Financial Disclosure

and Corporate
Governance
(PGDM-302)
 Topic-I
Defi nitio n , Ro le and im po rt ance
of
Cor porat e go ve rnanc e
 Corp or ate g overn ance
 Co rp orate go vern ance is the set of processes, customs, policies,
laws, and institutions affecting the way a corporation (or company) is
directed, administered or controlled.

 It is the system by which companies are directed and controlled.

Boards of directors are responsible for the governance of their
companies. The stockholders' role in governance is to appoint the
directors...

 Corporate governance also includes the relationships among the many

stakeholders involved and the goals for which the corporation is
governed.

 The principal stakeholders are the shareholders/members,

management, and the board of directors. Other stakeholders include
labor (employees), customers, creditors (e.g., banks, bond holders),
suppliers, regulators, and the community at large.
 Topic II

Pr inc ipl es of Cor por at e Gove rnanc e

Gen eral Pr inc ipl es o f C orp or ate
Go vernanc e
 Key elements of good corporate governance
principles include
 Honesty
 Trust
 Openness
 Performance orientation
 Responsibility and accountability
 Mutual respect
 Commitment to the organization.
 Commonly accepted principles of
corporate governance include:
1 Ri ght s and eq uita bl e trea tmen t of sh ar eh old er s :
Shareholders are principal people for whom the corporation
is run. Organizations should respect the rights of
shareholders and help shareholders to exercise those rights.
They can help shareholders exercise their rights by
effectively communicating information that is
understandable and accessible and encouraging
shareholders to participate in general meetings.

2 Int ere st s of other st akeh old er s : the second principle is

that the corporation should be run for the benefit of other
interest groups. Organizations should recognize that they
have legal and other obligations to all legitimate
stakeholders.
3 R ole a nd r esponsi bi lit ies of th e boa rd : The
board needs a range of skills and understanding to
be able to deal with various business issues and
have the ability to review and challenge
management performance. It needs to be of
sufficient size and have an appropriate level of
commitment to fulfill its responsibilities and duties.

4 Int egr it y a nd eth ica l beha vior : Ethical and

responsible decision making is also a necessary
element. Organizations should develop a code of
conduct for their directors and executives that
promotes ethical and responsible decision making.
5 D is clo sure and tra nspa renc y :
Organizations should clarify the roles and
responsibilities of board and management to provide
shareholders with a level of accountability.
They should also implement procedures to
independently verify and safeguard the integrity of the
company's financial reporting.
Disclosure of material matters concerning the
organization should be timely and balanced to ensure that
all investors have access to clear, factual information.
 Topic III
Factors influencing
Corporate Governance
 Factors influencing CG
1 Corporate Management
2 Investors/Shareholders
3 Trade Unions
4 Board of directors
5 Employees
6 pressure resulting from internationalization
and globalization
7 pressure exerted by the state in the form of
legal regulation.
 Topic IV
Corporate Strategy
 Corporate strategy
 A st rat egy is a plan of action designed to
achieve a particular goal.

 Corpor at e str at egy is the examination of

the current and anticipated factors
associated with customers and competitors
(external environment) and the firm itself
(internal environment),
 Cor pora te St rat eg y
• It is concerned with the overall purpose and
scope of the business to meet stakeholder
expectations.

 Corporate strategy is the direction an

organization takes with the objective of achieving
business success in the long term

• This is a crucial level since it is heavily influenced

by investors in the business and acts to guide
strategic decision-making throughout the
business. Corporate strategy is often stated
explicitly in a "mission statement".
 Topic V
Relationship between CG and
Financial Performance
 Relationship between CG and
Financial Performance
 Numerous stakeholders (internal and external) exist in any
business enterprise. Some of these include; customers,
shareholders, financiers, government among others.
Internal stakeholders such as the employees and external
stakeholders like Shareholders ,Customers, Tax Authorities,
and Bank Supervisors. These all expect organisation to

be financially transparent and disclose adequate

financial information.
Shareholders, particularly have a variety of rights in
terms of receiving a dividend and appointing managing
director.
 Corporate governance is about building credibility,
ensuring transparency and accountability as well
as maintaining an effective channel of information
disclosure that would foster good corporate
performance.

 It is also about how to build trust and sustain

confidence among the various interest groups that
make up an organisation.

 The major pillars of corporate governance are:

Financial Transparency,
Disclosure and
Trust
I) Transparency
 Transparency is integral to corporate

governance, higher transparency reduces

the information asymmetry between a
firm’s management and financial
stakeholders.
II) Disclosure: helps in improving market discipline.

 It helps in improving market participants ability to assess

organisation capital structures, exposures, management
processes, and, hence, their overall capital adequacy.
 The disclosure requirements consist of qualitative and
quantitative information in three general areas:

Corporate structure refers to how a banking group is

organized; for example, what is the top corporate entity
of the group and how are its subsidiaries consolidated
for accounting and regulatory purposes.
Capital structure corresponds to how much capital is
held and in what forms, such as common stock.
Capital adequacy focus on a summary discussion of the
organization's approach to assessing its current and
future capital adequacy.
III) Trust includes

• Openness: Openness is the extent to which relevant

information is shared; it is process by which individuals
make themselves vulnerable to others.
• Competence: Competence is the ability to perform as
expected and according to standards
appropriate to task at hand, many organisational tasks rely
on competence
• Benevolence: confidence that one’s well being or something
one cares about will be protected and not harmed by the
trusted party
• Honesty: Honesty is the person’s character, integrity and
authenticity.
• Reliability: confidence that one’s well being or something
one cares about will be protected and not harmed by the
trusted party
So, Transparency, disclosure and trust, which constitute the integral
part of corporate governance, can provide pressure for improved
financial performance

Pillars of Corporate governance

Financial Transparency
Financial Performance

• Asset quality
• Earnings
Trust • Liquidity
•Capital adequacy

Disclosure