50% for the
subject
Assessment task Limit Marks Due date
Individual assignment 2000 words 30% Week 4
2000w
Group Assignment 30% Week 9
/student
Take-home exam 2000 words 40% Week 12
1
15/07/2016
Assessment 1
Due date: Week 7 ( 5 September 2016)
Choose a newspaper or magazine article (not a case study)
that is corporate governance related and published in the last
2 months and complete the following:
Outline and summarize the arguments made in the article.
Discuss the corporate governance issues raised
Why are these arguments being made in the media?
Conclude by providing your opinion about the corporate governance
issues raised in the article.
2
15/07/2016
Assessment 3
Our classes
Lecture
Case studies
Discussion
Group work
A thought:
Keith B. Darrell
3
15/07/2016
...and another
Corporation A Definition
An instrument through which capital is assembled
for the activities of producing and distributing goods
and services and making investments. It should have
as its objective the enhancement of profit and gains
for shareholders.
Monks R 2004 Corporate Governance Carlton; Blackwell Publishing
4
15/07/2016
Five Characteristics
Limited liability;
Individual members not liable for debts on bankruptcy
Transferability;
Transfer ones holdings freely [shares]
Legal personality;
Lives for as long as it has capital, difficult to prosecute members
acting on behalf of the corporation e.g health and safety,
corporations cannot be sent to prison.
Centralised management;
Power to determine direction given to directors, power to control
day to day activities given to managers
Perpetual lifeline;
Assets and structure exist beyond the lifetime of any of its
members.
Example
ENRON
USs 7th largest publicly traded corporation until its
bankruptcy in late 2001.
Was an energy, commodities, and services company
with 20,000 staff and presence in 40 countries.
How did things go wrong:
Traded in electronic energy markets
Used convoluted financial and accounting structures such
as forward, prepaid contracts, hedge, etc. and created
off-balance entities to hide debt.
5
15/07/2016
Arthur Andersen
Was founded in 1918; offered
accounting services and
management consultancy to
businesses.
Think Straight
1997-2000: Tension between Talk Straight.
auditing vs management teams
=> Break-away of the consultancy
group to form a new company
named Accenture => A weaker,
smaller Andersen
Arthur Andersen
In early 2000: Increase of revenue
top priority
Enron and fast-growing, high risk-
taking: targeted clients
Enron paid $1mil per week =>
Compromised Andersens motto
Example
The Barings Bank:
Founded in 1762 by Sir France Baring
The oldest merchant bank in England until
its collapse in 1995
Nick Leeson in 1990s lost of $1.4 billion
speculating -Primarily on futures contracts
Nick Leeson
- Appointed general manager of a new operation
in futures markets on the Singapore
International Monetary Exchange (SIMEX)
In charge of both making deals and overseeing
the paperwork on these deals
Caused the collapse of the Baring Bank
6
15/07/2016
Introducing governance
7
15/07/2016
Definition of
Corporate Governance
To protect and advance the interests of
shareholders through setting the strategic direction
of a company and appointing and monitoring capable
management to achieve this.
[Walker Review of Corporate Governance 2009]
8
15/07/2016
Henry Bosch
9
15/07/2016
Recommendations Only
Board strive for above average performance
Monitor own Board performance
Chairman non-executive
Audit Committee
Independent outside auditor
Calibre of Board
Incentives for above average performance
Fred Hilmer
But!!
Market control;
Regulatory control;
Political and cultural control.
10
15/07/2016
China stock
market hit by
biggest one-day
fall since 2007
30 June: Greek
failure to make IMF
payment deals
historic blow to
eurozone
Corporate Crimes
Fraud;
Ray Williams,
Embezzlement; HIH
Price fixing;
Health and safety;
Tax evasion;
Rodney Adler, One.Tel, HIH
Bribery;
Undisclosed political donations.
11
15/07/2016
Punishment?
Balance Effectiveness
Approaches
Stakeholder Owners Financial return
Approach the Employees
Satisfaction, pay,
supervision
satisfaction of groups
that have a stake in Customers Quality
12
15/07/2016
Improve public
confidence & trust;
Communicate more
clearly to all stakeholders;
Develop more
transparency;
Participation of
shareholders;
Maintain ethical
standards.
13
15/07/2016
Why governance?
Crucial for financial performance
Aims to ensure good decision making
Create checks and balances and prevent
abuse of power
The rise of institutional investors have led
corporate governance to become a
fashionable topic
Corporate failures and scandals attracted
additional attention to the field
Summary
Corporate governance essentially concerns
how various mechanisms contribute to the
creation of value in corporations
The variety of mechanisms available is
important, as it allows investors and
managers to make choices suitable for the
individual firm
Some corporate governance essentially
concerns finance: how to best utilise the
huge savings accumulated by institutional
investors
14
15/07/2016
Conclusion
[Justice Owen, Report of the HIH Royal Commission]
Final Thought
[OECD 2004
Principles of Corporate Governance.]
[Young S & Thyil V [2008] Principles-Based Anglo Governance Systems is not a Science but
an Art Corporate Ownership and Control Vol. 6 Issue 1 Fall pp 127-137]
15
15/07/2016
Next week
16