Regulations & Strategies for CG

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Regulations & Strategies forCorporate Governance


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Introduction

The way that a company is run determines

the level of confidence that itsshareholders and other stakeholders willhave in it. A company with a strong

performance history will garner more trustand in turn will likely reap financialbenefits. Investors will be more likely to

buy stock, the company will have aneasier time wooing top executives, andpartnerships will be quicker to form.


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Sarbanes-Oxley Act

The Sarbanes-Oxley (SOX) Act was

passed in 2002 with the intention ofprotecting investors and establishingguidelines for financial reporting.Investors and other interestedparties use a corporations financial

records and related information as amethod of evaluating thecorporation.


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Sarbanes-Oxley Act

When the information is incomplete or

otherwise misrepresentative, those whorely on the information are deceived.Consequently, their ability to make sound

decisions will be impaired. The effects offalse information can be as dire foraccidental misrepresentation as they can

for purposeful deception. It is for thisreason that effective controls against botherror and corruption are vital.


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Sarbanes-Oxley Act

In the most basic terms, SOX

requires that corporate executiveschief executive officers (CEOs) andchief financial officers (CFOs)takeresponsibility for the accuracy oftheir corporations financial records

and for the processes of releasingcomplete information toshareholders.


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Key Principles of SOX

Integrity

The SOX principle of integrity refers to thecompleteness of the financial records; itdoes not refer to a personality

characteristic. Investors use a corporationsfinancial information to obtain a picture ofthe companys financial health. Should the

information be incomplete, investors will nothave a representative image of thecompanys situation.


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Reliability

As a principle of SOX, reliability isthe concept of accurate information.The public and investors need to beable to trust that the information withwhich they are presented is correct.


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Accountability

When looking at SOX, accountability refersto the principle that within the corporation,someone must be held accountable for the

establishment of controls and theconsequences should those controls fail.Although SOX does provide some directionfor board members, it is the CEO and

CFO of the corporation who shoulder theresponsibility of complying with SOX.


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SEC Regulations for

Shareholders Proposal

In most situations, shareholder

participation occurs through readingquarterly reports, attendingshareholder meetings, and voting.Shareholders are also able to offertheir own proposals and establish

advocacy committees to increasetheir involvement.


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SEC Regulations for


The 1934 Securities Exchange Act governs

the process by which shareholders areable to submit proposals. This process isoutlined in Regulation 14a-8. According to

the 1998 amended version of the section,shareholders are eligible to submitproposals if they have held 1% of the

companys voting stock for a term of oneyear or more. The guidelines also limitshareholders to one proposal per meeting.


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SEC Regulations for


Of course, these guidelines only regulate

the submission of proposals; it is up to theboard to determine if a proposal will beput forward for vote. Even if the board is

unable to exclude a proposal, it can stillformally recommend that shareholdersvote against it. Directors are also able to

choose whether to act on a shareholderproposal that has been agreed to by themajority.


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OECD

The Organization for Economic Co-

operation and Development (OECD)offers membership for 30 countriesand has a relationship with over 70others. Although perhaps best knownfor its work with public corporations

and CG, the OECD is involved withother economic areas, includingnongovernmental organizations.


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OECD

The role played by the OECD is one of

research and guidance. The organizationfacilitates policy discussion, generatesstatistics, and publishes guidelines, such asits Principles of Corporate Governance.

In 1999, the OECD released the firstedition of the OECD Principles of CorporateGovernance.1 Although geared toward the

organizations 30 member countries, thisdocument has also served as a global guidefor Corporate Governance efforts.


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OECD

Although these guidelines do provide

specific recommendations and advice,they are not necessarily designed fordirect implementation into a corporate

body. Instead, these principles have been

created to serve as a starting point, a set

of regulations that evens the playing fieldso that all countries start on the samepage with basic concepts of CG.


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OECD

The countries are then left to

develop their own policies andregulations that meet theserequirements, but in a mannerrepresentative of their uniquecorporate and economic structures.


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OECD

The principles themselves focus on CG by

breaking it into five areas: Framework. The OECD is a vocal

advocate of establishing a foundational

framework for Corporate Governance. Thisframework should facilitate and coordinateCorporate Governance efforts as well as

be cognizant of all relevant laws andregulations.


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OECD

Shareholder rights. Shareholders

are in the unique position of havingput up the capital for the companybut not having direct control overhow it is run. This means that theirinvestment in the company must be

protected, and their trust in thesystem cannot be abused. This is akey focus of Corporate Governance.


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OECD

Stakeholder considerations.

Although stakeholders are not givenequal treatment in all corporateframeworks, the OECD does supportfair treatment and consideration ofall company stakeholders.


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OECD

Responsibilities of the board.

As the shareholders representativewithin the corporation, the OECDrecognizes its vital role in corporategovernance.


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Cadbury Report

The Cadbury Commissions Financial

Aspects of Corporate Governance,more commonly known as theCadbury Report, has made a strong

contribution to the process ofCorporate Governance in the United

Kingdom and has influenced CGefforts around the world.


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Cadbury Report

In general, the Cadbury Report

focuses on the importance ofestablishing a strong andindependent board of directors. One

of the key components of doing so isto separate the roles of the board

chairperson and the CEO.


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Balanced Scorecard

The Balanced Scorecard strategy was

developed to simplify and streamline theway in which a corporate executive thinksabout the corporations priorities andobligations. In a sense, the Scorecard is

meant to provide the big-picture approachso that the executive does not lose sightof the goals when focusing on the details.


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Balanced Scorecard

A further benefit of the Scorecard is that it

provides a concrete strategy forevaluating intangible, non-financialobjectives.

There are four components of a BalancedScorecard:


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Balanced Scorecard

Financial. The financial portion of the

Scorecard provides discussion of the cost-revenue aspects of the project. Thissection contains the financial figures for

the profitability of the strategy as well asthe potential for growth, costs per unit,and share value impact.


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Balanced Scorecard

Customer. The customer portion of the

Scorecard links the customer and marketactivity to the financial success of thestrategy.

Organization. The organizationportion of the Scorecard recognizesthe actions that will have to occur onthe part of the corporation in order togenerate the market activity that willsupport the financial outcome.


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Balanced Scorecard

Development. Finally, the

development portion of theScorecard links the internaldevelopment that will be required to

support the organizations efforts.For example, this section may

include personnel expansions.


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GCG Components

Strong ethical culture within the company

Effective communication amongshareholders, board members, and theexecutive.

Viable relationship among all top-levelgroups and committees.

Effective whistle-blowing policies and

protections in place.

Regulations & Strategies for CG

Documents

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