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Home > Corporate Governance Best Practice

Corporate Governance Best Practice

Best Practice

Internationally renowned finance leaders, experts and educators distil and summarize the most important aspects of finance best practice. Each Best Practice essay has an Executive Summary for quick reference, outlining the main points. The Making It Happen feature illustrates practical applications, and where relevant authors have provided illustrative case studies and definitions.

  • Balancing Senior Management Compensation Arrangements with Shareholders’ Interests
    by Henrik Cronqvist
    The board of directors, and specifically the compensation committee (or remuneration committee), has the challenging task of designing a compensation structure for the chief executive officer (CEO) and other senior managers that balances their interests with those of the shareholders. The general idea is to make an executive’s pay sensitive to the value created for the firm’s shareholders. In this way, everyone shares the common goal of...
  • Best Practice in Investment Governance for Pension Funds
    by Roger Urwin
    There is increasing evidence to support a link between superior investment performance and an institutional investor’s strong governance. Recent research conducted jointly by the author and Gordon Clark of Oxford University, entitled Best-practice investment management: lessons for asset owners, further clarified this link and identified 12 best-practice factors as being indicative of future success in meeting institutional goals.The research...
  • Boardroom Roles
    by Sir Adrian Cadbury
    The crispest definition of a board’s role is Sir John Harvey-Jones’s: “to create tomorrow’s company out of today’s.” Boards are in place to direct and control, not to manage. Boards have the task of defining the purpose of their enterprises and of agreeing the strategy for achieving that purpose. They are responsible for appointing chief executives to turn strategic plans into action, for supporting and counseling them in so doing, and if...
  • Corporate Board Structures
    by Vidhan Goyal
    The job of the board is to control the managerial succession process (involving hiring, assessing, promoting, and if required, dismissing the CEO), and to provide high-level counsel to top management.There is a widespread skepticism of the effectiveness of boards. Recent accounting scandals at firms such as Enron, WorldCom, and Parmalat have resulted in intense scrutiny of the function of boards. Critics point out that corporate boards have...
  • Corporate Foreign Policy
    by Timothy Fort, Countess Alexandra Christina of Frederiksborg
    Corporate foreign policy (CFP) is an outgrowth of multiple corporate practices that arise at a time when companies gain their own, distinct institutional identity separate from the individuals that originally formed them and the state that initially granted their legal existence. A small entrepreneurial firm may be an extension of a single or small group of individuals’ economic, political, and moral interests. Larger firms may adopt the...
  • Corporate Governance in Transitional Countries—Shareholders or Stakeholders?
    by Irena Jindrichovska
    Changes in the global environment, society, and business environment, and even recent issues closely connected with the credit crunch have an impact on countries in transition. Transitional economies represented new markets for global companies in the 1990s, and the early years of the 21st century.However, transition is not so straightforward. From the standpoint of global corporations, it is not just about the acquisition of new markets and a...
  • Dividend Policy: Maximizing Shareholder Value
    by Harold Bierman, Jr
    The amount of dividends can affect stock prices. Barsky and De Long (1993) stated:“… changes in current and expected future dividends can account for the bulk of long-run stock price fluctuations, although much less so for short-term price movements.”1The title of this paper could be “Distribution Policy,” since dividends are not the only way of implementing a policy aimed at financially rewarding a firm’s stockholders. The various methods of...
  • Executive Rewards: Ensuring That Financial Rewards Match Performance
    by Shaun Tyson
    Effective management of executive rewards resides at the heart of a network of pressures and issues of central relevance to the management of organizational performance. These pressures can be represented diagrammatically to show how stockholder interests and corporate governance issues impact on business performance, objective setting, the motivation of executives, and the position of the organization as an employer in specific labor markets;...
  • Identifying the Right Nonexecutive Director
    by Terry Carroll
    The “Credit Crunch” has thrown up many challenges and controversies. The extraordinary losses at Société Générale were reminiscent of the Barings debacle. The unaccountable losses suffered by many banks, especially in America, also beg serious questions about nonexecutive directors (NEDs). Never have times been tougher, or the challenges greater—and not just for banks but for all companies. Never has there been a clearer need for the right...
  • Reinvesting in the Company versus Rewarding Investors with Distributions
    by Ruth Bender
    Stockholders gain value from their investments in two ways—either by receiving dividends or by realizing a capital gain. Dividend policy is determined directly by a company’s board, which has to decide whether to make a payout or to reinvest.Although many factors underlie the dividend decision, there is one basic rule: If there are investment opportunities where the expected return exceeds the company’s cost of capital, value will be created by...
  • Should Internal Auditing Assess Board Performance?
    by Sridhar Ramamoorti
    “Ultimately, the overall responsibility for the organization and its assets, and for its perpetuation into the future, rests squarely with the board.” Dr Thomas R. Horton, Former Chairman, National Association of Corporate Directors.Internal auditors are increasingly being challenged to look at ways by which they might evaluate and improve the governance process. Given their competencies and expertise in the areas of governance, risk management,...
  • The Role of Internal Auditing at Board Committee Level
    by Sridhar Ramamoorti
    In the aftermath of the Wall Street financial crisis, one of the major areas that has been identified as needing improvement is corporate governance. Boards of directors and their committees, despite receiving extremely summarized and condensed information, now have a well-established responsibility for managing the overall organizational risk (Kolb and Schwartz, 2010). A critically important element that was lacking before and during the...
  • Why the “Credit Crunch” May Be Good for Corporate Governance
    by Terry Carroll
    In her article “A board culture of corporate governance,” Gabrielle O’Donovan defines corporate governance as “an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity.”In the United Kingdom the corporate governance industry was probably born in 1992 with the Cadbury Report....

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