PP7/8

• How decisions are taken in a LTD

  1. Planet express Ltd shareholder's meeting

  2. Futurama video*

  3. Corporate governance
• Corporate governance

  The system by which companies are directed and controlled
• Boards of directors

  • Responsible for the governance of their companies
  • Shareholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place
• Corporate governance pillars

  • Accountability
  • Fairness
  • Transparency
  • Responsibility
• Managerial company

  When a company expands, but it becomes necessary to distinguish between the roles of those who bear the risk(shareholders) and those who hold administrative directorial power(managers)
• Closed ownership company

  Meaning it wont be accessible to other economic entities: stability off the property, the owner makes decision, property is concentrated, simple governance
• Advantages of closed ownership company

  • Unity of purpose
  • Simple governance
  • Communication
• Disadvantages of closed ownership company

  • Financially unstable
  • Weak management
  • Strong centralization of power
• Differences between shareholders and managers

  • Shareholders aim to maximize their profit and have their creation to grow healthy
  • Managers aim to maximize their remuneration and enhance their own capabilities
• Models of corporate governance

  • Public company
  • Limited ownership
• Public company

  • Polarization of capital between a multitude of shareholders
  • Minimal degree of identification betweeen shareholder and company
  • Listed companies with part of their capital "flottante"
• Limited ownership

  • Multitude of shareholders, but still selected by the company. Shares are not publicly sold on the market
  • There is a concentrate property s well
  • Managerial continuity as unifying element of the company
  • The property maintains a high degree of control over the company
• Advantages of limited ownership

  • Stability
  • Financial flexibility
  • Owner interests prevail
• Disadvantages of limited ownership

  • Transaction costs
  • Excessive conservatorism
  • Adaptation abilities
• Factors influencing governance systems

  • Efficiency of local capital markets
  • Protection afforded by the legal system
  • Accounting standards
  • Enforcement and regulations
  • Cultural values
  • Perceived corruption
• Efficient capital market

  Prices are "correct", which improves the decision making processes. It "disciplines" corporations and protects against "Moral Hazard" and "Adverse Selection"
• Legal traditions

  • Protection of private property
  • Predictability of claim resolution
  • Enforceability of contracts
  • Efficiency of the legal system
  • Corruption perceived among institutions
• Accounting standards

  Authoritative standards for financial reporting and are the primary source of generally accepted accounting principles(GAAP). They specify how transactions are to be recognized, measured, presented and disclosed in financial statements.
• Every country has its own accounting standards. To operate internationally you need comparable accounting standards: IASB!
• Ethics

  Set of accepted of right and wrong that direct behaviours of people, organisations, professions...(ethnocentrism, to think that every country culture, practices etc are the same as yours)
• The Inglehart-Welzel model shows ethical values in different countries
• Corporate Social Responsibility (CSR)

  A management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. It is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives.
• Dimensions of sustainability

  • Environment: environmental issues like pollution, preservation of resources etc
  • Economy: companies need to be economically sustainable that means that incomes must cover costs
  • Equity: sustainable company gives value to diversity of its personnel: gender, ethnicity, religion etc
• Organisations like SABS and GRI set the standards to ESG
• The sustainability targets strive to promote environmental sustainability, economic sustainability, and inclusive societies. They aim to accomplish this through the following means: ending poverty, protecting life on land and sea, clean energy justice and peace among other initiatives. National governments, intergovernmental agencies and non-profits regularly report on their progress with these goals while also exploring opportunities to improve upon current efforts.
• ESG key components

  • Corporate governance issues apply universally across all industries
  • Good governance of corporate, environmental, and social issues creates sustainable companies
  • Material environmental and social issues vary significantly by industry and may even be company-specific, depending on the level of materiality of each factor
• ESG has side effects