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CORPORATE GOVERNANCE

CORPORATE GOVERNANCE. GROUP MEMBERS :. NUR SHAHADAH MOHAMED NOR NORSHAHANIM MUSTAFA ZAIDAH NOR AHMAD NOHAZIMA HAMDAN. 108808 108903 109077 109097. TOPIC TO BE COVERED. INTRODUCTION OBJECTIVE ISSUE - ARTICLE 1 - ARTICLE 2 - ARTICLE 3 CONCLUSION.

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CORPORATE GOVERNANCE

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  1. CORPORATE GOVERNANCE GROUP MEMBERS : NUR SHAHADAH MOHAMED NOR NORSHAHANIM MUSTAFA ZAIDAH NOR AHMAD NOHAZIMA HAMDAN 108808 108903 109077 109097

  2. TOPIC TO BE COVERED • INTRODUCTION • OBJECTIVE • ISSUE - ARTICLE 1 - ARTICLE 2 - ARTICLE 3 • CONCLUSION

  3. INTRODUCTION DEFINITION • Corporate Governance is an expression used to describe the way companies are directed and managed. • Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled.

  4. OBJECTIVE •    to see whether corporate governance can give impact to the organizational performance. • to consider the importance of corporate governance and the auditor’s involvement in the governance process. • to explore the effect of role duality on corporate performance in Malaysia

  5. ISSUE 1 : THE EFFECT OF ROLE DUALITY ON CORPORATE PERFORMANCE IN MALAYSIA. SHOULD THE POSITION OF CEO AND CHAIRMAN BE SEPARATED?

  6. According to Rashidah and Roszaini (2005), two views relating the issue of separating the role of the chairman and that of the CEO : • Proponents of agency theory state that chairman has to be independent for checking on plans of the CEO. • Someone who holds two top positions is more likely to pursue strategies which advance personal interests to the detriment of the firm as a whole (Jensen and Meckling, 1976; Jensen, 1986).

  7. Agency theory suggests role duality reduce the monitoring effectiveness of the board over management. • Proponents of stewardship theory argues that manager will act in the best interests of the shareholders. • Stewart (1991) – role duality enhance decision-making process as it permits a sharper focus on company objectives and promotes more rapid implementation of operational decisions.

  8. DISCUSSIONS • Mark & Spencer stated in its 2001 Annual Report that the company’s chairman of the board is also the company’s CEO. The company said in its statement of corporate governance that explains 4 points on how it has balanced power and had complied with all the Code provisions (UK). However, National Association of Pension Funds (NAPF) founded that the company as one of 25 companies that did not comply with the provisions.

  9. RECOMMENDATIONS • The recommendation by Malaysian Code Of Corporate Governance (MCCG) in 2001 to have the 2 roles separated is important and must be implemented fully. • The separation that will lead to more independent boards with the provision of essential checks and balances over management’s performance.

  10. ISSUE 2 IMPORTANT OF CORPORATE GOVERNANCE : AN AUDITOR’S PERSPECTIVE ‘Once a business entity lists its share outside of its national borders, it should be subject to a set of global corporate governance rules’ (Roussey, 1997).

  11. CG - important part of the capital markets. • CG - play an increasing role in protecting the global capital markets & an increasing role in helping the war against financial statement fraud, corruption and money laundering. • Robert S Roussey (2000), auditors r an important part of the governance process - provide useful information • IAPC issued a new International Standard on Auditing (ISA) - requires auditors to communicate audit matters of governance interest

  12. Auditor’s focus on an entity’s financial reporting process - an involvement can help to improve the governance process. • Auditors can encourage exec. mgmt - adopt appropriate. acct. systems & internal controls. • Auditor can assist the governance people; can provide valuable info and counsel to them

  13. Why corporate governance is important & why should the corp. gov. responsibilities be placed on the shoulders of non-executive directors? • these persons r the true representatives of the stakeholders • the non-executive directors should have the interests of the stakeholders in developing the business strategy, supervising the entity objectives, balancing the entity objectives with the expectations of society and providing appropriate accountability to all the entity stake holders.

  14. The IAPC - auditor needed to have > defined part in the communication • Basic principle of the new ISA - auditor should communicate audit matters of governance interest • The IAPC - establish another principle; the auditor should determine the relevant persons who r charged with the governance responsibilities & with whom audit matters should be communicated.

  15. ISSUE 3 WHAT IS THE IMPACT OF CORPORATE GOVERNANCE ON ORGANIZATIONAL PERFORMANCE ?

  16. The effectiveness of boards of directors has become a global concern. • A study by McKinsey Consultants explored whether a monetary value could be placed on good governance. • The result demonstrates that they would do on what the investor say what they should actually do, which can considerably diverge.

  17. Business Week has carried out three surveys of corporate governance on board independence, board accountability and board quality. • The report concluded that good governance however is no guarantee of superior performance

  18. Since the findings from this research founds that good corporate governance does not guarantee for a good organisational performance, does it means that we should ignore the practices of corporate governance?

  19. CONCLUSION • Corporate governance can be defined as a set of relationships between a company’s management, its board, its shareholders and other stakeholders • Besides, it has succeeded in attracting a good deal of public interest because of its apparent importance for the economic health of corporations and society in general.

  20. Issue 1 • Role duality seemed not to perform as well as their counterparts with separate board leadership based on accounting performance measurement • CEO-Duality reduces the monitoring effectiveness of the board over management resulting in the poor accounting performance of the company as a whole

  21. Issue 2 • Importance of auditor as a role in practicing the corporate governance and also provide useful information to be considered by those charged with governance responsibility • Because of experience, knowledge and skills can assist by establishment of sound practice and valuable information to counsel the organization

  22. Issue 3 • Corporate governance are important for the progress of the company itself. • Although the research found that the corporate governance is not significantly affect the performance of the company but then this system are recommended to be practicing because of the effectiveness to the ethical behavior around the organization

  23. THANK YOU !

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