TO: Board of Directors, TopCo
FROM: xxx , Corporate Governance Analyst
DATE: 3th March, 2013
RE: Analysis of relationship between corporate governance and corporate performance; -------------------------------------------------
Analysis of relationship between Board diversity and corporate performance -------------------------------------------------
In view that corporate performance may be influenced by corporate governance and the diversification of Board, this Memorandum is submitted to the Board of Directors for clarifying concerns regarding the above subjects. This Memorandum is structured as following: (1) Statement of the Facts; (2) Argument; (3) Conclusions & Recommendations. 1. Statement of the Facts
Following from the last Board meeting that held on 8th February, 2013, one of our directors, Mr. John argued that greater attention on corporate governance is important to our company as our company is a listed multinational retailer company and desperate to expand the business throughout all of Africa. Mr. John also mentioned that, in a long term view, more diversified Board may be able to enhance shareholder value. However, Mr. Fuad, another director has pointed out that there is no evidence to proof Mr. John’s statement, whereby gives more attention to corporate governance (CG) and more diversified Board would enhance shareholder value.
(a) Problem 1: Greater attention to corporate governance helps corporate performance?
When a company is governed by using systems, principles and processes which are the guidelines for a company to operate or control to achieve the company’s mission, vision and objective, it will be called as corporate governance. While the company trying to achieve the goals and objectives, it will be part of the process to improve company’s value and benefits to all the stakeholders in long term. “The stakeholders for corporate governance are board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others,” (Thomson, 2009).
Therefore, King II Report, which published by Committee on Corporate Governance, South Africa in year 2002 has identified the seven distinguished characters of being good corporate governance (Mallin, 2013). According to (Mallin, 2013), the characteristics are consists of “discipline in the context of proper and appropriate behaviours, being transparent to investors, being independent to ensure there are no conflicts of interest at board or management level, accountability of decision-makers for their decisions and actions, management responsible for their actions and correct inappropriate actions, fairness for every parties in the company, and performing social responsibility to be a good corporate citizen by giving high priority to ethical standards.” (i) Discipline
As per stated (Zinkin, 2009) in The Star Online, self-discipline, market discipline and regulatory discipline are the three disciplines of effective corporate governance. These disciplines are often be talked by Datuk Seri Panglima Andrew Sheng and Datuk Seri Zarinah Anwar, chairman of Malaysia Securities Commission due to they believe these disciplines are required for good CG.
Self-discipline is included the personal integrity and good business judgement. According to (Zinkin, 2009), there are no correct “Tone at the Top” if there is no personal integrity. “Without the right “Tone at the Top”, all business decisions run the risk of being undermined by personal gain at the expense of the company, or even society as a whole, as we have seen only too clearly in the current Wall Street disasters,” (Zinkin, 2009). Then, good business judgment helps the Board to prevent from making any wrong decision. The Board able to understand the overall company’s risk profile before making a decision.
“Market discipline is the result of...