B. Governance

B: GOVERNANCE
Section B - Governance
1. Agency theory
2. Stakeholder analysis and organisational social responsibility
3. Governance scope and approaches
4. Reporting to stakeholders
5. The board of directors
6. Public sector governance
First Things First!
Read the ACCA technical article on:
Corporate governance from the inside out
https://www.accaglobal.com/my/en/student/exam-support-resources/professional-
exams-study-resources/strategic-business-leader/technical-articles/corporate-
governance-inside-out.html
1. AGENCY THEORY
B : G OV E R N A N C E
Objectives
a. Discuss the nature of the principal-agent relationship in the

1. AGENCY context of governance.
THEORY
b. Analyse the issues connected with the separation of ownership
and control over organisation activity.
Corporate Governance
• Good CG practices instill in companies required vision, processes and structures that
ensure long-term sustainability.
• Good CG also critical to support good corporate citizenship = commitment to ethical

behaviour in business strategy, operations and culture.
• Investors, creditors and other stakeholders increasingly recognising that good

environmental, social and governance (ESG) practices integral to company’s
performance and long-term sustainability.
• Good CG, effective controls and a corporate culture grounded on ethical behaviour and
transparency, can reduce risk, corruption and mismanagement.
• Ensure employees fully understand and appreciate value of good CG processes through
training, awareness programmes and robust communication.
• Non-listed entities (state-owned enterprises, public companies, SMEs) encouraged to

embrace and apply good CG practices to enhance accountability, transparency and
sustainability.
• Structures and systems by which companies are directed and controlled in interests of
shareholders and other stakeholders – concerns conduct of senior managers where they
are held accountable to those who have a legitimate stake in organisation.
• Necessary due to potential agency problems and failure to meet shareholder and other
stakeholder expectations
Shareholder model Stakeholder model
Prioritises shareholder interests Recognises wider set of

stakeholders
Agency Theory
• Explains relationship between principals (shareholders/government/tax payer) and
agents (directors/managers) in business
• An agent is a person employed to do an act for another or to represent another in
dealings with third persons.
• Principal - person for whom such an act is done, or who is represented.
Agency Theory – Private Sector
Delegate the
running of the
company
Directors Shareholders
Applicable for larger sized companies where separation of

ownership and control is norm
Agency Theory – Public Sector
Delegate the
running of the
company
Trustees /
Govt/taxpayer
Directors
Agency Theory – Charity
Delegate the
running of the
company
Trustees /
Donors/govt
Directors
Agency Theory Concepts
Fiduciary Given in trust
Directors
Role is similar to that of a trustee in a trust in that they are

entrusted by principal to run the company on their behalf
Directors are expected to:
Show Exercise due

uncompromising diligence in
loyalty to principal making decisions
Agent’s Duties
(1) Act on behalf of and be subject to the control of the principal
(2) Act within the scope of authority or power delegated by the principal
(3) Discharge his or her duties with appropriate care and diligence
(4) Avoid conflict between his or her personal interests and those of the principal
(5) Promptly hand over to the principal all monies collected on principal's behalf.
(6) Minimise inefficiencies and financial losses arising from miscommunication and
disagreement
(7) To act in unison with the principal's interests, and achieve goal congruence.
Principal’s Duties
(1) Compensate agent as agreed, and
(2) Indemnify (compensate for harm or loss) the agent against claims, liabilities
and expenses incurred in discharging duties assigned by the principal.
Agency Problems
• Agency problems arise due to differences between goals/desires of principal and agent –
three main reasons for agency problems:
1. Typically know more than principal about managing an organisation – more qualified –
hired for their expertise
2. Difficult for principal to closely monitor agents – made worse because principals
typically have other investments – so, attention diluted
3. Misaligned rewards – so, agents pursue objectives that reward them better – e.g. may
use superior knowledge to negotiate bonus targets that are easy to meet.
Agency Problem Example
• Bernie Madoff's – Founder and Chairman of
Bernard L. Madoff Investment Securities
• Ponzi scheme - cost investors nearly $16.5

billion in 2009 - criminally charged and
convicted to serve a 150-year prison
sentence (Investopedia)
• Died on April 14, 2021
• https://www.investopedia.com/terms/b/be
rnard-madoff.asp
Other Agency Problem examples
• Lehman Brothers Holdings Inc. - global financial services firm - filed for bankruptcy in
2008 - was then fourth-largest investment bank in USA.
• Collapsed because it took on excessive debts, extensively diversified product portfolio and
BOD (agents) did not monitor its strategy and risk management process closely.
• 2014 – Banco Espirito Sanctu – Portugal’s second largest bank – disappeared after
discovery of financial irregularities involving €5bn losses
• Root causes of failure: dysfunction of BOD and agency problem.
• Politicians (agents) not fulfilling election manifesto promised to voters (principals) is also
an example of principal agent problem.
Agency Costs
• Result of agency problem - because agent incurs little or no risk when
making decisions - all losses are absorbed by the principal (resource
owners)
• Time spent studying and • Consultancy fees

understanding company • Incentive schemes
data and bonuses for
• Time spent attending directors
AGMs • Audit fees
TIME MATERIAL • NED fees
COST COST
Agency Cost
Total agency cost is the sum of:
Principal • Fee payable to both NEDs and external auditors

monitoring • Time spent by shareholders attending AGMs and holding
expenditure dialogues with directors
Agent’s
• Time spent by institutional shareholders during dialogues
bonding
with directors
expenditure
• Loss resulting from directors misusing their positions and

Residual loss
obtaining additional benefits
Reducing Agency Problems
Incentives Monitoring
• Ties ED’s wealth to • NEDs, auditors and other

wealth of shareholders - components of
so both share same governance system
goals - e.g. share options monitor EDs
Solving Agency Problems
• Organise regular dialogues to reduce information asymmetry
• Principal must exercise voting rights at AGM
• Maintain a balanced, efficient and effective Board
• Enlist auditors – internal and external
• Implement performance-related pay/stock ownership plan
Objectives
a. Discuss and critically assess the concept of stakeholder power

and interest using the Mendelow model and apply this to
2 . S TA K E H O L D E R
strategy and governance.
A N A LY S I S A N D
O R G A N I S AT I O N A L
b. Evaluate the stakeholders’ roles, claims and interests in an
SOCIAL
organisation and how they may conflict.
RESPONSIBILITY
c. Explain social responsibility and viewing the organisation as a
‘corporate citizen’ in the context of governance and
sustainability.
• Stakeholder - any entity (person, group or non-human entity) that can affect or be
affected by the actions or policies of the organisation
• Each stakeholder group has different expectations (‘claims’) about what it wants
from the organisation
Stakeholder Theory
• Arises from the argument that companies today are so

large and their impact on society so pervasive that they
should discharge accountability to many more sectors of
society than shareholders alone
Organisation’s Motivations Regarding Stakeholders
Using stakeholders as an instrument to
achieve profitability and business goals
Normative view
• Organisations should
Instrumental view
accommodate stakeholder
• Managing stakeholders
concerns not because of
should result in achievement
profit, but because it’s a
of profits and business goals
moral obligation
• ‘Good ethics’ is ‘good

business’ - employing ethics
as a strategic management
tool to improve business
performance
Normative Stakeholder Approach
• Organisations should accommodate stakeholder concerns NOT because of what

it can instrumentally ‘get out of it’ for its own profit, but because by doing so the
organisation observes its moral duty to each stakeholder group.
• COMPANY LAW makes such an approach impractical, as companies have a legal

and fiduciary obligation to maximise shareholder wealth.
Stakeholder Claims
• Demands made by a stakeholder of an organisation
• The ‘something’ that they want from an organisation
• Some influence or want to influence (affect) what organisation does
• Others concerned with how they are affected by organisation’s decisions/actions
• May want to increase, decrease, or change how they affect or are affected by organisation
• Two types: direct and indirect

Stakeholder Claims
Direct claims
• Made by those with their own ‘voice’
• Made directly between stakeholder and organisation
• Usually unambiguous
E.g. trade unions, shareholders, employees, customers,

suppliers etc.
Stakeholder Claims
Indirect claims
• Made by a third party on behalf of ‘voiceless’ stakeholders but does

not invalidate their claim
• Typical reasons for lack of “voice”: powerless; not existing yet (e.g.
future generations); no physical voice (e.g. animals, environment);
remote from organisation (e.g. in distant countries).
• Raises problem of interpretation - makes indirect representation

ambiguous. How do you interpret, for example, the needs of the
environment or future generations?
❑Directors
❑Company Secretary
❑Board Committees
❑Employees
❑Employee unions
❑ Shareholders
❑ Institutional investors
❑ Auditors
❑ Regulators
❑ Government
❑ Stock exchange
Stakeholder Classification
Internal / Connected / External
Known vs Unknown Narrow vs Wide
Recognised & Unrecognised Primary vs Secondary
Legitimate vs Illegitimate Active vs Passive

Voluntary vs Involuntary
Internal & External
• Grouped based on whether they are from inside or outside of the organisation.
Some (such as shareholder) may be classified as both internal and external
Narrow & Wide
• Grouped based on their dependency on the company. Narrow - those who are
the most affected by the company’s policies. Wide - those least affected
Primary & Secondary

• Grouped based on company’s dependency on them - Primary stakeholder:
without their continued participation company cannot survive as a going concern -
powerful - secondary stakeholders - company does not directly depend upon them
for its immediate survival.
Active & Passive

• Grouped based on their level of participation in the company’s policy making.
Determines their interest levels.
Voluntary & Involuntary
• Grouped based on whether their association with the company are out of their
own free will.
Legitimate & Illegitimate

