16: Governance and social responsibility

1. Seperation of ownership and control
-refers to the situation where the people who own the company may not be the same as the people who control the company. (limited company)
-directors likely to own all the shares in the company as in small company. so there is no seperation of ownership
-large company likely to have a large number of external shareholders who play no role in the day to day running of the company. therefore there is a potential for a conflict of interest.

Reasons for the seperation of ownership and control
-specialist management can run the business better than those who own the business
-the original shareholoders cannot personnally contribute all the capital needed, so they need to bring in external capital.

Win-win situation
-managers can get on with ful time management of the company
-shareholders interested in the return from their investment and do not have to concern of the day to day matters.

Theories

Stakeholder theory
-development of the notion of stewardship, stating that management has a duty of care to the owners of the company in terms of maximasing shareholder value but also wider of the community of interest or stakeholder.

Stewardship theory
-someone who manages property or other affairs of someone else

Agency theory
-the state of serving as an official and authorised delegate agent

Governance Principles
a) minimise risk
b) to ensure adherence and satisfaction of the strategic objective of the organisation
c) to fulfile responsibilities to all stakeholders and to minimise potential conflict of interest
d) to establish clear accountability of senior levels
e) to maintain the independance of those who scrutinise the behaviour of its organisation and its senior executive managers
f) to provide accurate and timely reporting of trustworthy data to both the management and owners of the organisation
g) to encourage more proactive involvement of owners in the organisation
h) to promote integrity

Driving force of governance development
- increasing internationalisation and globelisation
- the differential treatment of domestic and foreign investor
- issues conserning financial reporting
- characterlistic of individual countries may have a significant
- influence in a way coperate governance has developed
- increasing number of high profile proper scandals and collapse

2. The meaning of corporate governance
- set of processes and policies by which a company is directed, administered and controlled.

Features of poor corporate governance
-domination by a single individual
- lack of involvement of the Board
- lack of adequate control function
- lack of supervision
- lack of independance scrutiny

Key issues in the corporate governance debate include
- the membership of the Board
- the role of the Board
- the director's remuneration
- the role of internal and external audit

3. The meaning of corporate social reaponsibility (CSB)
refers to the idea that a company should be sensitive to the needs and wants of all the stakeholders and not only shareholders

companies should make decision not only on financial factors but also social and environmental consequences of their actions

4. The importance of CSR to an organisation
benefits:
- monitor changing social expectations
- manage operational risks
- identify new market opportunities
- retain key employees

8. Audit committees

major problems:
-external auditors become too close (familiar) to the executive directors (who run the company)
-external auditors are not comfortable reporting errors,frauds,etc to the very people who have done them!
-internal auditors are not comfortable reporting systems weaknesses to the very people who designed the systems!
-a board might choose to have internal auditors to give a good appearance to the outside world

Internal and external auditors do as following:-

-being available for internal and external auditors
-requiring executive directors to attend as necessary
-reviewing accounting policies and financial statements as a whole to ensure that they are appropriate and balanced
-reviewing systems of internal controls
-agreeing agenda of work for the internal audit department
-receiving results of internal audit work
-shortlisting firms of external auditors when a change is needed
-reviewing independence of external audit firm
-considering extent to which external auditors should be allowed to tender for 'other services'.

9 Public oversight of corporate governance
-The obvious means of public oversight of corporate governance is via the publication by companies of their Annual Report and Accounts.
- companies are required by law to send a copy to each shareholder,but most companies will post a copy on their website or will provide a paper-based copy free of charge to any member of the public who requests one.

10 Stakeholder needs analysis
-can be carried out to bring some structure to the implementation of a CSR programme. The analysis involves doing research to determine:

*Who are the key stakeholders in the business?
*What are their needs?