Enterprise
Corporate Governance and ethics
Definition of corporate governance:
What is a corporate governance?
It is a system by which companies are directed and controlled
It considers how directors can be held accountable to shareholders
for actions
The main driver for the development of corporate
governance was high profile corporate scandals:
Example: High-profile corporate scandals:
Eron scandal:
The Enron is undoubtedly one of the most famous corporate scandals of
all time.
The situation started in early 2001 when analysts questioned the accounts
presented in the company’s previous annual report. These accounts used
a variety of irregular procedures, which made it difficult to work out how
the company was making money- despite it apparently having a foothold
in energy, commodities and telecoms among other industries. The SEC
began to investigate and discovered that Enron was hiding billions of
dollars in liabilities through special-purpose entities (companies it
controlled), which enabled it to appear profitable even though it was
haemorrhaging cash.
The company’s share price fell from $90.56 to under a dollar as the crises
unfolded, with Enron forced to file for what was then the biggest chapter
11 bankruptcy in history.
Risks and examples of poor corporate
governance:
Risk of poor corporate governance:
Large losses lead to:
o Insolvency
o Stop trade
o Close downs as a result of serious regulatory breaches, e.g.
misapplying the investors’ money.
Examples of poor corporate governance:
, Domination by a single individual
Lack of board involvement
Lack of adequate control function
Lack of supervision
Lack of contact with shareholders
Emphasis on short-term profitability
Misleading accounts and information
Corporate governance concerns:
Eskom
Bosasa
KPMG
Most of our municipalities
SAA
OECD principles of corporate governance:
The corporate governance framework should:
Principle 1: Promote transparent and fair markets and the efficient
allocation of resources
Principle 2: Protect and facilitate the exercise of shareholders’ rights
and ensure the equitable function in a way that contributes to good
corporate governance
Principle 3: recognise the rights of shareholders established by law
or through mutual agreements and encourage active cooperation
and stakeholders creating wealth, jobs and more.
Principle 4: Ensure that timely and accurate disclosure is made on
all material matters regarding the corporation
Principle 5: Ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
UK corporate governance code:
The code applies to all UK listed companies, but other companies
are encouraged to follow. = Any departure from the code by listed
should be disclosed and explained
Key principles:
o Board leadership and company purpose
o Division of responsibilities
o Composition, succession and evolution
o Audit, risk and internal control
o Remuneration
SA: King IV code of Corporation Governance
Corporate Governance and ethics
Definition of corporate governance:
What is a corporate governance?
It is a system by which companies are directed and controlled
It considers how directors can be held accountable to shareholders
for actions
The main driver for the development of corporate
governance was high profile corporate scandals:
Example: High-profile corporate scandals:
Eron scandal:
The Enron is undoubtedly one of the most famous corporate scandals of
all time.
The situation started in early 2001 when analysts questioned the accounts
presented in the company’s previous annual report. These accounts used
a variety of irregular procedures, which made it difficult to work out how
the company was making money- despite it apparently having a foothold
in energy, commodities and telecoms among other industries. The SEC
began to investigate and discovered that Enron was hiding billions of
dollars in liabilities through special-purpose entities (companies it
controlled), which enabled it to appear profitable even though it was
haemorrhaging cash.
The company’s share price fell from $90.56 to under a dollar as the crises
unfolded, with Enron forced to file for what was then the biggest chapter
11 bankruptcy in history.
Risks and examples of poor corporate
governance:
Risk of poor corporate governance:
Large losses lead to:
o Insolvency
o Stop trade
o Close downs as a result of serious regulatory breaches, e.g.
misapplying the investors’ money.
Examples of poor corporate governance:
, Domination by a single individual
Lack of board involvement
Lack of adequate control function
Lack of supervision
Lack of contact with shareholders
Emphasis on short-term profitability
Misleading accounts and information
Corporate governance concerns:
Eskom
Bosasa
KPMG
Most of our municipalities
SAA
OECD principles of corporate governance:
The corporate governance framework should:
Principle 1: Promote transparent and fair markets and the efficient
allocation of resources
Principle 2: Protect and facilitate the exercise of shareholders’ rights
and ensure the equitable function in a way that contributes to good
corporate governance
Principle 3: recognise the rights of shareholders established by law
or through mutual agreements and encourage active cooperation
and stakeholders creating wealth, jobs and more.
Principle 4: Ensure that timely and accurate disclosure is made on
all material matters regarding the corporation
Principle 5: Ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
UK corporate governance code:
The code applies to all UK listed companies, but other companies
are encouraged to follow. = Any departure from the code by listed
should be disclosed and explained
Key principles:
o Board leadership and company purpose
o Division of responsibilities
o Composition, succession and evolution
o Audit, risk and internal control
o Remuneration
SA: King IV code of Corporation Governance
