Basic Concepts of Ethics, Corporate Control and Governance

Definition:

Corporate governance entails the areas of environmental awareness, ethical behavior,

corporate strategy, compensation, and risk management.

Corporate governance is the system of rules, practices, and processes by which a firm is
directed and controlled. Corporate governance essentially involves balancing the interests
of a company's many stakeholders, such as shareholders, senior management executives,
customers, suppliers, financiers, the government, and the community.

Since corporate governance also provides the framework for attaining a company's
objectives, it encompasses practically every sphere of management, from action plans
and internal controls to performance measurement and corporate disclosure.

 Corporate governance is the structure of rules, practices, and processes used to direct and
manage a company.
 A company's board of directors is the primary force influencing corporate governance.
 Bad corporate governance can cast doubt on a company's operations and its ultimate
profitability.
 Corporate governance entails the areas of environmental awareness, ethical behavior,
corporate strategy, compensation, and risk management.
 The basic principles of corporate governance are accountability, transparency, fairness,
and responsibility.

Description:

Understanding Corporate Governance:

Governance refers specifically to the set of rules, controls, policies, and resolutions put in
place to dictate corporate behavior. Proxy advisors and shareholders are important
stakeholders who indirectly affect governance, but these are not examples of governance
itself. The board of directors is pivotal in governance, and it can have major ramifications
for equity valuation.

A company’s corporate governance is important to investors since it shows a company's

direction and business integrity. Good corporate governance helps companies build trust
with investors and the community. As a result, corporate governance helps promote
financial viability by creating a long-term investment opportunity for market participants.
Communicating a firm's corporate governance is a key component of community
and investor relations. On Apple Inc.'s investor relations site, for example, the firm
outlines its corporate leadership—its executive team, its board of directors—and its
corporate governance, including its committee charters and governance documents, such
as bylaws, stock ownership guidelines, and articles of incorporation.

Most companies strive to have a high level of corporate governance. For many
shareholders, it is not enough for a company to merely be profitable; it also needs to
demonstrate good corporate citizenship through environmental awareness, ethical
behavior, and sound corporate governance practices. Good corporate governance creates
a transparent set of rules and controls in which shareholders, directors, and officers have
aligned incentives.

Corporate Governance and the Board of Directors

The board of directors is the primary direct stakeholder influencing corporate

governance. Directors are elected by shareholders or appointed by other board members,
and they represent shareholders of the company.

The board is tasked with making important decisions, such as corporate officer
appointments, executive compensation, and dividend policy. In some instances, board
obligations stretch beyond financial optimization, as when shareholder resolutions call
for certain social or environmental concerns to be prioritized.

Examples of Corporate Governance

Volkswagen AG

Bad corporate governance can cast doubt on a company's reliability, integrity, or

obligation to shareholders; all of which can have implications on the firm's financial
health. Tolerance or support of illegal activities can create scandals like the one that
rocked Volkswagen AG starting in September 2015.

The development of the details of "Dieselgate" (as the affair came to be known) revealed
that for years the automaker had deliberately and systematically rigged engine emission
equipment in its cars in order to manipulate pollution test results in America and Europe.
Volkswagen saw its stock shed nearly half its value in the days following the start of the
scandal, and its global sales in the first full month following the news fell 4.5%.
VW's board structure was a reason for how the emissions rigging took place and was not
caught earlier. In contrast to a one-tier board system that is common in most companies,
VW has a two-tier board system, which consists of a management board and a
supervisory board. The supervisory board was meant to monitor management and
approve corporate decisions; however, it lacked the independence and authority to be
able to carry out these roles.

The supervisory board comprised a large portion of shareholders. Ninety percent of

shareholder voting rights were controlled by members of the supervisory board. There
was no real independent supervisor; shareholders were in control of the supervisory
board, which canceled out the purpose of the supervisory board, which was to oversee
management and employees and how they operate within the company, which of course,
included rigging emissions.3

Enron and Worldcom

Public and government concern about corporate governance tends to wax and wane.
Often, however, highly publicized revelations of corporate malfeasance revive interest in
the subject. For example, corporate governance became a pressing issue in the United
States at the turn of the 21st century, after fraudulent practices bankrupted high-profile
companies such as Enron and WorldCom.

