Module 3 Part C

Question 1

Key factors for better corporate governance

Answer 1

1. Corporation are being exposed to more competition: Additional pressure on corporation to improve on their historical performance
2. Capital market has been freed up: Corporation receiving high level of good governance will receive lowest cost debts and equity finance.
3. company’s performance and other related measures are readily available.
4. Shareholder activism has grown for 2 key reasons
   a) The global aging population is demanding adequate financing of retirement
   b) a significant growth in small share holders
5. Global warming/climate/sustainability issues
6. UK corporate governance code

Question 2

5 factors increasing global awareness

Answer 2

1. Trend towards openness/transparency/disclosure
2. Growing significant in size/scale/activity
3. Growth of international capital market
4. Increasing amount of individual wealth
5. growing acceptance that good governance is in ‘national interest’

Question 3

Governance system
Market-based system

Answer 3

1 Market based system: Also known as
US, UK, Australia, South Africa & NZ
Anglo-American/ Anglo-Saxon approach
Shareholder approach
outsider model

It has widespread ownership, 1000s of investors across the globe
Key focus is to make profit and property rights
Greater disclosure because, they need to report to outsiders and accountable to them
Lesser role for banks, they lend money but don’t get involved in operation
Takeovers are encouraged, if your company is not doing well, other company can takeover

They have single board
Agency issues
Common law is court-based laws. This is principle-based approach

Question 4

Governance system
Relationship-based system

Answer 4

Relationship-based system
Also known as
Europe and Asia
Insider approach
Stakeholder approach
Insider model
It is called insider because it focuses on inside stakeholders of the company

Closely held ownership: government are huge owner of these business
Broader focus
Less disclosure
Greater role for banks
Cross shareholding/less takeover

They have
sometimes two-tiered board
Fewer agency issue
Civil law (very prescriptive)
Employee representation, they have more of a say