Good Governance and Corporate Social Responsibility

1.
Corporate objectives are those that relate to the business as a whole. They are usually set by the top
management of the business and they provide the focus for setting more detailed objectives for the main
functional activities of the business.

Corporate objectives tend to focus on the desired performance and results of the business. It is important
that corporate objectives cover a range of key areas where the business wants to achieve results rather
than focusing on a single objective.

Peter Drucker suggested that corporate objectives should cover eight key areas:
Area Examples
Market standing Market share, customer satisfaction, product range
Innovation New products, better processes, using technology
Productivity Optimum use of resources, focus on core activities
Physical & financial resources Factories, business locations, finance, supplies
Profitability Level of profit, rates of return on investment
Management Management structure; promotion & development
Employees Organisational structure; employee relations
Public responsibility Compliance with laws; social and ethical behaviour

1.

o The shareholders are individuals or institutions that legally own shares of stock in
the corporation, while the bondholders are the firm's creditors. The two parties have different
relationships to the company, accompanied by different rights and financial returns.
o Stockholders have an incentive to take riskier projects than bondholders do.
Other conflicts of interest can stem from the fact that bonds often have a defined term, or maturity,
after which the bond is redeemed, whereas stocks may be outstanding indefinitely but can also be sold
at any point.
o Bondholders may put contracts in place prohibiting management from taking on very
risky projects or may raise the interest rate demanded, increasing the cost of capital for the company.
Conversely, shareholder preferences--for example for riskier growth strategies--can adversely impact
bondholders.

TERMS
shareholder
One who owns shares of stock.
bond
A documentary obligation to pay a sum or to perform a contract; a debenture.
maturity
Date when payment is due.
The agency view of the corporation posits that the decision rights (control) of the corporation are
entrusted to the manager (the agent) to act in the principals' interests.

The deviation from the principals' interests by the agent is called 'agency costs', which are often
described as existing between managers and shareholders; but conflicts of interest can also exist
between shareholders and bondholders.
The shareholders are individuals or institutions that legally own shares of stock in the corporation, while
the bondholders are the firm's creditors. The two parties have different relationships to the company,
accompanied by different rights and financial returns. For example, stockholders have an incentive to take
riskier projects than bondholders do , as bondholders are more interested in strategies that will increase
the chances of getting their investment back. Shareholders also prefer that the company pay more out
 in dividends than bondholders would like. Shareholders have voting rights at general meetings, while
bondholders do not. If there is no profit, the shareholder does not receive a dividend, while interest is paid
to debenture-holders regardless of whether or not a profit has been made. Other conflicts of interest can
stem from the fact that bonds often have a defined term, or maturity, after which the bond is redeemed,
whereas stocks may be outstanding indefinitely but can also be sold at any point.
Because bondholders know this, they may create ex-ante contracts prohibiting the management from
taking on very risky projects that might arise, or they may raise the interest rate demanded, increasing
the cost of capital for the company. For example, loan covenants can be put in place to control
the risk profile of a loan, requiring the borrower to fulfill certain conditions or forbidding the borrower
from undertaking certain actions as a condition of the loan. This can negatively impact the
shareholders. Conversely, shareholder preferences--as for example riskier strategies for growth--can
adversely impact bondholders.

2.
Goal Congruence - The integration of multiple goals, either within an organization or between multiple
groups. Congruence is a result of the alignment of goals to achieve an overarching mission.

3.
Non-Executive Directors have the same general legal responsibilities to the Company as any other
director
Download the Non-Executive Directors' terms of engagement (pdf, 39KB). As members of the Board, all
directors are required to:

Provide entrepreneurial leadership of the Company within a framework of prudent and effective
controls which enable risk to be assessed and managed.
Set the Company's strategic aims, ensure that the necessary financial and human resources are
in place for the company to meet its objectives, and review management performance.
Set the Company's values and standards and ensure that its obligations to its Association
Members and others are understood and met.
The Board as a whole is collectively responsible for promoting the success of the Company by directing
the company's affairs. In addition to these requirements for all directors, the non-executive directors are
expected constructively to challenge and help develop strategy, to participate actively in the decision-
making process of the Board, and to scrutinise the performance of management in meeting agreed goals
and objectives.
1. Key Accountabilities