• Dependent on company’s perception of validity of claims made by a particular
stakeholder. Stakeholders with an active economic relationship with company
will typically be considered legitimate.
Recognised & Unrecognised
• Follows on from the debate over legitimacy. A legitimate stakeholder -

recognised by the company and vice versa.
Known & Unknown
• Grouped based on the company’s awareness of their existence which will have
implication on the legitimacy of their claims.
Identifying and Analysing Stakeholders:
Stakeholder Mapping
INTEREST
LOW HIGH
LOW
Minimal Keep
effort informed
POWER
Keep Key
satisfied players
HIGH
Problems with stakeholder mapping
• Difficult to objectively measure power and influence
• Map not static
• Map based on strategic positioning rather than moral or ethical concerns
• If key players in conflict, difficult to resolve issues
• ‘One size fits all’ measure may not be the solution for managing stakeholders even
though they reside in the same quadrant
Why Recognise All Stakeholders
• Gain understanding of sources of risks and disruption
• Assess the source of influence (power)
• Identify areas of conflict and tension between stakeholders
• Be fair to everyone
• Saves company from being blindsided

• Bridges social capital
• Increases credibility of organisation
• Increases chances of success

Benefits if Stakeholder Interest Observed
• Avoidance of negative action by NGOs against company
• Can enter new markets where customers / people value ethical business practices
• Attract and retain staff who share the same values as company
• Ease of raising finance possibly from ethical fund
• Lower cost of capital due to perceived lower risk by financiers

Technical article
Read the ACCA technical article on
All about Stakeholders 1
exams-study-resources/strategic-business-leader/technical-articles/all-about-
stakeholders-part-1.html
All about Stakeholders 2
exams-study-resources/strategic-business-leader/technical-articles/all-about-
stakeholders-part-2.html
Corporate Social Responsibility (CSR)
• A concept which encourages organisations to

voluntarily take responsibility for the impact of
their activities on society and environment
Corporate Social Responsibility - Carroll's pyramid
Philanthropic
Ethical
Legal
Economic
The CSR Pyramid (Carrol, 1991)

Carroll's pyramid
• Suggests that companies have to fulfil responsibility at four levels – economic, legal,
ethical and philanthropic.
• Business’s first responsibility - be profitable - only way for a company to be able to
survive long term, and benefit employees and society.
• Second responsibility – obey the law (e.g. employment, competition, tax and health and
safety laws)
• Third responsibility - not obligated to do so – but do the right thing, being fair in all
situations and avoid harm – e.g. being environmentally friendly, treating
suppliers/employees properly
• Fourth responsibility - “give back” to the community they take from - stakeholders prefer
to do business with companies that give back to society.
CSR Strategy Example
Corporate Citizenship
• Social responsibility of businesses and extent to which they meet economic, legal and
ethical responsibilities as established by shareholders
• Goal: produce higher standards of living for communities that surround them and still
maintain profitability for shareholders
• Demand for socially responsible corporations growing
• Investors, consumers and employees using individual power to negatively affect unwilling
companies
• Creates corporate accountability – organisation answerable for consequences of its

actions.
Corporate Citizenship
Three principles of successful corporate citizenship:
• Minimising harm – avoiding harm to the natural environment

and to social infrastructure.
• Maximising benefit - stimulate local economic activity and

increase employment, but with greater sensitivity to
environmental and social impacts.
• Being accountable and responsive - to a wide range of

stakeholders
Corporate Citizenship Views
Three different perspectives companies take in discharging its social

responsibility:
Limited Extended
view Equivalent view
view
Limited
view
Social responsibilities are focused nearly completely on shareholders
and customers as the main stakeholders of the company. The
underlying rationale is to reciprocate their support for the company.
Equivalent
view
Company regards all stakeholders as equal and so would not

undertake activities that will inconvenience or harm them.
3 rights of an individual:
Extended Social rights
view • Freedom to participate in society, right to education,
healthcare or various aspects of welfare
Civil rights
• Freedom from abuses and interference by third parties (e.g.
government); right to own property, to engage in “free”
markets or exercise freedom of speech
Political rights
• Right to vote or the right to hold office.
Extended • Company assumes responsibilities that are traditionally that of

view the government in the area of safeguarding the social, civil and
political rights of the citizens.
• Companies enter the picture as a powerful public player with
responsibility to respect and protect citizens’ 3 rights.
• Failure of some governments in fulfilling some of their
traditional functions plus rise in corporate power have
contributed to companies assuming a political role.
Impact of CSR on CG
Leaders of corporate citizenship – must pursue following to promote CG system:
• Confirm corporate citizenship strategies support and service company’s key CG policies and
procedures, business ethics policy and corporate code of conduct.
• Collaborate with leaders across organisation to recognise and learn where ESG issues have
highest potential to add value or disrupt productivity over near and long-term.
• Ensure corporate citizenship department supports successful implementation of CG

policies and procedures throughout company’s operations.
• Brainstorm with colleagues on how oversight and advisory governance processes can
contribute to best results.
Corporate Citizenship & Sustainability
Focus is on social accounting (in Business Review of Annual Reports).
• Ethical accounting: how company audits and complies with internal management
systems and codes of practice at an individual level.
• Environmental accounting: evaluating organisation's impact on natural environment.
• Social accounting: incorporates employee conditions, health & safety, equal

opportunities, human rights, charity work.
• Sustainability accounting: Incorporates the triple bottom line (People, Planet and
Profit) with emphasis on environmentalism.
Corporate Citizenship & Sustainability
“Social responsibility matters – to our employees, our suppliers, our investors and our customers.
At Airbus, we strive to use our business know-how as a force for good. As part of our long-term
commitment to being a responsible business, we focus on stimulating socio-economic
development, creating value-added employment and increasing access to education” – Airbus
https://www.airbus.com/company/
sustainability/corporate-
citizenship.html
Gray, Owens & Adams
Pristine capitalist Shareholders rule
Expedients
Seven Social contractarian

positions on social
responsibilities Social ecologists
Socialist
Radical feminist
Deep ecologist Stakeholders

in partnership
Positions On Social Responsibility
Position Comment
Pristine Capitalist Right to pursue legal business activities, consume Needs of shareholders are paramount.
resources and maximise shareholder wealth Little concept of CSR
Expedient Social responsibility expenditure may be necessary Businesses need minimal ethical
to strategically position orgn. to maximise profits guidance (legislative or self-imposed)
Social Company only exist because society wants them – Actions of company must serve the
Contractarian so company must respect and serve society ‘public interest’
Social Ecologist Businesses have social and environmental Economic systems need to change to
footprint, and are responsible for minimising it place cost on resource use
Socialist Capital should not be allowed to dominate social, Creation of ‘things’ should be secondary
economic and political life to individual wellbeing
Radical Feminist Businesses should have more ‘feminine’ Accounting & CSR systems flawed
characteristics such as equity, dialogues, because do not ‘value’ compassion
compassion and fairness
Deep Ecologist No business has a ‘right’ to resources – businesses As a minimum, economic activity should
lack environmental awareness be sustainable
Ethical Stances
Short-Term Long-Term Multiple

Shaper of
Shareholder Shareholder Stakeholder
Society
Interest Interest Obligation
Short-Term Shareholder Interest
• Limited ethical stance to taking responsibility – minimalist

approach – shareholder-focused
Johnson, Scholes
Johnson, Scholes
& Whittington • View: only responsibility of business is short-term interest
& Whittington of shareholders
Ethical Stances • Any form of social responsibility must be prescribed
Ethical stances through legislation and regulation
• Similar to that of a pristine capitalist.

Long-Term Shareholder Interest
• Wider view to prevent a build-up of social and political

Johnson, Scholes pressure for legal regulation
Johnson, Scholes
& Whittington
& Whittington • Recognises importance of well-managed relationships
with other stakeholders for long-term financial benefits
Ethical Stances of shareholders
Ethical stances
• Similar to that of an expedient - enhances corporate
image
Multiple Stakeholder Obligations
• Accepts legitimacy of stakeholders other than

shareholders
• Recognises key to long-term success includes social,

Johnson, Scholes
environmental and economic performance
& Whittington
Ethical Stances • Believes that stakeholder interests and expectations

should be met beyond minimum obligations of regulation
and corporate governance
• Similar to social contractarian.

Shaper of Society
• Emphasis on changing society or social norms – largely

Johnson, Scholes concern of charities and public sector
Johnson, Scholes
& Whittington
& Whittington • Objective: to shape/mould society
Ethical Stances • Financial considerations regarded secondary

Ethical stances
• Similar to that of social ecologists, socialist, radical
feminist and deep ecologist.
3. GOVERNANCE
SCOPE AND
APPROACHES
Objectives
a. Analyse and discuss the role and influence of

institutional investors in governance systems and
structures.
b. Compare rules versus principles-based approaches to
3. GOVERNANCE
governance and when they may be appropriate. SCOPE AND
c. Discuss different models of organisational ownership APPROACHES
that influence different governance regimes (family
firms versus joint stock company-based models) and
how they work in practice.
d. Apply general principles of the International Corporate
Governance Network (ICGN)’s Global Governance
Principles to organisations’ corporate governance.
Institutional Investors
• An organisation that invests on behalf of its members
• Fewer protective regulations because assumed more

knowledgeable and better able to protect themselves
• Have resources and specialised knowledge
• Trade on major exchanges
• Have tremendous influence on stock market's

movements/prices
• Knowledgeable and, therefore, less likely to make uneducated

investments
Institutional Investors
• Represent large chunks of shareholders - hence effective check to agency problem
• Can monitor investee companies better because have necessary expertise and
knowledge
• Small shareholders despite voicing objections overruled - IIs represent huge numbers
of shareholders - hence have higher bargaining power – more effective
• Flipside: IIs do not usually pursue radical changes - instead focus on maintaining
financial and operational efficiencies of investee companies and promoting good CG.
IIs’ General Responsibilities
Institutional shareholders’ responsibilities in respect of investee companies include:
a. Setting out policy (next slide) on how they will discharge their responsibilities
b. Monitoring performance of, and establish, where necessary, a regular dialogue with
investee companies
c. Intervening where necessary
d. Evaluating impact of their activism
e. Reporting back to clients/beneficial owners.

