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Transcript of Corporate Governance
Establish most economic activities
Ensure economic transactions deliver gains to all participants Corporate Governance How do context and culture influence Corporate Governance models? by
Eidin Madjidpour AGENDA 1) Models of Corporate Governance
2) Corporate Governance Around The World
3) International Comparisons of the Policy Environment
5) References Models of CG Influences Context
Patterns of Ownership
Markets for Corporate Control
Financing Corporate Entities
Culture Model Game Task 1:
Present the characteristics of your model and let the others find out which model you are presenting.
What are the main Pro's and Con's of your model? (Limitations) Models The American rules-based model
The UK/Commonwealth principles-based model
The Continental European two-tier model
The Japanese Business Network model
The Asian family-based model Convergence vs. Differentiation Along which lines do international CG standards converge or diverge?
Which forces are in play? Convergence Differentiation CG codes
Int. accounting standards
Global concentration of audit practices
Int. institutional investors
Private equity funding
Cross border mergers of stock markets
Research publications ( Int. conferences) Legal differences
Standards in the legal process
Stock market differences
History, culture, ethnicity Discussion Question Do you think it is possible to establish successful CG in the MENA region? Legal traditions Common law Civil law Prevails in English- speaking countries
Reactivity to precedents
largest number of IPOs Emphasizes codification (code Napoleon)
German, French and Scandinavian civil law America UK Europe Japan Asia Investor protection
Company law=Common law
Shareholder little influence
GAAP CG=principle based
CEO NOT Chairman
Shareholders can force extraordinary meetings Company Law=Rules based
Europe small finance markets
Market for corporate control=weak
Maximize shareholder value Family-centric with close family control
Family members in top positions
Minority shareholders Keiretsu =social cohesion
Large board of directors
No "need" for independent non-executive directors
Unitary board=supervisory board Shareholders protection weakest strongest Conclusion Contracting institutions Establish most economic activities Refer to laws and regulations Ensure economic transactions deliver gains to all participants A. Ensure that investors and potential investors have accurate information B. Official aim is investor protection C. Ensure that rules are being obeyed C. CEO and Chairman are separate roles A. CEO and Chairman are separate roles;
Chair is usually member of company‘s political party committee B. CEO and Chairman are combined roles A. directors can be
board of directors,
board of supervisors, or any shareholder holding 5% of shares B. shareholders with 10% voting right can call for extraordinary meeting and vote on strategic decisions or removal of director C. Shareholders have little influence on board membership How do context and culture
influence Corporate Governance
models? Corporate Governance is conditioned by:
1. Local cultures, heritage, expectations
about how business should be done
2. Legal system and reliability of judiciary
3. Standing of governance infrastructure
4. Economic, social, and religious
circumstances Models of Corporate Governance Influences
Convergence vs. differentiation Role of Institutions: (eg: financial institutions, regulatory authorities, reliable legal system... p. 165 ) Corporate Governance Around the World Comparison between countries
Case study China
Case study SINOPEC This country has key features of corporate governance in place. For example, compliance to the standards of establishing an audit committee is high. In this country, the state has a major influence in corporate governance. Listed companies have a management board and a board of supervisors. The board of supervisors is mainly decorative and includes representatives of the dominant political party. In this country, the standard of corporate governance is not very high. Boards are dominated by majority shareholders and there is widespread corruption. This country has special features of its corporate governance. For example, family-owned firms can form family councils. Case study China Management board of director (independent outside directors)Board of supervisors:
Employee and others
No responsibility on the shareholder’s behalf for return on investment
Does not have power to hire and fire
Supervisory power soft and more through influence
Theory: ensures due diligence of director and senior management, afeguards company assets, protects shareholder’s interests, can nominate external auditing firm to shareholder’s meetings
Chair and vice chair are usually members of company’s political party committee Comparison A.The corporate regulator issues the corporate governance code. The legal system in the country is based on civil law. B. Based on common law and principles C. Based on common law and rules You are consultants, representing an organizational model (UK, US, China). Convince Fu Chengyu and each other that your model is superior.
Use the situation Fu Chengyu is in now as inspiration.
Consider who your stakeholders are: shareholders, state, employees, ...
Does this make a difference? Corporate Governance Around the World Comparison between countries
Case study China
Case study SINOPEC