Principles of Corporate governance & Theories of Corporate Governance (Management video 37)

Summary

This video script from marketing91.com delves into the principles of corporate governance, emphasizing fairness, accountability, responsibility, and transparency. It outlines the characteristics of good governance, such as being participatory, transparent, and efficient, and discusses the benefits for businesses, including improved corporate image and stakeholder satisfaction. The script also explores theories like agency, shareholder, stakeholder, and stewardship, highlighting their impact on corporate sustainability and decision-making.

Takeaways

• 😀 **Fairness**: Shareholders should receive equal consideration in proportion to their shareholdings, and all stakeholders should be treated fairly.
• 🔍 **Accountability**: The board is responsible for explaining the company's actions, employing prudent risk management, and communicating with stakeholders regularly.
• 👥 **Responsibility**: The board of directors has the authority to act on the company's behalf and should exercise this authority responsibly.
• 🔑 **Transparency**: Companies should openly disclose clear information about their performance and activities to shareholders and stakeholders in a timely manner.
• 📊 **Good Corporate Governance Characteristics**: Includes a participatory approach, consensus orientation, accountability, transparency, responsiveness, equity, inclusiveness, efficiency, and adherence to the rule of law.
• 👫 **The Four Ps of Corporate Sustainability**: People, Purpose, Process, and Performance are critical for corporate sustainability.
• 🏢 **Benefits to Business**: Good corporate governance creates transparency, a good corporate image, ethical business activities, and sustains corporate social responsibility.
• 🏛️ **Benefits to Organization**: Employees show commitment, the government may extend privileges, and the company's reputation and customer loyalty improve.
• 🤝 **Benefits to Stakeholders**: Shareholders are better informed, customers receive quality products at fair prices, and investors maximize returns.
• 🔍 **Issues in Corporate Governance**: Include oversight of internal controls, auditor independence, risk management, financial statement preparation, executive compensation, and dividend policy.
• 🧩 **Theories of Corporate Governance**: Agency theory, Shareholder theory, Stakeholder theory, and Stewardship theory each provide different perspectives on the relationships and responsibilities within a corporation.

Q & A

What does the term 'fairness' in corporate governance entail?

Fairness in corporate governance refers to equal treatment, ensuring that shareholders receive equal consideration in proportion to their shareholdings and that all stakeholders, including employees, communities, and public officials, are treated fairly.

How is corporate accountability defined in the context of governance?

Corporate accountability is the obligation and responsibility to explain the company's actions and conduct. It involves the board presenting a balanced and comprehensible assessment of the company's position and prospects, employing prudent risk management and internal control systems, and communicating with stakeholders regularly.

What responsibilities do the board of directors have in a company?

The board of directors is responsible for overseeing the management of the business, appointing the chief executive, and monitoring the company's performance. They have the authority to act on the company's behalf and should exercise this authority accordingly.

What is the significance of transparency in corporate governance?

Transparency refers to a company's openness to disclose clear information to shareholders and other stakeholders. It involves disclosing material matters concerning company performance and activities in a timely and accurate manner, ensuring that all investors have factual information that reflects the financial, social, and environmental position of the organization.

What are the characteristics of good corporate governance?

Characteristics of good corporate governance include a participatory approach, being consensus-oriented, accountable, transparent, responsive, equitable, inclusive, efficient, effective, and following the rule of law.

How do the 'Four Ps' contribute to corporate sustainability?

The 'Four Ps' critical for corporate sustainability are People, Purpose, Process, and Performance. They help clarify the people orientation of an organization's corporate governance scheme, ensure the organization's purpose is measurable and communicated well, comply with rules and regulations, and measure, analyze, and communicate performance to achieve growth.

What benefits does good corporate governance bring to a business?

Good corporate governance benefits a business by taking into account the needs of all stakeholders, creating transparency in activities, creating a good corporate image, ensuring ethical business activities, and fostering corporate social responsibility.

What are some issues in corporate governance that companies need to address?

Issues in corporate governance include internal controls, the independence and quality of external auditors, oversight of risk management, preparation of financial statements, review of executive compensation, resources available to directors, nomination for board positions, and dividend policy.

How does the agency theory explain the relationship between agents and principals in a business?

The agency theory is used to understand the relationship between agents and principals, where the agent represents the principal in a business transaction. It addresses the potential conflicts of interest that may arise when agents do not act in the principal's best interests, leading to inefficiencies and financial losses, known as the principal-agent problem.

What is the main focus of the shareholder theory in corporate governance?

The shareholder theory posits that managers' primary duty is to maximize shareholders' interests within the bounds of law and social values. It suggests that by focusing on shareholder needs, businesses can generate wealth that benefits society.

How does the stakeholder theory differ from the shareholder theory?

The stakeholder theory differs from the shareholder theory by considering the interests and well-being of all stakeholders, not just shareholders. It emphasizes treating all stakeholders with fairness, honesty, and generosity, and suggests that managing stakeholder relationships effectively leads to longer-lasting and better-performing organizations.

What does the stewardship theory propose about the role of managers in an organization?

The stewardship theory proposes that managers are stewards who act in line with the aims of their principals. It argues that managers are motivated by a desire to deliver excellence, achieve satisfaction through challenging work, exercise responsibility, and be recognized. The theory also suggests that a unified leadership structure, such as when the CEO is also the chairman, can lead to better company performance.