Policies
So, IIs must have a clear statement of their policy on activism and responsibilities – called
policy statement - public document - responsibilities include:
• How investee companies will be monitored – may include an active dialogue with
investee company’s board and senior management
• Policy for requiring investee companies’ compliance with corporate governance codes
• Policy for meeting with an investee company’s board and senior management.
• How situations where IIs have a conflict of interest will be minimised or dealt with
• Strategy on intervention
Policies (cont’d)
• An indication of type of circumstances when further action will be taken and details of
types of action that may be taken.
• Voting and disclosure

Intervene when have concerns on:
Based on the UK Stewardship Code
• Company’s inappropriate strategies
• Company’s poor operational performance
• NEDs failing to hold EDs properly to account
• Internal controls failings/weaknesses
• Inadequate succession planning
• Unjustifiable failure to comply with the Code
• Inappropriate remuneration levels / incentive packages / severance packages
and
• Company’s approach to CSR (under spending).
Further Actions if Initial Interventions Fail:
• Holding additional meetings with management specifically to discuss concerns

• Expressing concern through the company’s advisers; meeting with the chairman, senior
independent director, or with all independent directors
• Intervening jointly with other institutions on particular issues
• Making a public statement in advance of the AGM/EGM
• Submitting resolutions at shareholders’ meetings and
• Requisitioning an EGM, possibly to change Board.
• Sell it’s shares
Monitoring Performance
Institutional investors and/or agents should:
• Review annual reports and accounts, other circulars and AGM resolutions
• Attend company meetings where they may raise questions about investee companies’
affairs
• Enter into an active dialogue with the investee company’s board/senior management.
Evaluating & Reporting Effectiveness of Monitoring
IIs should regularly report to their clients, details on how they

have discharged their responsibilities - should include:
• A judgement on impact and effectiveness of their activism.
• Details of how votes have been casted.
• Although transparency key, not expected to make disclosures

that might be counterproductive - confidentiality in specific
situations crucial.
Institutional Investors’ Role in Promoting Good CG
• Promote longer-term prospects - proactively encourage board of investee companies to
comply with good CG, focusing on longer-term interests, ensuring shareholder interest
prioritised over interests of BOD.
• Monitor wellbeing of investee company with expertise and knowledge acquired from
their engagements with boards of other companies.
• Focus on maintaining financial and operational efficiencies and promoting good CG,
instead of radical changes, as this would affect their net worth.
• II’s activism can be a rock of stability in turbulent times - e.g., by ensuring company
complies with social and environmental norms and heeds shareholders’ objections.
Approaches to Corporate Governance
Rule-based Principle-based
approach approach
• Instills Code into law with penalties for • Broad principles prescribed - companies
transgression encouraged to apply flexibly - to suit
various circumstances of company
• Compliance mandatory - non-compliance
met with fine or imprisonment of directors • Part of stock exchange listing requirement -
or both comply or explain or apply or explain
(MCCG)
• E.g. Sarbanes Oxley (SOX)
• E.g. UK CG Code
Advantages Disadvantages
Rule-
• No misinterpretation of rules • Too rigid – cannot adapt
Based
• Standard for all companies • High legal costs – many legal formalities
• Compulsory compliance • Must comply
• Greater confidence in compliance • Exploitation of 'loopholes'
• Criminal deterrent to non- • No incentive to ‘exceed’ rules
compliance • Checklist / box-ticking approach
• Visibility of compliance
Principal-
• Flexible • Too broad due to flexibility
Based
• Less cost • Investors not confident of inconsistency in
• Develops company’s own approach approach
• Comply or explain • Confusion of what is compulsory and
• Investors decide on impact of non- what is not
compliance • May be viewed as non-binding and not
comply
• Inadequate & unjustified explanation
Evolution of UK CG Code
Main Provisions of SOX (Read)
• CEOs and CFOs to certify that quarterly and annual reports fully
comply with applicable securities laws and present a fair picture
of the company’s financial situation.
• Listed companies must establish an audit committee comprised

only of independent members and has at least one financial
expert on the committee.
• Establishment of Public Company Accounting Oversight Board

(PCAOB) for auditors of US listed companies.
• EAs prohibited from offering nine non-audit services to clients.

• Mandatory rotation of audit partners. Lead audit partner to be
rotated every five years followed by a five-year period where
he/she cannot be audit partner for that company
• Auditor to report on the effectiveness of financial internal

controls
• Companies to disclose in their annual report the fees paid to the

‘independent accountant’ for each of the audit, audit-related, tax
and other services
• Any member of the audit team is barred for one year from
accepting employment in certain specified positions in a
company that they have audited.
Criticisms of SOX:
• Audit fee costs increased
• Onerous documentation and internal control costs
• Reduced flexibility and adaption by companies
• Reduced risk taking and competitiveness
• Limited impact on ability to stop corporate abuse
• Legislation defines minimum standard
Ownership Structure
Insider / Family Owned Outsider / Joint-Stock Company
• Insider-dominated system – plc’s owned • Outsider-dominated system – plc’s

and controlled by a small number of controlled by professional managers -
major family shareholders owned by many outside shareholders
• Typically owned by family or banks or • Shares widely dispersed externally
government or other companies
• Clear separation of ownership and
• Half of stock-market listed in ten largest control
Asian markets effectively family-
controlled • E.g. Facebook, Microsoft, Apple
• E.g. Nike/Walmart/Ford/Fiat/Sunway/
Genting
Insider / Family-owned
Benefits Problems
• Fewer agency problems • Little separation of ownership
• Lower monitoring cost and control
• Less likelihood of suffering short- • Discrimination of minority

termism shareholders
• Greater, stable expert input to • Less formal governance structure

managerial decisions • Misuse of funds / power
• Lack of transparency in reporting
• Unwilling to appoint I-NEDs
• Succession planning issues
Outsider / Joint-Stock Company
Benefits Problems
• More robust legal and • Agency problems
governance regimes to protect • Significant agency cost
shareholders • Shareholders have short-term
• Shareholders may exercise priorities
control
• Disciplining mechanism on
company management
Factors Driving for Good CG
1. High economic uncertainty - broadened people’s awareness of influence companies have

on their lives.
2. Awareness among governments that economic growth requires a proactive regulatory

approach – that governments must play an important role in ensuring high-integrity
business activity.
3. Sharp rise in cross-border investing - sovereign wealth funds, pension funds, global
investment banks, and hedge funds look for global markets to invest, and they expect
investee companies to play by rational rules.
International Corporate Governance Network
Background
• Membership comprises of many groups interested in corporate governance reform.

ICGN represents the interests of investors, financial intermediaries and companies
inter alias
• Published a report aiming to enhance the guidance produced by OECD. The report
provides practical guidance for Boards to meet expectations so that they can operate
efficiently and compete for scarce capital effectively
• ICGN believes that if investors and companies establish productive communication on
governance issues, the prospects for economic prosperity will be enhanced.
ICGN Policy Priorities 2020-21:
1. Promoting long-term investment perspectives and sustainable value creation
2. Making successful stewardship a reality
3. Building effective boards amidst the changing boundaries of governance
4. Protecting minority shareholder rights
5. Seeking transparency through robust reporting, audit and metrics

Principle 1: Board Role and Responsibilities
• The board should act on an informed basis and in the best long-term interests of the
company with good faith, care and diligence, for the benefit of shareholders, while having
regard to relevant stakeholders, including creditors.
Principle 2: Leadership and Independence
• Board leadership calls for clarity and balance in board and executive roles and an integrity
of process to protect the interests of minority investors and promote success of the
company as a whole.
Principle 3: Composition and Appointment
• There should be a sufficient mix of directors with relevant knowledge, independence,

competence, industry experience and diversity of perspectives to generate effective
challenge, discussion and objective decision-making.
Principle 4: Corporate Culture
• The board should adopt high standards of business ethics, ensuring that its vision, mission
and objectives are sound and demonstrative of its values. Codes of ethical conduct should
be effectively communicated and integrated into the company’s strategy and operations,
including risk management systems and remuneration structures.
Principle 5: Risk Oversight
• The board should proactively oversee, review and approve the approach to risk
management regularly or with any significant business change and satisfy itself that the
approach is functioning effectively.
Principle 6: Remuneration
• Remuneration should be designed to effectively align the interests of the CEO and
executive officers with those of the company and its shareholders to help ensure long-
term performance and sustainable value creation. The board should also ensure that
aggregate remuneration is appropriately balanced with the needs to pay dividends to
shareholders and retain capital for future investment.
Principle 7: Reporting and audit
• Boards should oversee timely and high quality company disclosures for investors and
other stakeholders relating to financial statements, strategic and operational
performance, corporate governance and material environmental and social factors. A
robust audit practice is critical for necessary quality standards.
Principle 8: Shareholder rights
• Rights of all shareholders should be equal and must be protected. Fundamental to this
protection is ensuring that shareholder voting rights are directly linked to the
shareholder’s economic stake, and that minority shareholders have voting rights on key
decisions or transactions which affect their interest in the company.
ICGN Global Stewardship Principles
➢ Set out best practices in relation to investor stewardship obligations, policies and
processes – can be applied in either developed or developing countries - offer several
possible applications, including:
• Serving as an international framework for global stewardship policies
• Enhancing dialogue between companies and investors by complementing CG Codes

applied in a ‘comply or explain’ context
• Providing a point of reference for regulators and standard setters to establish or

review their own stewardship codes.
ICGN Global Stewardship Principles
➢ The ICGN 2020-21 Policy Priorities – complements ICGN Global Governance Principles &
Global Stewardship Principles - seeks to establish a frame of reference to guide ICGN
policy work and policy committees in:
1. Promoting long-term investment perspectives and sustainable value creation
2. Making successful stewardship a reality
3. Building effective boards amidst the changing boundaries of governance
4. Protecting minority shareholder rights
5. Seeking transparency through robust reporting, audit and metrics

