Chapter 7 Corporate governance and social responsibility

Contents 1. Background 2. Corporate governance 3. Role of board 4. Social responsibility

Background of C.G. When did C.G. emerge? - 1970s in the USA and 1980s in Europe, including the UK. Why does corporate governance become more and more important? - Increasing globalization, different treatment of different investors, importance of financial reporting, and some corporate scandals, etc. Corporate governance in China. - It attracted people’s attention from the 1990s, and in a low level relative to the developing countries.

Theories of C.G. Definition: corporate governance is the system by which organizations are directed and controlled by senior officers. The theories of corporate governance are based on the conflict of interest between the owners and the managers Stewardship theory（管家理论） Agency theory（代理理论） Stakeholder theory（利益相关者理论）

Principles of C.G. Minimizing risks Ensuring satisfaction of the strategic objectives Fulfilling all stakeholders, minimizing conflicts of interest Establishing clear accountability of senior managers, and maintaining independence Providing accurate and timely report Encouraging proactive involvement in the effective management Promoting straightforward dealing

Some aspects of C.G. If the corporate governance of a company is poor, the company may produce large losses or make serious regulatory mistakes. Companies are required to produce corporate governance reports in many countries, including USA and UK. The board is the most important segment in a company’s corporate governance system.

Something about board The board is in the highest management level in an organization. It takes the responsibility to make major policy and strategic decisions. Directors, including executive managers and non-executive directors, constitute the board. The directors have relevant expertise and their performance are assessed, the risks they face today is increasing.

Role of the board Defining company’s purpose and value Identifying the stakeholders Developing strategy Ensuring management Making important decisions Monitoring

The board and C.G. Good C.G involves the division of responsibility, and this can be obtained when the Chair and the CEO are not the same person.（财务上，会计与出纳不能同为一人） Non-executive directors They have no executive responsibilities. They provide reassurance to shareholders, and can reduce the conflict of interest. They are experts in their scope, like lawyer or professor.

Some committees of the board Remuneration committee（薪酬委员会） - Its role is to establish remuneration arrangement of the executive directors Nomination committee（提名委员会） - Its role is to select board members and make recommendations Audit committee（审计委员会） - It is responsible for the external audit, internal audit, and internal control Risk committee（风险委员会） - Its role is to review the risk management

Corporate social responsibility It is a set of actions which the organization is not obliged to take, taken for the well-being of stakeholders and the public. - Like charitable donation, creation of employment, spending on environmental protection, etc. The stakeholder view and the natural law theory explain the nature of corporate social responsibility.

Corporate social responsibility(cont’d) Strategies for social responsibility Proactive strategy Reactive strategy Defense strategy Accommodation strategy Social responsibility and ethical behavior are not the same thing Ethical behavior is in a higher level