The problem with Enron was that its board of directors waived many rules related to
conflicts of interest by allowing the chief financial officer (CFO), Andrew Fastow, to
create independent, private partnerships to do business with Enron. What actually
happened was that these private partnerships were used to hide Enron's debts and
liabilities, which would have reduced the company's profits significantly.4

What happened at Enron was clearly a lack of corporate governance that should have
prevented the creation of these entities that hid the losses. The company also had a
corporate atmosphere that had dishonest people at the top (Fastow) down to its traders
who made illegal moves in the markets.

Both the Enron and Worldcom scandals resulted in the 2002 passage of the Sarbanes-
Oxley Act, which imposed more stringent recordkeeping requirements on companies,
along with stiff criminal penalties for violating them and other securities laws. The aim
was to restore public confidence in public companies and how they operate.

PepsiCo
 It's common to hear of bad corporate governance examples, mainly because it is the
reason some companies blow up and end up in the news. It's rare to hear of companies
with good corporate governance because it is the good corporate governance that keeps
them out of the news as no scandal has occurred.

One company that has consistently practiced good corporate governance and seeks to
update it often is PepsiCo. In drafting its 2020 proxy statement, PepsiCo took input from
investors to focus on six areas:

 Board composition, diversity, and refreshment, and leadership structure

 Long-term strategy, corporate purpose, and sustainability issues
 Good governance practices and ethical corporate culture
 Human capital management
 Compensation discussion and analysis
 Shareholder and stakeholder engagement5

The company included in its proxy statement a side-by-side graphic that depicted the
current leadership structure, which shows a combined chair and CEO along with an
independent presiding director, and a link between the compensation of the company's
"Winning With Purpose" vision and changes to the executive compensation program.5

Special Considerations

As an investor, you want to ensure that the company you are looking to buy shares of
practices good corporate governance, in the hope of avoiding losses in cases such as
Enron and Worldcom. There are certain areas that an investor can focus on to determine
whether a company is practicing good corporate governance or not.

These areas include disclosure practices, executive compensation structure (is it tied only
to performance or other metrics?), risk management (what are the checks and balances of
making decisions in the company?), policies and procedures on reconciling conflicts of
interest (how does a company approach business decisions that might conflict with its
mission statement?), the members of the board of the directors (do they have a stake in
profits?), contractual and social obligations (how do they approach areas such as climate
change?), relationships with vendors, complaints received from shareholders and how
they were addressed, and audits (how often are internal and external audits conducted and
how have issues been handled?).

Types of bad governance practices include:

 Companies that do not cooperate sufficiently with auditors or do not select auditors with
the appropriate scale, resulting in the publication of spurious or noncompliant financial
documents
 Bad executive compensation packages that fail to create an optimal incentive for
corporate officers
 Poorly structured boards that make it too difficult for shareholders to oust ineffective
incumbents
 These are all areas an investor can research before making an investment decision.

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Education Governance:

Education governance is concerned with how the funding, provision, ownership and regulation
of education and training systems is coordinated, and at what level; local, regional, national and
supranational. Whilst for many countries across Europe it continues to be governments who play
the most significant role in coordinating education, the distribution of these responsibilities has
been changing in response to calls for greater efficiency, effectiveness, accountability and
democracy. Households, communities, and new kinds of private actors, are increasingly involved
in many different aspects of education and training governance, raising questions about equity,
participation and transparency.

The governance of educational institutions has a large impact on student and teacher success by
defining and regulating relationships both within schools as well as between schools and outside
agencies. Institutional rules and policies determine how educators train and operate, and
ultimately determines how students learn. CEPA researchers examine how the various aspects of
educational governance impact the organization, operations, and outcomes of different
educational systems.