The role of the Non-Executive Director has the following key elements:
Strategy. Non-Executive Directors should constructively challenge and help develop proposals on
strategy.
Performance. Non-Executive Directors should scrutinise the performance of management in
meeting agreed goals and objectives and monitor the reporting of performance.
Risk. Non-Executive Directors should satisfy themselves on the integrity of financial information
and that financial controls and systems of risk management are robust and defensible.
People. Non-Executive Directors are responsible for determining appropriate levels of
remuneration of executive directors, and have a prime role in appointing, and where necessary removing,
executive directors and in succession planning.
In order to fulfil their role, Non-Executive Directors will:
Meet from time to time, if appropriate, as a group without executive directors being present, and
at least once a year without the Chairman being present. In this case the meeting is led by the Senior
Independent Director.
Be entitled to seek independent professional advice, at the Company's expense, in the
furtherance of their duties.
 Non-Executive Directors may be asked by the Board to serve on one or more of the board committees. If
appointed to a board committee, Non-Executive Directors will be advised of the committee terms of
reference, and any specific additional responsibilities involved.
2. Time Commitment
All directors must be able to allocate sufficient time to the Company to perform their responsibilities
effectively. Non-Executive Directors will be required to:
(i) Undertake that they will be able to allocate sufficient time to meet the expectations of the role, as set
out in their letter of appointment, or as agreed from time to time.
(ii) Disclose their other significant commitments to the Board before appointment, with a broad indication
of the time involved.
(iii) Inform the Board of any subsequent changes.
A Non-Executive Director should seek the agreement of the Chairman before accepting additional
commitments that might impact on the time he or she would be able to devote to the role as a director of
the Company.
3. Duration
Non-Executive Directors are appointed for an initial term of three years. The term may be renewed if both
the director and the Board agree. Appointments are subject to the provisions of the Companies Act and
the articles of association, including those relating to election/re-election by the Association Members at
annual general meetings and the removal of directors. No compensation for lost fees is payable if a
director leaves office for any reason.
There is an expectation that appointments are renewed for one term of three years only. In line with the
corporate governance code issued by the Financial Reporting Council ("UK Corporate Governance
Code"), any extension of a term beyond six years (ie two three-year terms) for a Non-Executive Director
will be subject to a particularly rigorous review.
4. Independence
As recommended in the UK Corporate Governance Code, the Board will identify in the annual report each
Non-Executive Director it considers to be independent.
The Board will determine whether the director is independent in character and judgement and whether
there are relationships or circumstances which are likely to affect, or could appear to affect, the director's
judgement. The Board will state its reasons if it determines that a director is independent notwithstanding
the existence, of relationships or circumstances which may appear relevant to its determination, including
if the director:
Has been an employee of the Company or group within the last five years.
Has, or has had within the last three years, a material business relationship with the company
either directly, or as a partner, Association Member, director or senior employee of a body that has such a
relationship with the company.
Has received or receives additional remuneration from the Company apart from a director's fee.
Has close family ties with any of the Company's advisers, directors or senior employees.
Holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies; or
Has served on the Board for more than nine years form the date of their first election.
In the event that the Board agrees to retain or recruit Non-Executive Directors who do not meet the
independence criteria, in order to achieve the appropriate balance between independence and relevant
industry experience on the Board, where this would mean that the board composition no longer has a
majority of independent Non-Executive Directors, the annual report will include an explanation of the
appointment.

4.
Ways to Promote Ethical Behavior
As a professional who consults with organizations on how to raise the visibility and value of their brands,
I'm always stressing with my clients that a brand is not a cosmetic you apply to make your organization
look pretty. Rather, a brand is nothing less than your DNA; it's a true reflection of how healthy, or
unhealthy, your organization is from top to bottomincluding its ethical behavior.
Unfortunately the ethics standards at many of the nation's nonprofit organizations are declining, according
to a recent report by the Ethics Resource Center. Rates of observed misconduct, including financial fraud,
by nonprofit employees are at the highest level since ERC began measuring in 2000, with nonprofits
faring little better than the public and private sectors. (For a copy of the full 2007 National Nonprofit Ethics
So what is a nonprofit that wants to operate on a high moral and ethical planeand keep its brand strong
and healthyto do? Here are some suggestions:
1. RECRUIT AND HIRE WELL
How often have you heard "We need to recruit board members of affluence and influence"? I contend that
if the portfolios of board members don't include wisdom and integrity, their affluence and influence often
translate into a liability rather than an asset. And the record shows many an organization enduring much
pain because of poor (for lack of a better word) board leadership.

But it is leadership at all organizational levels, including management, that establishes the organization's
corporate culture. A nonprofit's leaders should provide both example and oversight when it comes to
moral and ethical issues, circumstances and decision making.
2. EDUCATE STAFF ABOUT WHAT'S AT RISK
Believe it or not, many people don't understand what's at risk if they don't perform their jobs in an ethical,
accountable manner. And ethical lapses are easy to make, especially when the corporate culture gives a
wink and a nod to unethical behavior.

What's at risk? Just about everything. Think Enron, Arthur Andersen, World Com, Global Crossing, and a
slew of others, including numerous nonprofits that have suffered greatly because they failed to
understand the risks of questionable or unethical behavior. We'll refrain from mentioning names here, but
if you follow the sector you know who they are.
3. BE TRANSPARENT ABOUT YOUR FINANCES
Ever since Deep Throat told Bob Woodward to "follow the money," scrutiny surrounding financial
malfeasance has only intensified. Be sure that you can account to your funders for how your organization
spent their money; better yet, how their gifts made a difference in helping you achieve your mission.