Universal Codes
Arguments for a standardised code
• Increasing international investment, foreign subsidiaries and integration
of the international markets call for a global convergence in corporate
governance to promote international harmonization in financial
markets.
• Corporate governance standardisation helps build confidence in a
country’s financial markets and attracts investors to risk funds.
Arguments against a standardised code
• Corporate governance system’s differences can promote competition
between countries and take advantage of comparative advantage.
• There can be no ‘one size fits all’ standard. Individual companies and
markets will always be subject to local cultures, pressures and practices.
Transparency /
Core principles of good
Reputation
Openness CG / leader
Judgement
Honesty /
Probity
Responsibility
Independence /
Objectivity Accountability
Skepticism Innovation
Fairness Integrity
4. Reporting to Stakeholders
Objectives
a. Discuss the factors that determine organisational policies on
reporting to stakeholders.
b. Assess the role and value of integrated reporting and evaluate
the issues concerning accounting for sustainability
4 . R E P O R T I N G TO c. Advise on the guiding principles, the typical content elements
S TA K E H O L D E R S and the six capitals of an integrated report, and discuss the
usefulness of this information to stakeholders
d. Describe and assess the social and environmental impacts that
economic activity can have (in terms of social and environmental
‘footprints’ and environmental reporting)
e. Describe the main features of internal management systems for
underpinning environmental and sustainability accounting.
Reporting to Shareholders
1.Disclosure
• Refers to mandatory and voluntary information produced by companies (for

shareholders) aimed at removing information asymmetry caused by separation of
ownership and control
2. Communication
• Refers to regular and constructive two-way communications between directors and

shareholders in the form of dialogues.
Common Channels of Communication
Dialogues AGM Company website Annual Reports
Shareholders and Reporting financial

Companies are Board should
investors will position of
encouraged to make constructive
benefit from company and non-
enter into use of AGMs to
timely financial
dialogues with its communicate with
information, information such
IIs based on private investors
delivered through as direction
mutual and encourage
company’s company is taking,
understanding of their
website on a its strategic
objectives. participation.
regular basis, objectives, and so
about current on.
developments in
company’s affairs.
Mandatory Reporting
• Information that must be provided by company as stipulated by law/listing
requirements/IFRS/CG Codes
Benefits
• Provides regular and constructive dialogues between company and shareholders
• Directors understand interests and concerns of shareholders
• Shareholders understand what company is trying to achieve
• Increased shareholder interest encourages checks on company’s managers
• Potential benefits from closer interest by shareholders in company
Typical Annual Report Contents
• Business Description
• Strategies
• Performance Highlights
• Chairman & CEO’s Statements
• Business Review
• Management
• Statistical Summary
• Corporate Governance
• Corporate Responsibility
• Shareholder Information
GIB – Green Investment Bank plc
Reporting to Stakeholders
• Traditional annual reports: biased towards shareholders
• Also, complex - difficult to understand
• Furthermore, not so relevant to other stakeholder groups
• Emergence to simplify reporting, to bridge gap between information stakeholders expect

to receive and statutory requirements.
• Also, today, directors have a responsibility to report to all stakeholders (not just
shareholders).
Voluntary Reporting
• Disclosures over and above mandated minimum - e.gs., integrated reporting and
environmental reporting.
Benefits
• Better information flow to all stakeholders - reduces information asymmetry
• Attracts capital and maintains confidence
• Provides access to regular, reliable, comparable information for DM
• Promotes the company in a positive light
• Marketing tool to attract stakeholders
• Improves stakeholders understanding of organisation
• Prevents unethical behavior.
FINANCIAL
PERFORMANCE STRATEGY
Integrated Thinking
• The active consideration by an organisation of the relationships between its various
operating and functional units and the capitals that the organisation uses or affects.
• Integrated thinking leads to integrated (holistic) decision-making and actions that

consider the creation, preservation or erosion of value over the short, medium and long
term’.
• Integrated thinking is a unifying concept and a strategic tool that helps management to
bring order to a manifestly complex environment.
Integrated Thinking
• Creates conditions and processes conducive to an inclusive process of decision making,
management and reporting, based on connectivity and interdependencies between a
range of factors that affect an organisation’s ability to create value over time.
• <IR> process can kick-start integrated thinking, by bringing people from across
organisation together through the reporting cycle.
Integrated Thinking
o ACCA reviewed 14 2019/2020 integrated reports of companies - reviews and interviews
revealed:
o Divided views about purpose of an integrated report - nearly half of companies

positioned their integrated reports as sustainability reports.
o Strategy and strategic goals are not always communicated coherently: reporting on
governance, business model and future outlook often divorced from strategy – also,
lack consideration of future horizons
o Despite increased focus on sustainability, sustainability objectives not yet fully

connected to overall corporate strategy.
Integrated Thinking
o Multi-capitals thinking yet to take root: at present, key value drivers not discussed
consistently through IRs - may indicate no consensus yet across business about what
key value drivers are.
o IR not always consistent or connected with the financial statements, and vice versa:
impairments recorded in the financial statements are almost never referenced in
integrated reports.
Integrated Thinking
• 2022 will be an Olympic test for reporting - in the throes of the global pandemic and
other challenges, investors and other stakeholders will expect to see changes to risk and
opportunities, strategies and business models in integrated reports.
• Particularly likely that the outlook (future) section of reports will be keenly read by
investors and others – so, authenticity and transparency will be rewarded rather than
punished.
Integrated Thinking
Top 10 practice tips to drive integrated thinking:
• Collaborate, from the start: Plan the report with a cross-functional team, with teams
from across the organisation working together.
• Tone from the top: Active steering and oversight from a forward-looking board that is
willing to learn and embed integrated reporting and thinking across the organisation.
• Materiality process as a management tool: Use the materiality process to focus on risks
and opportunities that have the most impact on value creation, and develop strategy
accordingly.
Integrated Thinking
• Stakeholders and purpose: Understand how each key stakeholder group enables your
organisation to fulfil its purpose, and consider their legitimate needs and interests when
developing strategy.
• Focus on strategic goals: Identify a core set of long-term strategic objectives,

develop rolling targets, and report on these consistently from year to year.
• Connect strategies: Understand and articulate how topic-specific strategies

and operational plans work together to support core strategic goals.
• Break out of the template: Think consciously about how your unique business model
supports the achievement of strategic goals, and make this link clear in the report.
Integrated Thinking
• Adapt the model: Know which capitals and components of capitals really matter to the
achievement of your organisation’s purpose and strategy and ability to create value, and
report on them in terms that make sense to internal and external stakeholders.
• Show why you care: Clearly explain the value of different capitals to your organisation.
• Work at the connections: Put in place active mechanisms to ensure that the integrated
report is consistent with the financial statements – in the numbers, the events and
transactions reflected, and in its underlying assumptions.
why u care explain which capital

ir content
what capital important to comp and stake
indentify key stakeholders
rolling targets
connect strategis
holistic desiscion
Integrated Thinking
https://www.researchgate.net/figure/Relationship-between-Integrated-Thinking-and-
Integrated-Reporting_fig2_281554441
Article
Read about integrated thinking at:
https://www.accaglobal.com/gb/en/professional-insights/global-profession/Invisible-
threads-communicating-integrated-think.html
What Is Integrated Reporting <IR>?
• Using an annual report to communicate value creation instead of mere compliance
document
• Done over and above mandatory reporting
• Shows linkage between organisation’s strategy, governance, financial performance and

social & environmental context within which it operates
• Explains creation and sustaining of value in short, medium and longer term by providing
insights into an organisation’s current and future performance
• Helps business to make more sustainable decisions and enables all stakeholders to
understand how organisation is really performing.
Six Types of Capital
Financial Human
Funds used in production of goods or Consists of employees’ health,
provision of services knowledge, skills and motivation.
Intellectual Manufactured
Collection of all informational resources
Comprises of materials or fixed
that provides competitive advantage;
patents, copyrights, software, rights & assets which contribute to the
licences production process, not output
itself
Social and Relationship Natural