Education, governance and growth:

Education, as an essential component of human capital development, is a necessary prerequisite

for achieving sustainable economic growth. Various economic growth models acknowledge it
both as a short term and long term determinant of economic development and prosperity. Owing
to lack of robust policy planning, Pakistan today confronts several formidable challenges on the
economic, governance, social and security fronts. It may be noted that many developing nations
faced similar challenges in the history. Some of these nations, according to the Ministry of
Planning document ‘Pakistan 2025: One Nation – One Vision’, successfully turned challenges
into opportunities by following a three-tier formula: sound economic planning, good governance,
and consistency in policy implementation. The formula is equally applicable to the formulation
and implementation of education policy in Pakistan as a necessary determinant of economic
growth. This suggests an intertwined relationship among education policy, its implementation,
effective governance and economic growth.

The notion of ‘Naya Pakistan’ has naturally developed some expectations in the people from the
new Pakistan Tehreek-e-Insaf (PTI) government and education is no exception. Following a
vision, the government appears to be aware of its responsibilities. However, continuing quality
discussion on areas critical to Pakistan’s progress requires greater focus. It is because discussion
enhances rationality and rationality is a key to informed decision-making in strategic areas like
children’s education. We believe that Pakistan can’t achieve a respectable position on the
trajectory of economic development and prosperity unless it overhauls its education system
strategically on emergency basis. In particular, children’s education merits attention for which
Article 25A of the 1973 Constitution states: “The state shall provide free and compulsory
education to all children of the age of five to sixteen years in such manner as may be determined
by law”. This Article was specifically highlighted by the Chief Justice of Pakistan (CJP) in the
recent past when, while addressing a lawyers gathering in Multan, he reiterated that education is
a fundamental right of every citizen of the State of Pakistan. Pakistan’s successive governments
have unfortunately been underestimating, if not ignoring, the economic growth potential of this
fundamental right.

A recent survey showed that Pakistan’s literacy rate, currently standing at 58

percent, is on the decline. UNESCO’s Global Education Monitoring Report
underlines some reasons for this decline. The report notes that out of 93 percent
children enrolled in primary schools, only 61 percent complete their education

A special emphasis on the children education by the 1973 Constitution and the CJP underlines
the importance of initial learning stages of juveniles in the human capital development. This fact
is corroborated by the Dreyfus Model of Learning that proposes five distinct stages a student
passes through: novice, competence, proficiency, expertise, and mastery. Among these five
stages, a student learns the most at the first ‘novice’ stage. The other four stages strengthen the
skills and knowledge acquired by the student at the novice stage. That means, among other
stages, the ‘novice’ stage is the most crucial one because it lays the foundation of higher
learning. As far as education policy is concerned, Dreyfus Model provides a kind of strategic and
phenomenological base for determining the right direction while drafting policies. This suggests
that the education of children, between the age of five and sixteen, predominantly constitutes the
novice stage of learning which is crucial for higher level learning at the other four stages. If an
education policy does not provide a robust framework at the novice stage of learning, it may be
hard for the student to be successful in further skill development and learning.

With this theoretical perspective, it may be noted that, since coming into being, Pakistan has had
nine national policies and reform agendas to improve national education. The most recent one is
National Education Policy 2017, which like previous policies aims to provide free and
compulsory education to children. However, despite necessary efforts by the successive
governments, nearly 23 million children are still out of schools. Here it would not be justified to
argue that various education policies are bad, it is actually their implementation that matters. The
implementation of education policy, among other factors, requires political will to pursue a well-
informed framework that could ensure optimal learning throughout five stages of the Dreyfus
Model. For this purpose, earnest efforts need to be made with a view to ensuring that each child
gets basic compulsory education.
Prima facie, there are so many problems with our education system. It includes, but not limited
to, outdated and backward contents, lack of institutional infrastructure, and untrained and
demotivated teachers. These factors are not conducive for the optimal learning and development
of a novice juvenile requiring specialized focus on his early skill acquisition process through
robust policy interventions. Once the entire implementation process is made part of wider
intellectual framework knitting various learning stages, the investments made in the education
sector will truly start yielding economic benefits alongside tangibly contributing towards the
actual vision Naya Pakistan should have.