Poor bookkeeping is no excuse. Hire a certified accountant, if necessary.

4. SPEAK TRUTH TO AUTHORITY
Create a corporate culture in which employees feel free to speak truthfully to management.

Surveys show that a large percentage of employees who see misconduct don't speak up either because
they believe their superiors won't take action or fear that they will face retaliation if they report what they
saw. This hesitation tends to create an unhealthy, at-risk work environment.
5. LEGAL SHOULD NOT BE THE LITMUS TEST
There's a difference between what's legal and what's ethical, and it is up to an organization's leadership
to understand what that difference is. If you're sitting around a conference table trying to split hairs
between the two, don't go to your legal department for a resolution to your dilemma. They're being paid to
find you a loophole. Rather, ask yourself, "What would my mother think if this decision we're about to
make finds itself on the front page of the local newspaper or on the 6 o'clock news?"

Let's strive to give people something to believe in again!

5.

CFO duties
 If you asked any company's CFO this question, you would probably be in for a three-hour conversation.
But the core duties can be summarized in just a few paragraphs. A CFO's job can be broken down into
three major components:

1. Controllership duties - These make up the backward looking part of a CFO's job. Controllership duties
hold the CFO responsible for presenting and reporting accurate and timely historical financial information
of the company he or she works for. Every stakeholder in the company - including shareholders, analysts,
creditors, employees and other members of management - relies on the accuracy and timeliness of this
information. It is imperative that the information reported by the CFO is accurate, because many decisions
are based on it.

2. Treasury duties The CFO is also responsible for the company's present financial condition, so he or
she must decide how to invest the company's money, taking into consideration risk and liquidity. In
addition, the CFO oversees the capital structure of the company, determining the best mix
of debt, equity and internal financing. Addressing the issues surrounding capital structure is one of the
most important duties of a CFO.

3. Economic strategy and forecasting - Not only is a CFO responsible for a company's past and present
financial situation, he or she is also an integral part of a company's financial future. A CFO must be able
to identify and report what areas of a company are most efficient and how the company can capitalize on
this information. For example, the CFO of an auto manufacturer must be able to pinpoint which models
are making the most money for the company and how this information can best be used to improve the
company in the future. This aspect of a CFO's duties also includes economic forecasting and modeling -
in other words, trying to predict (given multiple scenarios) the best way to ensure the company's success
in the future.

The CFO's job is a very complex one. We have only scratched the surface of the many things this
executive is responsible for. One thing is certain: a great CFO will usually differ from a good CFO by the
way that he or she is able to project the long-term financial picture of the company and by how the
company thrives based on his or her analyses.
Role of the audit committee

The audit committee is a central pillar of effective corporate governance and is in the best position to
offer effective oversight of the performance, independence and objectivity of the auditor and the quality
of the audit. The audit committees role is also something we believe can be built upon.

But unlike some proposals now being considered that would enforce mandatory auditor changes, we
propose the introduction of a periodic comprehensive review of auditor performance and quality of the
audit by the audit committee.

Our proposal highlights

Such a review, if undertaken at least every five years, would allow the audit committee to:

Analyse changes over time which are not readily apparent from year to year, such as any impacts
linked to tenure or cyclical events.
Consider future requirements over the medium to long term and any changes to its policies and
procedures to increase its own effectiveness.
More clearly demonstrate the effectiveness and value of its oversight of the selection,
independence, performance and quality of the audit and the auditor to shareholders and other stakeholders.
Select or retain the audit firm it believes is most appropriate for the company.
Develop greater knowledge and insight about the audit and the auditor.
 Give consideration to a broader range of approaches to meet their responsibilities including.

We believe periodic review is a more appropriate and effective approach than measures such as
mandatory change which we believe would undermine the audit committees role by limiting its
freedom to decide which audit firm best meets the companys and shareholders needs which, in turn
would restrict the committees ability to offer good governance.

In this Point of View, we take a deeper look at the benefits of a periodic review and how it should be
considered as part of a wider package of changes that we have proposed in previous PoV papers,
including:

Ensuring strong, independent national regulators of the profession.

Enhancing transparency about the audit and the auditors.
Restricting those non-audit services that could impair an auditors independence.

Online Sources:
https://www.tutor2u.net/business/reference/corporate-objectives
https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-
field-and-goals-of-financial-management-1/agency-and-conflicts-of-interest-28/conflicts-of-
interest-between-shareholders-and-bondholders-168-3834/
http://www.businessdictionary.com/definition/goal-congruence.html
https://trust.guidestar.org/five-ways-to-promote-ethics-in-your-organization
http://www.pwc.com/gx/en/services/audit-assurance/publications/audit-committee-role.html
https://www.bupa.com/corporate/about-us/corporate-governance/role-of-the-non-executive-
director