Corporate Governance KLG, Tianjing Dec 5, 2009

What is Corporate Governance Corporate governance is nothing more than how a corporation is administered or controlled. Corporate governance takes into consideration company stakeholders as governmental participants, the principle participants being shareholders, company management, and the board of directors. Adjunct participants may include employees and suppliers, partners, customers, governmental and professional organization regulators, and the community in which the corporation has a presence. Because there are so many interested parties, it’s inefficient to allow them to control the company directly. Instead, the corporation operates under a system of regulations that allow stakeholders to have a voice in the corporation commensurate with their stake, yet allow the corporation to continue operating in an efficient manner. Corporate governance also takes into account audit procedures in order to monitor outcomes and how closely they adhere to goals, and to motivate the organization as a whole to work toward corporate goals. By using corporate governance procedures wisely and sharing results, a corporation can motivate all stakeholders to work toward the corporation’s goals by demonstrating the benefits, to stakeholders, of the corporation’s success. Corporate governance may include: - Control and direction processes - Regulatory compliance - Active ownership and investment in a company Primarily, though, corporate governance refers to the framework of all rules and relationships by which a corporation must abide, including internal processes as well as governmental regulations and the demands of stakeholders. It also takes into account systems and processes, which deal with the daily working of the business, reporting requirements, audit information, and long-term goal plans. Corporate governance provides a roadmap for a corporation, helping the leaders of a company make decisions based on the rule of law, benefits to stakeholders, and practical processes. It allows a company to set realistic goals, and methodologies for attaining those goals. Corporate governance is based largely on trust – the trust, by the stakeholders, that revenues will be fairly shared, and that those directly involved in running the company are running it in an aboveboard, honest, and open manner, and that they represent the best interests of the company and of the shareholders. Therefore, key elements of corporate governance are honesty, trust and integrity, openness, responsibility, and accountability. Recent new governmental regulation has attempted to reinforce these elements. Source from “managementpilot.com”

Why is Corporate Governance Important Good corporate governance helps to prevent corporate scandals, fraud, and potential civil and criminal liability of the organization. It is also good business. A good corporate governance image enhances the reputation of the organization and makes it more attractive to customers, investors, suppliers and, in the case of nonprofit organizations, contributors. Source from “Why Is Corporate Governance Important?” by Frederick Lipman and L.Keith Lipman

Practical Corporate Governance Practical corporate governance is the process of developing cost- efficient corporate governance structures for an organization and instituting "best practices" by weighing costs against benefits. This is accomplished by analyzing specific risks of the organization, making cost-benefit judgments, and utilizing the lessons of past corporate scandals. It rejects the mindless "check-the box" mentality of corporate governance rating groups and some major accounting firms. Rather, the focus is on specific risk analysis, a cost-benefit analysis, and learning from the past. Source from “Why Is Corporate Governance Important?” by Frederick Lipman and L.Keith Lipman

Other topics on Corporate Governance Corporate Governance Structure –Listed vs Private –Profit vs Non-profit –US vs European Corporate Governance Concepts Corporate Governance Principles Good Corporate Governance Source from “ask.reference.com”

Corporate Governance Structure Investment Profits Products &/or Services Stockholders Stakeholders Corporation Government Laws & Regulations Controls Corporate Policies & Processes Audit Stockholders Media Consumers, Public Interest Groups,

Board of Directors Corporations are required to have a Board of Directors. This is regardless of whether they are a for-profit or nonprofit entity. The reason is that the corporation must answer to its owners (stockholders or the public), who demand accountability of all actions, obligations and operations. If your board of directors does not act according to the bylaws of the corporation or run the organization with fiduciary responsibility, there may be civil and criminal action taken against you and your board members. (Source from “Board of Directors Guidelines” by Kim Vincent, contributing writer of ehow.com) The Board of Directors sets a corporation's policy and direction, and is empowered to elect and appoint officers and agents to act on behalf of the corporation, declare dividends, and act on other major matters affecting the corporation. (Source from

CEO chief executive officer n. Abbr. CEO The highest-ranking executive in a company or organization, responsible for carrying out the policies of the board of directors on a day-to-day basis. Source from “The American Heritage® Dictionary of the English Language, Fourth Edition” A CEO’s responsibilities: everything, especially in a startup. The CEO is responsible for the success or failure of the company. Operations, marketing, strategy, financing, creation of company culture, human resources, hiring, firing, compliance with safety regulations, sales, PR, etc.—it all falls on the CEO’s shoulders. –Main duty: set strategy and vision –2 nd duty: build culture –3 rd duty: team building –4 th duty: capital allocation Source from “What do CEOs do? A CEO Job Description.” by Stever Robbins, Inc,

Business Decision Process Risk BenefitCost Business Decision Learning from the past

Risk Assessment Level of risk = impact x likelihood of risk High Risk Medium Risk Low Risk Likelihood of Risk Low High LowHigh Impact of Risk Risk Types and its mitigations Risk TypeRisk DescriptionRisk LevelRisk Mitigation Legal RisksMe.g. Contract Financial RisksLe.g. Pricing and costing Operation RisksLe.g. Detailed guidelines and procedures Human RisksLe.g. Transfer risk to 3 rd parties Unforeseen RisksMe.g. Buy insurance

Process A structure way To conduct an activities or a set of activities To execute a policy with Ownership Trigger Input Output Control Feedback

Important Processes for KLG Sales approval process –Loan brokerage business –Short term loan with risk assessment process –Factoring business Financial approval process –Expense Sales Office –Payment Suppliers Employee payroll Government Cash flow management Hiring approval process

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