Institutions that help maintain and Includes resources such as water,
develop human capital; families, fossil fuels, solar energy, crops etc -
communities, businesses, trade unions, cannot be replaced - essential to
schools & voluntary organisations functioning of economy as a whole.
Value Creation of <IR>
Objectives of <IR>
• Improve quality of information available to providers of financial capital
• Provide a cohesive and efficient approach to corporate reporting – concisely

communicate, to a wider group of stakeholders, a full range of factors that materially
affect organisation’s ability to create value over time.
• Enhance accountability and stewardship for the six capitals and promote understanding of
their interdependencies.
• Support integrated thinking, decision making and actions that focus on creation of value
over short, medium and long term.
strategic objectives loyalthy customer fucking ir re[orts

show reactive attitude
Strategic Focus • Provide future insight into the company’s
strategy
Connectivity of • Show interrelatedness between factors that
Information affect the ability to create value over time
Stakeholder • Provide insight into the nature and quality
Relationships of relationships with key stakeholders
Guiding
principles of • Disclose information about organisation’s
Materiality
<IR> ability to create value over time
• Concise report to avoid superfluous
Conciseness
information
Reliability and • Include all material matters, positive and
Completeness negative and free from material error
Consistency and • Present consistently and comparable with
Comparability other organisations
Contents of <IR>
Organisational
Governance – does it Risk and opportunities
overview and external Business model
support s / m / l that affect company’s
environment
value creation? ability to create s/m/l
value
Strategy and Performance – Basis of presentation – how

Outlook – challenges,
resource achieved company decides what to
uncertainties and
allocation – objectives? Effect include in IR – how are they
implications
direction and how on 6 capitals? quantified / evaluated?
Differences between <IR> & Financial Reporting
<IR> FR
• Greater transparency Openness • Narrow disclosures

• All forms of capital Stewardship • Financial capital
• Integrated Thinking • Isolated
• Past and future; • Past; financial
Focus
connected & strategic
• Short, medium & long Time frame • Short term only
term
• Responsive to individual Flexibility • Rule bound
• Concise and material Detail • Long and complex
• Technology enabled Technology • Paper based
Benefits of <IR>
• Better integrated thinking and • Potential profit improvement – long term
management
• Greater clarity of issues and performance • Increased trust with all stakeholders
• Improved reputation and SH relationships • Better resource allocation and use
• Efficient for both users and preparers • Enhanced risk management
• Engages all SHs including employees • Lower cost of and better access to 6
capitals
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Issues of <IR>
• Differing expectations
Many components of <IR> subject to various local expectations - progress towards <IR>
likely to evolve at different speeds in different countries causing challenges to
organisations.
• Inconsistency in focus
Fiduciary and other duties of those charged with governance not consistent across all
jurisdictions – has made focus of <IR> to differ with regards to the users.
• Increased director liability
Scope of <IR> covers new and evolving subjects – covers many stakeholders - greater
focus on future - raises concerns about liability of those charged with governance.
Issues of <IR> (cont’d)
• Commercial confidentiality
Organisations need to disclose more strategic information and, in some cases,
competitive information in their <IR>.
• Unavailable capability
Building of knowledge and experience for capturing and aggregating and auditing the
information contained within integrated report may not currently be in place.
Social & Environmental Reporting
Social Audit & Environmental Audit &

Social Footprint Environmental Footprint
Environmental
Accounting
Social & Environmental Audit
Social Audit
• Evaluating effect of a firm’s operations and conduct on society
• Can be undertaken internally or externally
• Optional and voluntary
Environmental Audit
• Evaluation of how well entity and its management are
performing to safeguard environment
Why Social Audit
Social reporting concerns varying issues - differs between each industry:
• Prevent and resolve human rights issues
• Reduce adverse social impact
• Reduce negative effects of company’s operations on local communities
• Reduce negative effects of supply chain on local communities
• Resolve training and employees’ issues
• Ensure fair pay and conducive work environment including health and safety
• Ensure fair business practices
• Resolve minority and equity issues
Objectives of Social Audit
• Assess physical and financial gaps between needs and available resources
• Create awareness among beneficiaries of local social programmes
• Increase usefulness and effectiveness of local development programmes
• Scrutinise policy decisions, keeping in view stakeholder interests and priorities
• Estimate opportunity cost for stakeholders of not getting timely access to services.
Benefits of Social Audits
• Keeps in view society’s interests, expectations and priorities
• Trains community on participatory local planning
• Benefits disadvantaged communities / groups
• Promotes collective decision making and responsibility sharing
• Develops human resources and social capital.

Elements of Social Audit Reports
Overview:
• Statement of purpose
• Review results of last year’s purpose and plan
• Establish this year’s purpose and plan
External view
View of external stakeholders of organisation
Internal view
View of BOD, staff and volunteers to assess satisfactory ways of working and reward to
achieve stated purpose and plan
Monitor and plan
Social audit team manages social audit and measures performance ready for input
into next year’s social audit
Impact of Business Activity on Society & Environment
Social Footprint
• Social impact that business activities have brought through provision of products
& services, employment of workers, or any other corporate activity.
• E.g. impact of closure of plant / on individuals and communities; erosion of local
cultures etc.
Environmental Footprint
• Impact a business’s activities have upon environment including resource usage,

carbon footprint, pollution etc.
• E.g. depletion of non-renewable natural resources, rising temperature etc.
Environmental Audit
Voluntary attempt to evaluate:
• Company’s impact on natural resource consumption (inputs)
• Harm to environment caused by pollution/emission by company

(output)
• Measurement of resource consumption and pollution emission

(quantitative, qualitative or replacement terms)
Environmental Audit
The environmental impacts covered by an audit mainly includes:

• Energy consumption
• Carbon dioxide and other emissions
• Waste management and minimisation
• Ground and groundwater protection
• Protection of environmentally sensitive areas
• Environmental emergencies
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Sustainability
• Development that meets needs of present without compromising ability of future
generation to meet their own needs
• Ability of organisation to continue to exist and conduct operations with no/minimal

effects on environment.
• Concept promotes intergenerational equity, i.e. equality between one generation and
another
Sustainability
• Refers to both inputs and outputs
• Inputs / resources must only be consumed at a rate at which they can be reproduced or
not irreplaceably depleted
• Outputs (waste and products) must not pollute environment at a rate greater than can
be cleared or offset.
• Recycling - one way to reduce net impact.

External Environmental Audit
External audit benefits:
• Reduces or avoids familiarity threats
• Creates higher confidence for organisations’ management &

regulators
• Can introduce best practice & new developments
• Can bring a fresh pair of eyes, identifying issues overlooked by IAs .

Stages of Environmental Audit
1. Set metrics (what should be measured and how)
• Typically include setting targets for energy consumption & carbon emissions -
essentially organisation’s environmental footprint.
2. Measure actual performance against metrics

• Actual performance is measured which then allows a variance to be
calculated against the targets.
3. Report on levels of compliance or variance to BOD / users

• To help various stakeholder groups understand environmental performance
of organisation.
Benefits of Environmental Audit
• Understand how to meet legal requirements
• Meet specific statutory reporting requirements
• Can demonstrate environmental responsibility
• Can demonstrate environmental policy implementation
• Understand environmental interactions of products, services and activities
• Know whether environmental risks managed appropriately
• Understand how to develop and implement ISO 14001 EMS
• Improve environmental performance and save money.
Benefits of Both Audits to Stakeholders
• Company more aware of risks/expectations; less likely to suffer bad reputation
• Employees may use information to choose employer
• Investors may invest in ethically performing companies
• Consumers may select ethical companies
• Prevents regulatory/government intervention
• Benefits share price / shareholder
• Shareholder can have access to additional information

Internal Management System
Eco–Management Audit Scheme ISO 14000

Focusing on disclosure on Focusing on compliance
environmental systems with internal
environmental systems
Eco–Management Audit Scheme (EMAS)
Key benefits
• Enhanced credibility, transparency and reputation
• Enhanced environmental risks and opportunities

management
• Enhanced environmental and financial

performance
•
INTERNAL MANAGEMENT SYSTEM
Enhanced
motivation
employee empowerment and
ISO 14000 Certification
Key benefits
• Minimises company’s operations negatively affecting

environment.
• Complies with applicable laws, regulations, and other

environmentally oriented requirements.
• Continually improves above.

INTERNAL MANAGEMENT SYSTEM
5. The Board of Directors
B : G OV E R N A N C E Objectives
a. Assess the duties of directors and functions of the board (including setting a responsible ‘tone’ from the
top and being accountable for the performance and impacts of the organisation)
b. Evaluate the cases for and against, unitary and two-tier board structures.
c. Describe and assess the purposes, roles, responsibilities and performance of Non-Executive Directors
(NEDs) Describe and assess the importance of, induction, performance appraisal and the continuing
professional development of directors on boards of directors.
d. Describe and assess the importance of, induction, performance appraisal and the continuing professional
development of directors on boards of directors. Assess the importance, roles purposes and
accountabilities of the main committees within the effective governance
e. Explain the meanings of ‘diversity’ and critically evaluate issues of diversity on boards of directors.
f. Assess the importance, roles purposes and accountabilities of the main board committees within effective
governance
g. Describe and assess the general principles of remunerating directors and how to modify directors’
behaviour to align with stakeholder interests: [3]
h. Explain and analyse the regulatory, strategic and labour market issues associated with determining
directors’ remuneration.
UK Corporate Governance Code Principles
(a) Leadership
(b) Effectiveness
(c) Remuneration
(d) Relations with shareholders
(e) Accountability
Board of Directors
Every company
should be • Should comprise of
headed by an directors from diversified
backgrounds to ensure
effective board decisions made result of
extensive deliberation
collectively from different
• Has a fiduciary duty
perspectives
responsible for to shareholders, and
success of only to shareholders
company
Provide entrepreneurial leadership
Fulfil obligations to shareholders
Decide on matters to be discussed by the Board

