Tuesday, December 1, 2009

BUSINESS ETHIC AND VALUE : CORPORATE GOVERNANCE

OVERVIEW
Definition
Corporate Governance In The Malaysian Perspective

DEFINITION
-According to Steiner, corporate governance is "the overall control of activities in a corporation. It is concerned with the formulation of long-term objectives and plans and the proper management structure (organization, systems, and people) to achieve them. At the same time, it entails making sure that the structure functions to maintain the corporation's integrity, reputation, and responsibility to its various constituencies".

Objectives of Corporate Governance
Five important objectives of corporate governance:
-fulfilling owner's long-term strategic goals,
-considering and caring for the present and future interests of employees,
-taking into account the environment and local community needs,
-maintaining excellent relationships with customers and suppliers, and
-complying with the laws.

Current Trends In Corporate Governance
-the rise of institutional investors- movement toward relationship investing, i.e.when large shareholders (pensions, mutual funds, or a group of private investors) form a long-term, committed link with a company
-changing role of the board of directors- becoming more assertive in determining the corporation’s direction
-social responsibility shareholder resolutions- stockholders should be allowed to vote on social and economic questions that are related to the corporation
-employee stock ownership

Corporate Disclosure
-Giving stockholders more and better company information is one of the best ways to safeguard their interests.
-An investor, should be as fully informed as possible in order to make sound investments.

The Duties of Directors
-Select, regularly evaluate and, if necessary, replace the chief executive officer. Determine management compensation. Review succession planning.
-Review and, where appropriate, approve the financial objectives, major strategies, and plans of the corporation.

Separate the CEO and Board Chairman – Trends of the future?
-In 72 percent of large American corporations, the CEO is also the chairperson of the board. Some observers believe the two jobs should be separated, but there is much opposition to the idea, especially among CEOs

Pros of Separation
-Many directors believe that when CEOs also chair the board, they have too much power. The power to control the agenda and the information that directors get is overwhelming, they say.
-Splitting the jobs would underscore the notion that managers serve at the discretion of directors, not the other way around. At board meeting, directors would feel freer to raise questions and be critical of management. Many top executives support this view. (Jay W.Lorsch, Pawns or Potentates (Boston, Mass.:Harv. Bus. School Press, 1989)

Cons of Separation
-If the CEO and chairperson positions are split, and if rivalry or dislike develops between the two, then the split works to the detriment of the business and the board functions less well.
-CEOs say that to split the roles would complicate their jobs. They are concerned that their immediate predecessors might be appointed chairperson. That situation would indeed be fraught with danger and should not be permitted by a board where the split has taken place.
-Ram Charan, a consultant to corporate CEOs and boards of directors, is critical of the separation of the two jobs. He says: “Separating the role of CEO and chairman can create confusion and blur accountability. Outsiders might begin to wonder who is really in charge or whether the CEO is on the way out. Any misperceptions outside can erode the CEO’s decision-making power internally as well.”

CORPORATE GOVERNANCE IN THE MALAYSIAN PERSPECTIVE
-Issues pertaining to corporate governance reform in Malaysia are captured in the "Report on Corporate Governance" prepared by the High Level Finance Committee on Corporate Governance in February 1999.
-In the report, corporate governance is defined as "the process and structure used to direct and manage business affairs of the company toward enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholders' value whilst taking into account the interests of other stakeholders".

Towards an ideal system of corporate governance for Malaysia
-Key institution requiring reform in the corporate governance of Malaysia is the Board if Directors (BOD).
-The code of corporate governance prepared by this committee is thus premised on the fact that good corporate governance rests firmly on the proper functioning of the BOD

Evolution of Corporate in Malaysia
-As the reform of corporate governance is at the early stage in Malaysia, the government and its statutory organizations working hand in hand with professional bodies
-The evolutionary nature of Malaysian policies requires that self-regulation is also encouraged to complement the basic legal framework of reform.
-All public listed companies (approx. 700) were mainly guided by company laws such as the Company's Act of 1965 and additional statutory rules and guidelines
-However, the general lack of ethically sound governance remained as the major stumbling block to corporate governance reform
-The missing link was the effective role of the company directors as representatives of the shareholders and as self-regulators of ethical company conduct.
-Overcoming conflicts of interests and other abuses are the most troublesome features that the law in itself was unable to monitor and enforce if the directors involved are either ignorant of their responsibilities or are downright unethical.
-A mixture of regulations and self-governance is necessary to ensure relevant parties play their roles in creating the structures and processes that will lead to efficient allocation of resources in addition to contributing to the country's development.

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