corporate governance by derek hendrikz

Introductionto Corporate Governance

© Derek Hendrikz Consulting

derekhendrikz

Copyright © 2016

Derek Hendrikz Consulting

www.derekhendrikz.com

Corporate Governance…

A system of rules and practices by which organizational institutions are directed and

controlled.

© Derek Hendrikz Consulting

Objectives of Corporate Governance…

1. Definition and distribution of rights and responsibilities

amongst participants within an organization.

2. Specification of rules for decision-making.

3. Guidance in an appropriate strategy and structure that will

facilitate the achievement of objectives.

4. Being a monitoring mechanism.

5. Alignment of stakeholder interests.

© Derek Hendrikz Consulting

Core functions of Corporate Governance...

Strategic Direction

Compliance &

Accountability

Risk & Strategy

Monitoring

© Derek Hendrikz Consulting

Primary drivers of Corporate Governance…

1. Membership rights and privileges provided to members

(shareholder- vs. stakeholder system).

2. Content of rights provided to members (decision-making

powers, access to information, distribution of surplus, etc.)

3. Modes of representation made available to members

(direct, indirect or ‘proxy’ representation).

© Derek Hendrikz Consulting

External Stakeholders…

• Shareholders

• Debt Holders (holder of a bond)

• Trade Creditors

• Suppliers

• Customers

• Affected Communities© Derek Hendrikz Consulting

Internal Stakeholders…

• Board of Directors

• Executives

• Employees

© Derek Hendrikz Consulting

Stakeholder Interest…Stakeholder: Interest:Directors, management & employees Salaries, benefits & reputation

Investors Financial returns

Lenders Specified interest payments

Returns to Equity investors Dividend distributions and capital gain of stock

Customers Certainty of provision of goods and services and appropriate quality

Suppliers Compensation for goods and services and continued trade relations

© Derek Hendrikz Consulting

External Controls…

• Competition

• Debt covenants (company / creditor agreements on ratio limits)

• Demand for assessment of performance information (e.g. financial

statements)

• Government regulations

• Managerial labour market

• Media pressure

• Takeovers

© Derek Hendrikz Consulting

Anglo American shareholder modelvs.

Multi Stakeholder Model

© Derek Hendrikz Consulting

Shareholder-Oriented Stakeholder-Oriented

Maximizes shareholder value and looks after shareholder interests

Looks after all stakeholder interests, especially public

Seeks profitability and efficiency Less concerned about profit than value for money

Hard-nosed and commercial Looks for survival, long-term growth and stability

© Derek Hendrikz Consulting

Anglo American Shareholder Model

Power belongs to the

Shareholders

Board represents that Power

Delegates

Accountable

© Derek Hendrikz Consulting

Multi Stakeholder Model

Power belongs to the

Stakeholders

Board represents that Power

Delegates

Accountable

© Derek Hendrikz Consulting

Shareholders

Board

Delegates Governance Powers

Stakeholders

Accountable

© Derek Hendrikz Consulting

Strategic Responsibility…Authority Strategic Responsibility

Board• Purpose & Desired Reality• Philosophy & Theoretical Model• Accountability Rules• Strategy & Scorecard Approval

EXCO

• Strategic Objectives• Master Processes• Master Scorecard• Structure• Systems Requirement• Culture Definition

Management

• Action programmes & projects• Detailed processes & procedures• Target outputs and milestones• Performance assessment• Budgeting• Resource allocation

© Derek Hendrikz Consulting

Board of Directors…

A body who, independently from the executive team, represents organizational

shareholders in the governance and monitoring of the organization.

© Derek Hendrikz Consulting

Objectives of the Board…

1. To independently represent stakeholders of the

organization.

2. To provide strategic direction to the organization.

3. To oversee accountability and compliance.

4. To monitor strategy execution and risk of non-

performance.© Derek Hendrikz Consulting

Responsibility of Board…

• CEO Selection and succession

• Strategic guidance

• Compensation of senior executives

• Monitoring of financial health

• Performance and risk

• Ensuring of accountability to investors and authorities

© Derek Hendrikz Consulting

Where Boards have failed…

• Enron• Worldcom• Adelphia Communications• AOL• Athur Andersen• Global Crossing• Tyco

© Derek Hendrikz Consulting

Seven Principles of Good Governance…

© Derek Hendrikz Consulting

1. Discipline

© Derek Hendrikz Consulting

2. Transparency

© Derek Hendrikz Consulting

3. Accountability

© Derek Hendrikz Consulting

4. Independence

© Derek Hendrikz Consulting

5. Responsibility

© Derek Hendrikz Consulting

6. Fairness© Derek Hendrikz Consulting

7. Social Responsibility

© Derek Hendrikz Consulting