A recent survey showed that Pakistan’s literacy rate, currently standing at 58 percent, is on the
decline. UNESCO’s Global Education Monitoring Report underlines some reasons for this
decline. The report notes that out of 93 percent children enrolled in primary schools, only 61
percent complete their education. Similarly, out of 45 percent children enrolled in secondary
education, merely 20 percent complete it. The main reasons for poor rate of primary and
secondary education in Pakistan are maltreatment of children, outdated teaching methods, and
lack of basic educational infrastructure. The facts and figures presented by UNESCO clearly
indicate that there is something seriously wrong with our education system requiring necessary
surgery both at the policy and implementation levels.

The UNESCO’s report, furthermore, notes that Pakistan has not been able to effectively impart
basic skills training in the area of information and communication technology. In this regard,
Pakistani adults performed marginally better than their peer groups in Zimbabwe and Sudan in
using basic tools such as copy and paste or to move information in a document. This is quite an
embarrassing trend at the international level. In addition, computer illiteracy is quite common in
our country where otherwise literates are unable to use IT applications. A short term panacea in
this regard is necessary training of the teachers aimed at transforming their ‘manual’ mindsets
into automated ones while carrying out research and preparing assignments and presentations.

Some researchers argue that Pakistan spends around 2.8 percent of its GDP on education, which
is less than all of its neighboring countries. The Musharraf regime made huge investments in
higher education but ignored the primary and secondary education levels in complete disregard
to the Dreyfus Model. We must learn lessons from our past policies and come up with integrated
and holistic implementation framework capable of handling the requirements of primary,
secondary and tertiary education together. It may be noted that, unlike other investments, reaping
the benefits of investment in education is a long term phenomenon. During the entire process, the
human capital needs to be developed at primary, secondary and tertiary levels by thematically
understanding the requirements of Dreyfus Model’s five stages of skill acquisition.

Educational reforms are a continuous, coordinated and gradual process requiring necessary
evidence before implementation. It is time for the PTI government to fulfill its promise of
imposing an education emergency through good governance. Pakistan is brimming with youthful
energy. Only quality education can channel this energy in the right direction thus ensuring that
human capital development plays its due role in augmenting the economic growth rate.

***
 The Governance structure of the school
 Home

 About Us

 School Governors

 The Governance structure of the school

Here at St Paul’s we have a dedicated team of Governors working alongside and
supporting the teaching staff. The Governors are in place to oversee and ensure:
 Clarity of vision, ethos and strategic direction.
 Hold the head teacher to account for the educational performance of the school and its pupils,
and the performance management of staff.
 Oversee the financial performance of the school and make sure its money is well spent.
The Governors also carry out a number of other important duties, which include:
 Determining how the school's budget is spent.
 The appointing and dismissing of staff.
 Hearing appeals and grievances.
 Forming policy on the school's curriculum and collective worship.
 Setting standards for pupils' behaviour and discipline.
 Making sure school buildings are welcoming and safe.
 Setting and monitoring the school's aims and policies.
There are eleven Governors at St Pauls, (see the Governors and their roles’ page on
the website) serving across three structured bodies:

The Full Governing Body

School governing bodies are responsible for working with the school to ensure that it
delivers a good quality education. Together with the head teacher, who is responsible
for day-to-day management, they set the school's aims and policies.

The governing body provides non-executive leadership. Its role is to operate as a board
akin to the board of trustees of a charity, or the board of directors of a company. In all
matters, St Paul’s governors operate at a strategic level, leaving the head teacher and
senior school leaders responsible and accountable to it for the operational day-to-day
running of the school.
A clear understanding of, and distinction between, the role of the board of Governors
and the head teacher is crucial to effective governance. The regulations make clear that
the head teacher is responsible for the educational performance of the school and for
the internal organisation, management and control of the school – which includes the
performance management of staff. The board’s role is to hold the head teacher to
account for exercising their professional judgement in these matters and for the
performance of all of their other duties. Having advised the board, the head teacher
must comply with any reasonable direction given by it.
 There are three core functions consistent with the strategic role of the board. These are
to:
• set the vision and strategic direction of school;
• hold the head teacher to account for its educational performance; and
• ensure financial resources are well spent.
To create robust accountability, governors ask challenging questions on the basis of
robust objective data. They do not just rely on information provided by the head teacher.
Rather, they scrutinise objective national data at least once a year; use visits to verify
what they are told, and ensure the head teacher’s termly report provides appropriate
and sufficiently detailed information.
Although governors are volunteers, they have a vital and demanding role that requires
skill and professionalism. It is only right that the board of governors is accountable to
Ofsted for its effectiveness. The School Inspection Handbook sets out how inspectors
judge the effectiveness of a school’s governance based on criteria that directly reflect
the board’s three core functions.
The governors, as a full governing body, meet six times per academic year, in addition,
committees meet once or twice per term. All Governors are expected to attend; the
quorum for any governing body meeting and vote must be one half (rounded up to the
whole number) of the complete membership of the governing body, excluding any
governor vacancies.