Roles and Appoint board members
Responsibilities of
Board Review work of senior management
Establish internal control system
Establish Board Committees
Review board performance regularly

Set through policies, codes of ethics & a
commitment to:
• hiring honest and competent employees,
and
Tone at the Top (TAT)
• development of reward structures that
top board how they act
promote good controls and effective
governance
• Describes organisation's general
ethical climate
• Must be set by the BOD
• Good tone at the top prevents
fraud and unethical practices.
• Establishing and strengthening TAT requires

concerted effort of CEO, BOD & CCO
• Must clearly establish their roles in setting TAT
• Key driver: selection of CEO – must possess 3Cs –

competence, character & chemistry – all three
equally important
• Leaders must openly and continually communicate desired ethical values and lead by
example.
• CCO – person employees seek when faced with ethical concerns – responsible to
reinforce values – must create ‘speak up’ culture
Roles of Directors
• Manage day-to-day • Independent /

operations ‘outside’ directors
• Has interest of • Not involved in daily

shareholders, operations
management and
employees • Paid director’s fees
• Compensated via salary • Settle company

& based on disputes and bring
performance of EXECUTIVE NON- EXECUTIVE objectivity to goal
company DIRECTORS DIRECTORS setting
Board Balance and Independence
• Board should include a balance of EDs and NEDs (especially independent NEDs).
• At least half of BOD, not including Chairman, must be independent NEDs.
• Smaller companies outside the FTSE (Financial Times Stock Exchange) 350 – must appoint
at least 2 independent NEDs.
• So no one individual or group of individuals can dominate board’s decision making.

Board Balance
• One Independent NED should be chosen as
and Senior Independent Director (SID)
Independence
• Alternative point of contact if shareholders
can’t make headway or have concerns with
Chairman/CEO/Finance Director
Roles of Executive Directors
Leadership –
Design, develop Responsible for the
Accountable to motivate and mentor
and implement day-to-day operation
Chairman of BOD members, staff,
cost and time of organisation
and reports volunteers. Lead
efficient strategies including managing
regularly organisation and
for organisation Committees and staff
develop its culture
Roles of NEDs
NEDs - board members - not employees - without responsibilities for daily management of
company.
• Same legal duties, responsibilities and liabilities as EDs
• Committed to business success as EDs
• Provide creative contribution to Board
• Provide independent oversight
• Constructively challenge EDs

Roles of NEDs (Higgs Report)
• Constructive critic - challenge • Satisfied with integrity of
and offer advise on strategies financial statements and ensure
devised by EDs adequacy of internal controls
and risk management
STRATEGY RISK
board strategry , risk ,control ,skills

set succession plan ned need to
monitor challenge and ensure
PEOPLE SCRUTINY however neds may not doing shit not

good neds
• Appoint, decide remuneration of • Review performance of EDs -

and remove managers & ensure nominating EDs and ensure
appropriate succession planning succession planning
Advantages & Disadvantages of NEDs
Advantages:
• Provide expertise
• Monitoring role – scrutinise EDs’ decisions
• Improves company’s perception
• Communication enhanced in line with
shareholders’ interests.
Disadvantages:
• Lack of trust between EDs & NEDs
• Additional cost
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• May lack quality
• Reward may not match responsibility
Increasing Independence of NEDs
• Have no business, financial or other connections with company during past few years
(period varies by country) - e.g. should not have been a
shareholder/auditor/employee/supplier/significant customer
• Cross-directorships banned - too intimate – affects scrutiny
• Total ban on share options for NEDs
• Allowed to seek confidential external advice (e.g. legal advice), at company’s expense
• Time-limited appointments - typically 3 years - number of terms - typically 2 consecutive
terms
• MCCG - iNED should not exceed cumulative term of 9 years – after 9 years, may continue
to serve as non-independent NED.
Re-election
submit subject
for Re-election to Continued
All NEDs at regular satisfactory
intervals performance
• Ensures independence of NEDs and allows minority shareholders a chance to

vote out a particular NED.
• Planned & progressive refreshing of NEDs provides evidence of formal

succession planning, prevents groupthink, preserves independence, refreshes
knowledge & experience of BOD, promotes diversity etc.
formal risk planning , prevent GROUPTHINK KKKKKKKKKKKKKKK
ENSURE STRATEGIC SKILL SET
NED’s Compensation
• The UK CG Code 2016 – board and shareholders determine NEDs compensations within
limits set in company’s constitution.
• NEDs compensation consists of director’s fees – may receive shares (instead of fees) in
exceptional cases – e.g. if company is cash strapped.
Roles of a CEO
Board
Visionary
developer
Decision
Manager
maker
Leader
Roles of Chairman
Providing leadership to the Board
Taking responsibility for the Board’s composition and development
Ensuring proper information for the Board

Planning and conducting Board meetings effectively
Getting all directors involved in the Board’s work
Ensuring the Board focuses on its key tasks
Engaging the Board in assessing and improving its performance
Overseeing the induction and development of directors
Supporting the CEO
Splitting Roles of CEO and Chairman
Clear division of responsibility at head of company between
Chairman CEO
Running of
Running of Board company business
To avoid unfettered power of decisions that can lead to abuse

Rationale for split
Aims:
i. Reduce concentration of authority/power to single individual
ii. Clarify respective roles of chairperson and CEO
iii. Ensure board tasks not neglected due to CEO’s lack of time
iv. Bring in experienced skills for both positions.

• There are no chairmen who are also CEOs in top 150 FTSE (Financial Times Stock
Exchange) companies.
• Marks and Spencer – March 10 2008 - Sir Stuart Rose appointed as Chairman and CEO –
not in compliance with Code – did not also consult major shareholders – but in CG
statement 29 March 2008 – explained reasons for non-compliance.
• However, currently it is split:
CEO → Steve Rowe; Chairman → Archie Norman
• Genting currently – Tan Sri Dato Seri’ Lim Kok Thay – Board Executive and Chairman –
but the only ED on Board – rest all NEDs.
Arguments for split: Arguments against split :
• Accountability – A clear path • Unity – difficult finding two
of accountability for CEO and separate leaders who can work
Chairman harmoniously
• Representation – No conflict • Ability – need two individuals
of interest with intricate knowledge of the
• Temptation – Removes company
‘unfettered power’ • If chairman lacks requisite
• Complies with CG Code knowledge, EDs may not respect
individual
• Human nature – conflicts
inevitable
Reasons for Directors’ Departure from Office
• Retirement of Rotation / End of Director’s Service Contract

• Not offering for re-election
• Not re-elected
• Company failure
• Death
• Prolonged absence
• Removed from office for non-performance
• Resigned – personal / health issues
Board Diversity
• Variation of social and cultural identities among Board members based
on age, gender, ethnicity, race, education, experience, skills etc.
• Aims to cultivate a heterogeneous Board – a broad spectrum of
demographic attributes and characteristics
• Diversity necessary for achieving specific targets representing particular
groups
• Simple measure – include female representation - mandatory in some
countries – forces companies to comply
• E.g. since 2008 – Norway - women must fill at least 40% of directorship
positions - Spain and France implementing similar requirements
Consequences of a non-diverse board
• Lack of new NEDs - less likely to challenge strategy from a new perspective - perhaps less
willing to disagree with EDs if regarded as colleagues/friends.
• Lack of new EDs - indicates lack of succession planning - possible candidates for
directorships not being identified – may contribute to management departures.
• Groupthink – lack of age diversity - if all old, may have similar educational backgrounds –
may be less experienced in recent educational developments and lack digital expertise –
also shows lack of succession planning
• Lack of gender diversity - female directors may be able to bring a different range of life
experiences and perspectives – limited female representation may also suggest limited
opportunities at top of company - may contribute to staff departures.
Why Gender Diversity
Benefits of female representation:
• Better multi taskers
• Wider talent pool – better educated
• More responsive to market changes
• Enhances corporate reputation and

investor relations
Board Diversity
Enhancing Board Diversity
Disclose diversity policy (and progress) in appointing directors so that investors and
stakeholders can make proper evaluation
Clearly establish selection criteria in terms of measurable skills, experience,

knowledge and personal attributes
Establish clear Board accountability for diversity
Use range of recruitment methods to reach wide pool of candidates

Enhancing Board Diversity
• Provide clear brief to search firm

including diversity targets
• Assess candidates against specification in
a consistent manner
• Widen diversity in senior leadership pool
to ensure future success
Top 10 reasons why diversity is good for

the Boardroom
(https://www.forbes.com/sites/mikemyatt/2013/11/18/t
op-10-reasons-diversity-is-good-for-the-
boardroom/#6a5e6e5a1b90)
Board Structures
UNITARY TWO-TIER (DUAL)
Single Board Two Boards (Membership exclusive to each

