Corporate Governance By: 1. Kenneth A. Kim John R.

Transcript:Corporate Governance By: 1. Kenneth A. Kim John R.:
Corporate Governance By: 1. Kenneth A. Kim John R. Nofsinger And 2. A. C. Fernando Corporate Governance in Developing and Transition Economies Lesson 27 Last Lecture Review Introduction Corporate governance: advanced vs. developing nations Globalization tends the standards of corporate governance from local to global perspective So developing nation should have to work hard. Problems faced by developing and transition economies Still in process of basic market institutions to regulate Internal owner vs. external owner Inflow of new capital is not facilitated Lack of property rights, contract violations and self-dealing are the core issues, not just the owners and controllers relationship Corporate Governance in Developing and Transition Economies Act are there but it is hard to implement. Judiciary, bureaucracy and regulatory bodies are not alert to stop corporate misgovernance. Summary of problems facing these economies Low economic growth Public sectors dominance i.e. CG is for private sectors Lack of effectiveness of privatization Lack of awareness among shareholders Govt. influence Internal owners are more influential than external owner (no voting powers) More concentration toward family-owned corporations. Corporate Governance in Developing and Transition Economies Lack of legal protection for investors No inflow of new capital Low property rights and contract laws. Lack of well regulatory banking sector Exit mechanism, bankruptcy and foreclosure (taking possession of mortgage property) norms are absent. No sound securities market Lack of competition Corruption and mismanagement Non-uniform guidelines by the govt. for all companies Corporate Governance in Developing and Transition Economies Corporate Governance Models Insider system Insider own majority of the company shares Voting rights Power to monitor management Keep their investment for long period in a firm Support decisions for long period of time Dominant owners can use the firms’ assets by colluding with the management, at the expense of minority shareholders. Irresponsible exercise of power resulting waste resources and drain company productivity levels. Corporate Governance in Developing and Transition Economies Outsider system Large number of owners hold small number of company shares Can’t monitor management Can’t involve in management decisions Common law countries (UK, USA) own this system Independent board members to monitor managerial behaviour More accountable and less corrupt Having dispersed ownership structure with some weaknesses Looking for short term maximization Conflicts between directors and owners Corporate Governance in Developing and Transition Economies Lecture Outlines Developing a corporate governance framework Three (3) ways Owners direct influence by selecting top management Owners delegate their rights to