Corporate finance

CORPORATE GOVERNANCE CHAPTER 1 Presenter's name Presenter's title dd Month yyyy

1. INTRODUCTION WHAT IS CORPORATE GOVERNANCE?

• Corporate governance is the system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to

overcome the conflicts of interest inherent in the corporate form. � Hence, the importance of understanding the different forms of business.

• Corporate governance affects the operational risk and, hence, sustainability of a corporation.

� The quality of a corporation's corporate of governance affects the risks and value of the corporation.

� Effective, strong corporate governance is essential for the efficient functioning of markets.

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2. CORPORATE GOVERNANCE: OBJECTIVES AND GUIDING PRINCIPLES

• There are inherent conflicts of interest in corporations in which the ownership and management are separate.

• Objectives of corporate governance: � To eliminate or mitigate conflicts of interest.

- Particularly those between corporate managers and shareholders; and � To ensure that the assets of the company are used efficiently and

productively and in the best interests of its investors and other stakeholders.

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CORE ATTRIBUTES OF AN EFFECTIVE CORPORATE GOVERNANCE SYSTEM

Clearly defined manager and director governance

responsibilities

Identifiable and measureable

accountabilities

Fairness and equitable treatment in dealings

Transparency and accuracy in disclosures

Delineation of rights of shareholders and

other stakeholders

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3. FORMS OF BUSINESS AND CONFLICTS OF INTEREST

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The form of business will dictate, in part, the relationship between the owners of the business and management.

� The degree of separation may be minimal (e.g., sole proprietorship), or significant (e.g., large corporation).

� When there is a separation between owners and managers, there is a potential for agency problems, which may affect the value...