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A Project on Business Ethics & Corporate Governance ³Corporate Governance practice followed by Hutchison Essar´
Topic Chapter 1 - Research methodology - Data collection
Chapter 2 - Company Profile
Chapter 3 - Conceptual Aspect
Chapter 4 - Analysis
Chapter 5 - Findings
Chapter 6 - Conclusion
Chapter 1 Design
and Execution of the Study
Introduction of the Project:
Objective of study:
To study what corporate governance means. To study the corporate governance practice followed at Hutchison Essar.
The data collected for the execution of this project is through secondary data collection method i.e. through the internet.
Chapter 2 Company Profile
Hutchison Telecommunications International Limitedwith its subsidiary and
associated companies (³the Group´) is a global provider of mobile and fixed line telecommunications services, currently serving eight markets around the world: Hong Kong, Macau, India, Israel, Thailand, Sri Lanka, Paraguay and Ghana, with Vietnam intending to commence service in late 2005. The Group offers customers a wide variety of telecommunications services, ranging from basic voice and data to multimedia services using the most advanced mobile technology. In Hong Kong, we also operate the most advanced fixed line fiber-optic network. Our strategy, refined over 20 years in the telecommunications industry, is to take advantage of markets that offer superior opportunities for growth. We first identify markets experiencing strong economic growth, with favorable demographic profiles as well as low telecommunications penetration rates. This approach is also applied to our acquisitions, which have traditionally been focused on Asia.
We then develop leading market positions by building a top quality network, offering competitive tariffs, customer-driven products and innovative service plans. Knowledgeable local management and continuing technological innovation, together with our leading reputation in the telecommunications industry are the ingredients of our success.
Also, we adapt this mix for the diverse markets that we serve. In India, for example, with its vast population and low telecommunications penetration, we focused on network and service quality to establish a successful business that not only makes a significant contribution to the Group but also continues to show strong growth.
In contrast, in markets where mobile telecommunications services are more established, we build strategically on our well-known brands and our reputation as an innovation leader. Meeting customer demand for the latest technology and most recent applications, we have launched 3G services in Hong Kong and Israel to drive growth in these markets. We derive valuable synergies from our international network: significant advantages in global procurements; an in-depth understanding of technology in one market helps in developing others, and effective marketing ideas often know no borders.
These synergies will continue to be realized to underpin superior products and services, at reduced cost and capital expenditure. Our history as a leader in the mobile telecommunications industry provides the foundation and guideposts for our future. Building on our traditions, we will continue to exploit our strengths and seek every new opportunity to grow our business. Our ADSs were listed on the New York Stock Exchange and our shares on the Main Board of the Hong Kong Stock Exchange on 14 and 15 October 2004 respectively.
Chapter 3 Conceptual Aspect: Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.
Corporate governance is a multi-faceted subject. An important theme of corporate governance deals with issues of accountability and fiduciary duty, essentially advocating the implementation of guidelines and mechanisms to ensure good behaviour and protect shareholders. Another key focus is the economic efficiency view, through which the corporate governance system should aim to optimize economic results, with a strong emphasis on shareholders welfare. There are yet other sides to the corporate governance subject, such as the stakeholder view, which calls for more attention and accountability to players other than the shareholders (e.g.: the employees or the environment). Recently there has been considerable interest in the corporate governance practices of modern corporations, particularly since the high-profile collapses of large US firms such as Enron Corporation and Worldcom. Definition
The term corporate governance has co me to mean two things.
the processes by which companies are directed and controlled.
a field in economics, which studies the many issues arising from the separation of ownership and control.
Relevant rules include applicable laws of the land as well as internal rules of a corporation. Relationships include those between all related parties, the most important of which are the owners, managers, directors of the board, regulatory authorities and to a lesser extent employees and the community at large. Systems and processes deal with matters such as delegation of authority.
The corporate governance structure spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company objectives are set, as well as the means of attaining and monitoring the performance of those objectivesCorporate governance is used to monitor whether outcomes are in
accordance with plans and to motivate the organization to be more fully informed in order to maintain or alter organizational activity
Chapter 4 Analysis: Parties to corporate governance
Parties involved in corporate governance include the regulatory body (e.g. the Chief . Other Executive Officer, the board of directors, management and shareholders) stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse. A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.
All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. A key factor in an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organisational collapse. Rights
and equitable treatment of shareholders :
Organisations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. Interests of other stakeholders:
Organisations should recognise that they have legal and other obligations to all legitimate stakeholders. Role
and responsibilities of the board:
The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and dut ies. There are issues about the appropriate mix of execut ive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person. Integrity and ethical behaviour:
Organisations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that systemic reliance on integrity and ethics is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. Disclosure
Organisations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organisation should be timely and balanced to ensure that all investors have access to clear, factual information. Issues involving corporate governance principles include:
oversight of the preparation of the entity's financial statements
internal controls and the independence of the entity's auditors
review of the compensation arrangements for the chief executive officer and other senior executives
the way in which individuals are nominated for positions on the board
the resources made available to directors in carrying out their duties
oversight and management of risk dividend policy
Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
External corporate governance controls
External corporate governance controls encompass the controls external stakeholders exercise over the organization. Examples include:
managerial labor market
Chapter 6 Findings:
Through this project I learnt that sound corporate governance is critical to gain investor trust.
I understood that corporate governance is not all about following the rules and regulations but about how the company deals with its stakeholders.
I also learnt that whatever governance the company follows it important to comply with the law in all the countries in which it is operating.
It is important to make clear distinction between personal conveniences and corporate resources.
Over the past decade, various countries have issued recommendations for corporate governance. Compliance with these is generally not mandated by law, although codes that are linked to stock exchanges sometimes have a mandatory content.
Chapter 7 Conclusion:
Sound corporate governance principles are the foundation upon which the trust of investors is built. Corporate Governance acts as a forum for the exchange of information, insights and knowledge based on both theoretical development and practical experience. It is committed to facilitating knowledge, discussion and debate to facilitate the growth of corporate governance theory, to encourage more effective boards and to produce better directors in practice.