Board)
Supervisory Board (Advisory Mgmt. Board (Operating

Board) Board) (Lower Tier)
(Upper Tier)
(Members appointed by
(Members appointed by Supervisory Board)
Shareholders)
(Includes stakeholder representatives)
Unitary Structure (UK, USA, Australia and South Africa)
• Presence of NEDs leads to • NEDs need to monitor EDs’
better decisions performance
• Improved investor • So needs much time
confidence commitment from NEDs
• Better relationship as a • No stakeholder
single Board representation
• All directors share equal • Less independence and
legal responsibility separation of duties
• Enhanced efficiency/easy • Familiarity threat
to operate
Two-tier Structure (France and Germany)
• Supervisory Board oversees direction of business
• Management Board runs the business
• Clear separation of control • Dilution of power – many
and management stakeholders involved
• Wider stakeholder • Slower decision making
involvement • Confusion on which Board
• Encourages transparency in should be accountable
decision making • Agency problems between
• Management Board can focus two Boards – separate
on running the company meetings
Induction & CPD of Directors
• All new directors should receive induction

on joining & existing directors should
regularly update and refresh skills and
knowledge (through CPD) to narrow the gap
between them created by diversity in
experience & knowledge.
• Objective of induction: provide a new

director with the information that he / she
will require to become effective in his / her
role, within the shortest time.
Induction of Directors
Objectives: to build
• Understanding of business and its
markets
• Links with the company’s people
• Understanding of company’s key Benefits of induction:
external stakeholders • Welcomes directors
• Expedites learning
• Enables directors to be active decision
makers quickly
• Equips NEDs with strategic information as
only present for meetings
Continuing Professional Development (CPD)
• All directors must regularly update and refresh their skills and knowledge - ensures that
directors are equipped with the right knowledge, skills and competencies to undertake
their responsibilities.
Purposes – to:
• Ensure that directors able to demonstrate an adequate level of professional knowledge

and skill in performing duties competently and professionally
• Help directors to respond to changing regulatory expectations, technological

developments, evolving responsibilities and economic conditions
• Give stakeholders confidence that directors have adequate knowledge and skills to fully
discharge their responsibilities.
Continuing Professional Development
Benefits of CPD:
• Narrows the knowledge gap among Directors
• Keep abreast of changes & benefits in sound decision making
• Shareholders have more confidence in Directors
• Fulfils professional competence as a professional
• Contributes to succession planning

Succession Planning
• Process for identifying and developing new directors

who can replace old directors when they resign, retire
or die
• Increases availability of experienced and capable

employees prepared to assume directorship roles as
soon as they become available
Additional reading:
(http://www.accaglobal.com/my/en/member/member/a
ccounting-business/practice/succession-planning.html)
Performance Evaluation
Board as a whole Board Committees Directors individually

• Annual evaluation of BOD as a

whole - should be formal and
rigorous manner
• Evaluation of the various
committees and
• Evaluation of individual
directors should be undertaken
in the same manner
• EDs must be rewarded based
on their performance
Effectiveness of Board must include evaluation of:
• Board structure: composition, competencies, diversity

• Dynamics and functioning of the Board (operations)
• Board’s role in company strategy
• Monitoring of policies, strategy implementation and systems
• Financial reporting process, internal audit, risk management and internal control
systems
• Supporting and advisory role played by NEDs
• Chairperson’s role
Components of Director’s Remuneration
Short
Term
Components
Severance
Payment / Long
pensions Term
ED’s Remuneration Package
Aim: to attract, recruit, retain, reward and motivate
Severance
Basic Share
Bonus Perks Shares payments
salary options
/pensions
Short term components Long term components

Short-Term Components of Director’s Remuneration
• Not related to performance of company nor

performance of individual director.
• Set with regard to the size of the company,

Basic industry sector, experience of the individual
Salary director and level of base salary in similar
company.
• Tied perhaps to annual financial performance of

Bonus company.
Short-Term Components of Director’s Remuneration
Perquisites
Various perks such as membership of the company’s health insurance scheme, private use
of the company’s aircraft or boats, and so on - offered to directors to reflect directors’
status as senior management of the company
Long-Term Components of Director’s Remuneration
• Grants EDs right to purchase shares at a specified

exercise price over a specified time period - a
Share promise made to an ED by shareholders to grant a
options given number of shares of company's stock to the
executive director at a predetermined time in the
future
Comparison of Director’s Remuneration to Workers
Severance Payments of Director’s
• Contract sets out terms and conditions of his/her appointment, including duration of
appointment and required minimum period of notice of termination
• In lieu of notice, company committed to giving individual a minimum severance payment
if he/she is forced to leave company
• Tesco's former chief executive and finance director shared £2.2m in severance pay
• Gillette's James Kitts $165 million dollar pay out
• Exxon Mobil's Lee Raymond - collected $321 million when he stepped down as CEO
• Jack Welch, pocketed $417 million when retired from GE, largest such payment in history.
Directors’ Remuneration - Issues
Chief Executive
Officer and Fails to
Remuneration Executive Chairman attract,
not linked to involved in retain or
company’s determining their motivate the
performance own remuneration directors
package
Objectives of Remuneration Strategy
• Achieve strategic objectives of company

• Attract, retain and motivate talented individuals
• Promote and reward right behaviours
• Create a culture that rewards high performance
• Ensure fair and equitable remuneration
• Control remuneration costs
• Comply with employment and labour laws
Linking Remuneration to Performance
Greatest challenge facing Remuneration Committee: linking reward to performance
Critical need to ensure board members are:

• motivated to improve performance
• adequately rewarded when performance
improvements are achieved
• seen to be paid appropriately for effort and success
• not criticised for excessive pay
• retained through market-based rates
Performance Related Incentives - Pros
• Rewarding directors based on KPIs is in line with the concept of transparency.
• Promotes accountability to shareholders
• Motivates directors to improve the operational & financial performance of the
company.
• Ensures directors are neither over- nor under-compensated
Performance Related Incentives - Cons
• Since compensation directly tied to financial performance of company, EDs might paint a
rosy picture of company's financial condition to bolster personal compensation.
• If KPIs based on short-term financial targets, short-termism may be encouraged.
• Profit measures (basis for incentives), can be manipulated as accounting standards

provide a significant amount of latitude and interpretation in accounting methods.
Remuneration Report
• Avenue to build stakeholder and BOD relationship - BOD must address following
concerns, if any:
1. Over emphasis on short term goals
2. Bonuses paid despite poor performance
3. EDs rewarded while shareholders suffer
4. “Hidden surprises”
Clarity, transparency and openness are paramount - always better to explain

arrangements to investors / shareholders upfront
Remuneration Report
Should disclose:
• Remuneration policy
• Arrangements for individual Directors
• Duration of contract with Directors
• Notice period and termination payments
• External consultants’ remuneration, if

advising Remuneration Committee
Risk Management and Controls
• Board must factor risk as an integral part of organisational strategy - today’s businesses
wrought with complexities and litigiousness – can destroy organisations overnight –
(See Section D)
• Board’s responsibility on internal controls (Turnbull Report):
o Implement a sound system of internal controls, and
o The system should be checked on a regular basis.
(See Section F)
Board’s Role in Risk and Internal Controls
Boards should fulfil role in risk oversight by:
• Developing risk policies consistent with organisation’s strategy and risk appetite
• Following up on management’s implementation of risk policies
• Following up to ensure risk procedures function as intended
• Taking steps to foster risk awareness
• Encouraging a culture of risk adjusting awareness
• Setting up RMCs to oversee the risk management process.
(See Section F)
Board Committees
• Made up of members of the Board with specified sets of duties - four most common
committees appointed by public listed companies:
Nomination Remuneration Audit Committee Risk Management

Committee (NC) Committee (RC) (AC) Committee (RMC)
• However, smaller public listed companies outside FTSE 350 (Financial Times Stock
Exchange) need not establish formal committees to perform these functions, but
should ensure that these functions are appropriately addressed by board.
Creates structures Communicates to
that uses expertise shareholders that
to improve decisions Directors take
in key areas governance seriously
Communicates to
Requirement of stakeholders
importance of
many Codes of Importance of remuneration
Governance
Board Committees and risk
Increases Reduces Board’s

workload and
shareholders’
improves focus on
confidence strategic issues
Appointments to Board
• Procedure for appointment of new directors to Board should be formal, rigorous &
transparent.
• Calls for establishment of a Nomination Committee to promote meritocracy in

recruitment of directors
Nomination Committee (NC)
• Ideally independent NEDs chaired by chairman of BOD
• Review board structure (composition) and recommend changes
• Prepare job descriptions for board members
• Nominate candidates to fill board vacancies
• Ensure balance between EDs and NEDs on the board
• Ensure appropriate diversity to board composition
• Regularly evaluate the balance of skills, knowledge and experience of the
board
• Ensure smooth succession planning of the CEO & chairman
• Evaluate the performance of the board at least annually
• Recommend whether directors should be re-elected
Remuneration Committee (RC)
• Only NEDs; majority independent
• Chairman of BOD should not chair RC but may be a member
• Determine and review company’s remuneration policy
• Set remuneration for all EDs and Chairman
• Ensure remuneration reflects performance and EDs are fairly rewarded for individual
performance
• Demonstrate that remuneration is set objectively by NEDs with no personal interest
• Agree on compensation for loss of office of EDs
• Ensure remuneration is correctly disclosed in annual report

Audit Committee (AC)
• Ensures integrity of financial reports and integrated reports
• Suitable members identified by NC but appointed by shareholders at every AGM

• Only and at least 3 independent NEDs, with at least one having financial knowledge
• Review internal control system
• Review internal auditor's work

• Review external auditor's work & liaise with external auditor
• Review financial statements & systems
• Review risk management systems

