CORPORATE GOVERNANCE

1. CORPORATE GOVERNANCE Prepared by: KHAIRUL FAIRUZ JUMARI @APAI DZUL HILMI MOHD JANI@ZUL KARTIKA HAZNI ISKANDAR@IKA IRWAN AFFENDI MAT @WAN MOHD SYHFULLAH ABD RAZAK@SOY

2. OUR DISCUSSION • The nature and mechanism of corporate governance • The Importance Of Corporate Governance • Issue 1: The agency relationship: Owners & managers • Issue 2: Governance & ethical behavior • Recommendation • Conclusion

3. The nature and mechanism of corporate governance

4. Corporate Governance • Corporate governance is • A relationship among stakeholders used to determine and control the strategic direction and performance of organizations • Concerned with identifying ways to ensure that strategic decisions are made effectively • Used in corporations to establish order between the firm’s owners and its top-level managers

5. The Firm Corporate Governance Mechanisms Internal Governance Mechanisms • Ownership concentration • Relative amounts of stock owned by individual shareholders and institutional investors • Board of directors • Individuals responsible for representing the firm’s owners by monitoring top-level managers’ strategic decisions

6. The Firm The Firm Corporate Governance Mechanisms External Governance Mechanisms • Market for corporate control • The purchase of a firm that is underperforming relative to industry rivals in order to improve its strategic competitiveness

7. Importance of corporate governance

8. The importance of corporate governance • As a foundation upon which the trust of investor is build. • Attract more investor or shareholder to invest their fund in the company. • To gain reputation of a company dedicated to excellence in both performance and integrity. • Shared responsibility by all level of management

9. The importance of corporate governance…(con’t) • Has the power to attract and gain respect from stakeholders, communities, government officials, and general public. • Provide framework on the responsibility of directors and management to act in accordance with the best interest of shareholders. • Protect shareholders including minority shareholders.

10. The importance of corporate governance…(con’t) • Act as fostering the healthy development of company’s economy, market economy and society. • Serves as a deterrent to fraud and corruptions.

11. ISSUE 1: The agency relationship: Owners & managers

12. An Agency Relationship Managers (Agents) Shareholders (Principals) Agency Relationship: Owners and Managers Firm owners Decision-makers Risk-bearing specialist (principal) pays compensation to a managerial decision-making specialist (agent)

13. Agency Problem • The agency problem occurs when: • The desires or goals of the principal and agent conflict, and it is difficult or expensive for the principal to verify that the agent has behaved appropriately • Poor corporate governance shown by the agency problem • Directors abuse the interest of the shareholders • Shareholder’s wealth decrease • No more of director’s credibility

14. ISSUE 2: Governance & ethical behavior

15. Corporate Governance & Ethical Behavior • Some believe that ethically responsible companies should design and use governance mechanisms to serve all stakeholders’ interests • The importance of maintaining ethical behavior through governance mechanisms is seen in the example of Enron and Arthur Andersen. • Corporate governance is nothing but the moral or ethical or value framework under which corporate decision are taken.

16. Corporate Governance & Ethical Behavior (con’t) • Should be at level non-official directors who are professionals, no conflicting interest and particularly operate 2 committees- the Ethics Committee and Finance Committee • Honesty is the best policy in ethical issue in corporate governance • 3 integrity in corporate governance: 1. Financial integrity 2. Moral integrity 3. Intellectual integrity.

17. Corporate Governance & Ethical Behavior (con’t) • Advantages of Corporate governance and ethical behaviour : 1. Help to build good brand image for the company 2. May arise is at the time of the annual report and particularly preparing the annual balance sheet.

18. Corporate Governance & Ethical Behavior (con’t) • 3 points strategy which can perhaps be adopted by the corporate as their checking up corruption is concerned: 1. Simplification of the rules and procedures so that the scope for corruption is reduced. 2. Bringing in greater transparency and enterprise and empower the public. 3. Effective punishment of the guilty

19. RECOMMENDATION

20. RECOMMENDATION • Higher awareness of good corporate governance practices creates greater transparency • Follow the corporate governance code • Concern by every level of management • Maintain an effective communication activities

21. RECOMMENDATION (cont’s) • Refine company’s complaint process and investigation procedures • Create the Corporate Ethics Officer • Prepare the rules and guidelines for workplace situations

22. CONCLUSION

23. CONCLUSION • Corporation between top and bottom management • The organizations (higher level) should take a lead role in process of corporate governance • Bottom line enforce corporate governance effectively and minority must be protected

24. CONCLUSION (cont’s) • To form a view of what the investor considers to be ‘governance premium’ in a particular market • Clear understanding about organizations objectives and goals

25. THANK YOU