The Performance and Standards Committee

Five Governors sit on the Performance and Standards Committee. The committee’s
remit is to:
 Ensure that the School Evaluation Review and Learning Improvement Plan accurately reflect
the performance, work and aspirations of the school.
 Ensure that the School Prospectus fulfils legal requirements and gives prospective parents
accurate and useful information about the school.
 Ensure that the school meets its legal obligations as to school policies and that those policies
are regularly revised to reflect current school practice.
 Ensure that Pupil Premium is focused on pupils with additional needs and to ensure that the
results of regular monitoring and evaluation on all groups delivers improvements and raised
standards.
 Ensure that target setting procedures are rigorous, that targets set are challenging but
achievable and take account of school, local and national context.
 Ensure that self-evaluation procedures in preparation for a Church School inspection are
completed and fully and accurately reflects the performance, work and aspirations of St Paul’s
as a Voluntary Aided Church School.
 Ensure that information on the website is up to date per current legislation.
 To provide an annual report and prospectus to parents in at the end of the academic year.
 Report to the full Governing Body making recommendations as appropriate.
The quorum for the Performance and Standards Committee is minimum of three full
governors with staff governors always in the minority.

The Finance and Resources Committee

 Six of our Governors sit on the F&R Committee. The committee meets up to five times
per academic year, the committee’s deliberations are fed back to the full governing body
by the F&R chair. The committee’s remit is:
 To recommend a budget for the year to the governing body.
 To assist the Head Teacher in monitoring the budget at least termly during the course of the
year and to report to the governing body.
 In consultation with the Head Teacher, to arrange spends of up to £15,000 during the course of
the year, as necessary.
 To ensure that the school complies with the financial and legal requirements of the new Schools
Financial Value Standard and the council’s contract standing orders to approve contracts and
supplied above the value of £30,000.
 Periodically to review the school’s financial systems and practice against the standards set in
the LA’s document – ‘Financial Responsibilities – A guide for School Governors’, and to make
recommendations to the governing body on any changes required.
 To recommend to the governing body and to keep under review the school’s charging policy.
 To ensure that the school fund and other voluntary funds are properly audited for presentation
to the governing body.
 To receive and, where appropriate, respond to reports from the auditors.
 To keep a register of the pecuniary interests of governors.
 To approve the writing off of irrecoverable debts up to £150 and the disposal of surplus or
damaged equipment.
 To carry out the governing body’s responsibilities in relation to the security of school premises
and equipment.
 To carry out the governing body’s responsibilities in relation to health and safety, including
recommending a draft Health and Safety policy statement to the governing body.
 To make arrangements for governors to inspect the premises on a regular basis.
 To carry out other or premises related tasks as delegated by the governing body.
 To prepare for the governing body the information covering staffing for the governors’ annual
report to parents.
 To carry out other personnel related tasks as delegated by the governing body.
 The Head and Chair of Governors/Chair of Resources sub-committee is authorised to renew
any temporary and fixed term contracts which would not extend the period of employment
beyond the end of the academic year in which the appointment was made.
 The Head carries out the initial annual review of teaching staff salaries for approval by the Chair
of Governors.
 The Head is also responsible for applying the selection criteria for redundancy and making
recommendations to the governors’ redundancy committee.
The quorum for the F&R Committee is a minimum of three full governors with staff governors
always in the minority
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