As history shows, corporate governance procedures tended to loosen up during economic booms and tighten up during pastimes. Besides, the development of corporate governance practices in different countries has been influenced by the domestic, economic, cultural, and social factors, and also lessons learned from crisis. It is therefore not surprising to find that corporate governance practices do vary across countries. Some of the more salient features are, for example, due to heavy reliance of companies on stock markets for gauging financial and investment opportunities. Corporate governance practices of UK and U.S. rely on stock market regulations, and hence focusing on potential conflicts between management and shareholders. On the other hand, the abundance of family controlled companies in Southeast Asia like Hong Kong renders corporate governance practices to focus on avoiding conflicts between families and minority shareholders. For companies in European countries like in Germany, they adopt a dual bought system where companies are governed by an executive board, and a supervisory board of managers, and employees. Corporate governance practices therefore focus on long-term management and employees' interests. Despite the economic, cultural, and the social differences, the core of corporate governance practices is still to mitigate conflict of stakeholders' interests, though in different contexts. Corporate governance practices in UK and US are still leading the world due to the longer history of development and also the emphasis on the financial markets, which also lead other markets in the world. So, how should a board go about catering to and also mitigate conflicts of stakeholders' interests in an ethical manner? For contemporary corporate governance practices, these can be handled by the board in two broad aspects, by way of taking actions within their remit, and ensuring flow of information to stakeholders and beyond. For actions taken by the boards at the minimum, they must follow the laws and norms of society, which may change over time. In addition to this, current corporate governance emphasizes on boards' actions that advocate companies to do the following. Let us now take a look at the first point, act as a good citizen. The primary reason for companies acting as good citizens is that companies operations have to rely on the support of various financial, social, and even environmental factors. It is therefore natural that companies should reciprocate. A secondary reason emerge from the world's awakening towards sustainable development. This follows from the recognition that for companies to perpetuate their operations, not only do they have to take up financial responsibility by making profits or surpluses in case of non profit making organizations ethically. They must also ensure continual supplies of other factors required to sustain their operations. These are the factors, are broadly classified as social and environmental factors, hence the respective social and environmental responsibilities that company should also take out. Therefore, within the framework of corporate governance, companies must act as a good corporate citizen locally or globally by taking up the financial, social, and environmental responsibilities. Most of these can be taken care of by way of the board's oversight on stakeholders' interests through corporate governance practices. For environmental responsibility, this can be fulfilled more extensively by other CSR activities, which will be explained in another video. Treat employees with fairness. This is a manifestation of ethical company behaviors. Fairness is one of the key moral values and part of the social responsibilities that companies must take up. Fairness must be upheld in company policies to avoid gender, age, and racial discriminations. Other policies may also be established for management practices like staff remuneration and appraisal. Risk management. This has become of paramount importance after outbreaks of the global financial crisis and a series of other corporate scandals that followed. These crisis revealed the irresponsible actions taken by companies in either taking too risky investments, or not managing their risks adequately to protect the stakeholders, or even public interests. While more than risk management practices and knowledge that taking calculated risks is necessary for companies to earn and grow their profits, it is essential that companies' boards adopt a total risk management system for identifying what risks should be barn, which to avoid or transfer, and how to minimize the possible adverse consequences of risks that cannot be transferred. Apart from new propositions of risk management systems, the use of whistleblowing has been played up. This serve to enable people working in the front line to highlight or report inappropriate behaviors for the board's attention, that is to blow the whistle. More importantly, this should be done soon as possible, so as to minimize the cost to companies and society. This seems to make a lot of sense to companies for it's better governance, but still, there are the classical problems to the whistleblowers such as ethical dilemma of loyalty to companies versus personal or professional integrity, or pragmatic concerns such as loss of current job or future career prospects, or potential claims for slender or defamation by wrongful allegation. Therefore, the whistleblowing mechanisms must be put up with a company policy for encouraging and protecting whistleblowers, stating the chain of reporting, that is reporting to whom in the hierarchy, extent of privacy protection, appointing ombudsman within the companies, and so on. The types of risks that come under the risk management domain include financial risks, where companies from averse changes in market prices, but there are also strategic risks that adversely affect company's profits due to changes in market trends, demographics, and consumer tastes. There are also operational risks arising from unexpected interruption to operations due to reasons like fire, floods, accidental or malicious product contamination, systems security etc. Lastly, there are also legal and regulatory risks where companies will breaches legal or regulatory requirements thus exposed to fines and damage of reputation. As you can imagine, managing different risks require different strategies or tactics. It is the ultimate responsibility of the board to put up a continuous and dynamic process to regularly review company's risk profiles, and devise an effective system to manage them. As for the fourth point regarding short-term and long-term goals, very often, short-term personal interests drive unethical and counter productive behaviors by employees, by executives, or even by companies through the board. Therefore, at all levels, people must be reminded and apprised off by companies policies and actions that they must not lose sight of long-term goals, which actually should be done to sustain the company in the long term and not just to use what I would call hit-and-run tactics to achieve short-term performance. The board should also facilitate the flow of information to stakeholders to keep them abreast of any situations affecting these interests. The information must be relevant, reliable, and timely. Relevance means that the information will affect stakeholders' decisions regarding the company, particularly, shareholders and creditors. Reliability means that the information should be verifiable as true. One example is where financial statements must be audited before they are released for public viewing. Timeliness refers to the release of information soon as possible especially when the information will affect stakeholders' decisions. The information flow aspects is in fact a main concern of regulators of listed companies, which in turn, make them part of the regulatory framework of accounting. Other than stakeholders, it is becoming a more common practice that companies' information are also provided to people other than stakeholders. We can understand why information should be provided to stakeholders. But why people other than stakeholders? For good corporate governance, we believe that the primary responsibility must fall on the board, but we should also acknowledge the limitations in the board's capability to see to every details. Therefore, we must leverage on the efforts of other concerned parties inside and outside of the company's to detect and bring up issues for the board's attention. By way of providing quality information to external parties, corporate governance can be done more effectively. In all these endeavors, accountants are looked upon to with great urge. Not that it is not just financial information being relevant for this course, but also non-financial information about internal control, corporate governance, environmental impact of companies, etc. These are provided by way of sustainability reporting, which has become increasingly important and commonly required from listed companies around the world.