• Investigations
Risk Management Committee (RMC)
• At least three members - may comprise of EDs and NEDs, and even non-directors.
• Chairperson – should be NED but not Board Chairman
• Approve organisation’s risk management strategy and policy
• Review reports on key risks prepared by business units, management and Board
• Assess effectiveness of organisation's risk management system
• Providing early warnings to Board on emerging risk issues and significant changes in
company's exposure to risks
• Review company's Statement of Internal Controls (with AC) with reference to risk
management, prior to endorsement by Board
Risk Management Committee (RMC)
• Reasons risk management should not be delegated to AC:
i. AC will only focus on financial/audit related risks; separate RMC extend beyond these
ii. AC must act as an independent body – can only include independent NEDs
iii. NEDs cannot meet at random or on an impromptu basis
iv. NEDs not suitable to create and lead risk awareness culture
v. Separate RMC recognises that identification and management of risks and disclosure
to shareholders is vital.
LLL plc
LLL plc is listed on its country’s stock exchange. The following individuals serve on the
BOD:
• Asif is a non-executive director and is the chairman of the company.
• Bertrand is the CEO and is responsible for the day-to-day running of the company.
• Chan is a professional accountant and serves as a non-executive director.
• Donna is the finance director and is an employee of the company.
• Esther is a legal advocate and serves as a non-executive director.
• Frederik is the marketing director of a manufacturing company and serves as a non-
executive director.
Question 1
Which of the following is the most appropriate composition of directors for LLL’s audit
committee?
• A Chan, Donna and Esther

• B Asif, Bertrand and Frederik
• C Asif, Esther and Frederik
• D Chan, Esther and Frederik
Answer 1
• The correct answer is D.
• Executive directors should not serve on the audit committee. This eliminates options A
and B. Option D is the best choice, as the audit committee should have at least one
director with expertise in finance.
Question 2
Which of the following is the most appropriate composition of directors for LLL’s
remuneration committee?
• A Chan, Donna and Esther

• B Asif, Bertrand and Frederik
• C Asif, Esther and Frederik
• D Chan, Esther and Frederik
Answer 2
• Options C or D
• Executive directors should not serve on the remuneration committee. This eliminates
options A and B.
• However, if option C is chosen, Asif should not chair the remuneration committee as he
is the Chairman of the Board
Question 3
The BOD of LLL has decided to increase the basic salary of Bertrand by 20% in order to
bring his pay into line with those occupying similar positions in the industry. This action
will achieve which of the following purposes?
• A Improve the prospect of retaining him

• B Increase the productivity of the CEO by at least 20%
• C Motivate Bertrand to achieve long-term targets
• D Create greater job satisfaction for the CEO
Answer 3
• The correct answer is A.
• The basic pay offered by a company serves as a beacon to attract applicants, and can
also deter the present incumbent from seeking opportunities elsewhere, especially if
they perceive themselves to be underpaid.
• A substantial pay increase is unlikely to achieve a significant increase in productivity or
increase long-term motivation (though it can have a short-term impact on motivation).
• Job satisfaction is derived from factors other than remuneration, such as challenges
inherent in the work and the nature of the tasks performed
Question 4
Which of the following is a duty of a company secretary of a public listed company?
A Maintaining order at Board meetings

B Clarifying the terms of reference of the Board meeting
C Ensuring that all directors contribute fully to discussions at Board meetings
D Reporting to the Board on operational performance for the last quarter
Question 4
• The correct answer is B.

• Options A and C are responsibilities of the Chairman, while option D is the responsibility
of the CEO.
Public Sector
Governance
Objectives
a. Compare and contrast public sector, private sector,
charitable status and non-governmental (NGO and quasi-
NGOs) forms of organization
6. PUBLIC
b. Assess and evaluate the strategic objectives, leadership
and governance arrangements specific to public sector SECTOR
organisations as contrasted with private sector GOVERNANCE
c. Explain democratic control, political influence and policy
implementation in public sector organisations
d. Discuss obligations of the public-sector organisations to

meet the economy, effectiveness, efficiency (3‘E’s) criteria
and promote public value
Types of Organisations
Private Sector
Can include family businesses, partnerships, private limited and public limited companies -
objective is profit making
Public Sector
Owned by government – run on public funds - objective is to provide VFM services to public
Charities
Not for profit organisations like charities and NGOs - objective is to fulfil purpose for which
it was setup
Britain’s Top Rated Charities
Comparison
PLC Public Sector Charities
Regulations To comply with Company’s Act and Comply with the Comply with local country’s charity
Stock Exchange requirements (listing legislature and the regulation and receive confirmed
rules) and to adopt best CG practices judiciary of the public status as ‘charity’
governance
Strategic Financial gain for shareholders and Concerned with delivery of Support charitable causes –
purpose increased in shareholders’ worth by public goods and services social/benevolent (e.g. stop abuse
measuring profits, cash flow, increase / against children / women, care for
decrease in share price and EPS senior citizens) Funds collected
specifically for this.
Ownership Shareholders Taxpayers Donors, government, grant

providers, etc.
Stakeholders’ Businesses should: Fulfilment of the Achievement of its aims.
expectation • Be efficient to be profitable objectives and best Stakeholders engage with charity
• Create jobs utilisation of the public to support the cause
• Create wealth and value for funds
investors
Comparison
PLC Public Sector Charities
Performance Financial Statements Fulfilling its objectives and Financial Statements and other
measure best value for money non-financial measures
Funding Shareholders Taxes, fees, and financial Government and / or public
transfers from other levels
of government
Openness and Comply with CG requirement Limited disclosure Limited requirement, practiced by
Transparency requirement many to ease obtaining funding
Impact on • BOD – EDs and NEDs • Board of Governors • Management accountable to

Governance • BOD accountable to shareholders • External audit and trustees
Structure • AGMs and EGMs – exercise of media scrutiny • Trustees ensures charity fulfils
voting rights its purpose
• External Audits per Company’s Act • Audit Committee – to manage
requirement funds and oversee adequacy of
internal controls
Public Sector Composition
Executive –
Government
Legislature –
Body that makes
and amends law
Judiciary –
System of
Courts
Secretariat –
Administration
Supranational National
• Above individual • Central
national government
government
Sub-national Others
• State, county, • (NGOs and
province QuANGOs)
Non-Governmental Organisations (NGOs)
• Provide benefits that cannot easily be provided by either
private or public sector
• Do not exist to make a profit nor to deliver a service on behalf

of the state – e.g. Amnesty International, Hospis Malaysian
• Not registered charities - only those bodies registered with the

Charity Commission can call themselves charities
• Tax advantages to being a charity, offset by a greater degree of

oversight into their affairs and the need to lodge their annual
accounts with the Commission.
Quasi-autonomous NGOs (QuANGOs)
• Partially funded by government but remain independent of the government in their
activities
• Free from, and seen to be free from, any political interference
• Effective autonomy in decision making
• E.gs. UK’s national galleries and museums, Forestry Commission, British Council
Performance Measures for Public Services
• Performance of public sector organisations measured based on 3Es – also used by
government departments to measure performance or VFM of private companies
involved in PPP (Public-Private Partnership) projects.
Economy Efficiency Effectiveness

• Concerns the • Amount of work • Extent to which the
quantity of inputs achieved for a given level organisation achieves
(money/raw of input. its objectives
materials etc.) used • Concerned with • Concerned with
for a process. obtaining an acceptable outputs only
• The lower the return on resources
quantity of invested in a process - Most PPP projects are
resources consumed ratio of outputs failure. Why?
the more economic produced to total inputs
the organisation consumed

B. Governance

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B: GOVERNANCE

Read the ACCA technical article on:

Corporate governance from the inside out

a. Discuss the nature of the principal-agent relationship in the

• Good CG also critical to support good corporate citizenship = commitment to ethical

• Investors, creditors and other stakeholders increasingly recognising that good

• Non-listed entities (state-owned enterprises, public companies, SMEs) encouraged to

Shareholder model Stakeholder model

Prioritises shareholder interests Recognises wider set of

Applicable for larger sized companies where separation of

Fiduciary Given in trust

Role is similar to that of a trustee in a trust in that they are

Directors are expected to:

Show Exercise due

• Ponzi scheme - cost investors nearly $16.5

• Died on April 14, 2021

• Root causes of failure: dysfunction of BOD and agency problem.

• Time spent studying and • Consultancy fees

Principal • Fee payable to both NEDs and external auditors

• Loss resulting from directors misusing their positions and

• Ties ED’s wealth to • NEDs, auditors and other

a. Discuss and critically assess the concept of stakeholder power

• Arises from the argument that companies today are so

• ‘Good ethics’ is ‘good

• Organisations should accommodate stakeholder concerns NOT because of what

• COMPANY LAW makes such an approach impractical, as companies have a legal

• The ‘something’ that they want from an organisation

• Some influence or want to influence (affect) what organisation does

• Others concerned with how they are affected by organisation’s decisions/actions

• Two types: direct and indirect

• Made by those with their own ‘voice’

• Made directly between stakeholder and organisation

E.g. trade unions, shareholders, employees, customers,

• Made by a third party on behalf of ‘voiceless’ stakeholders but does

• Raises problem of interpretation - makes indirect representation

Known vs Unknown Narrow vs Wide

Recognised & Unrecognised Primary vs Secondary

Legitimate vs Illegitimate Active vs Passive

Internal & External

Narrow & Wide

Primary & Secondary

Active & Passive

Legitimate & Illegitimate

Recognised & Unrecognised

• Follows on from the debate over legitimacy. A legitimate stakeholder -

Known & Unknown

• Difficult to objectively measure power and influence

• Map not static

• Map based on strategic positioning rather than moral or ethical concerns

• If key players in conflict, difficult to resolve issues

• Saves company from being blindsided

• Increases chances of success

• Avoidance of negative action by NGOs against company

• Ease of raising finance possibly from ethical fund

• Lower cost of capital due to perceived lower risk by financiers

All about Stakeholders 1

All about Stakeholders 2

• A concept which encourages organisations to

The CSR Pyramid (Carrol, 1991)