Financial Disclosure And Corporate Governance (pgdm-302)

Financial Disclosure and Corporate Governance (PGDM-302)

Topic-I of

Defi nitio n , Ro le and im po rt ance Cor porat e go ve rnanc e

Corp or ate g overn ance 

Co rp orate go vern ance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled.

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It is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The stockholders' role in governance is to appoint the directors...

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Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

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The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labor (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.

Topic II Pr inc ipl es of Cor por at e Gove rnanc e

Gen eral Pr inc ipl es o f C orp or ate Go vernanc e 

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Key elements of good corporate governance principles include Honesty Trust Openness Performance orientation Responsibility and accountability Mutual respect Commitment to the organization.

Commonly accepted principles of corporate governance include: 1 Ri ght s and eq uita bl e trea tmen t of sh ar eh old er s : Shareholders are principal people for whom the corporation is run. Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. 2 Int ere st s of other st akeh old er s : the second principle is that the corporation should be run for the benefit of other interest groups. Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.

3 R ole a nd r esponsi bi lit ies of th e boa rd : The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties.

4 Int egr it y a nd eth ica l beha vior : Ethical and responsible decision making is also a necessary element. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.

5 D is clo sure and tra nspa renc y : Organizations should clarify the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

Topic III Factors influencing Corporate Governance

Factors influencing CG 1 Corporate Management 2 Investors/Shareholders 3 Trade Unions 4 Board of directors 5 Employees 6 pressure resulting from internationalization and globalization 7 pressure exerted by the state in the form of legal regulation.

Topic IV Corporate Strategy

Corporate strategy 

A st rat egy is a plan of action designed to achieve a particular goal.

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Corpor at e str at egy is the examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment),

Cor pora te St rat eg y •

It is concerned with the overall purpose and scope of the business to meet stakeholder expectations.

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Corporate strategy is the direction an organization takes with the objective of achieving business success in the long term

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This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement".

Topic V Relationship between CG and Financial Performance

Relationship between CG and Financial Performance 

Numerous stakeholders (internal and external) exist in any business enterprise. Some of these include; customers, shareholders, financiers, government among others. Internal stakeholders such as the employees and external stakeholders like Shareholders ,Customers, Tax Authorities, and Bank Supervisors. These all expect organisation to be financially transparent and disclose adequate financial information. Shareholders, particularly have a variety of rights in terms of receiving a dividend and appointing managing director.

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Corporate governance is about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that would foster good corporate performance.

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It is also about how to build trust and sustain confidence among the various interest groups that make up an organisation.

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The major pillars of corporate governance are: Financial Transparency, Disclosure and Trust

I) Transparency  Transparency is integral to corporate governance, higher transparency reduces the information asymmetry between a firm’s management and financial stakeholders.

II) Disclosure: helps in improving market discipline. 

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It helps in improving market participants ability to assess organisation capital structures, exposures, management processes, and, hence, their overall capital adequacy. The disclosure requirements consist of qualitative and quantitative information in three general areas: Corporate structure refers to how a banking group is organized; for example, what is the top corporate entity of the group and how are its subsidiaries consolidated for accounting and regulatory purposes. Capital structure corresponds to how much capital is held and in what forms, such as common stock. Capital adequacy focus on a summary discussion of the organization's approach to assessing its current and future capital adequacy.

III) Trust includes • Openness: Openness is the extent to which relevant information is shared; it is process by which individuals make themselves vulnerable to others. • Competence: Competence is the ability to perform as expected and according to standards appropriate to task at hand, many organisational tasks rely on competence • Benevolence: confidence that one’s well being or something one cares about will be protected and not harmed by the trusted party • Honesty: Honesty is the person’s character, integrity and authenticity. • Reliability: confidence that one’s well being or something one cares about will be protected and not harmed by the trusted party

So, Transparency, disclosure and trust, which constitute the integral part of corporate governance, can provide pressure for improved financial performance

Pillars of Corporate governance Financial Transparency

Trust

Disclosure

Financial Performance • Asset quality • Earnings • Liquidity •Capital adequacy