BACHELOR OF MANAGEMENT WITH HONOUR

CORPORATE GOVERNANCE

BBCG3103

SEPTEMBER 2015

NAME : NORHAZILA MAULAD RAMLI

MATRICULATION NO: 890312015058001

IDENTITY CARD NO. : 890312015058

LEARNING CENTRE : SEREMBAN, NEGERI SEMBILAN

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TABLE OF CONTENT

INTRODUCTION OF THE COMPANY 34

UNITED KINGDOM CORPORATE 5 7

GOVERNANCE CODES

OECD PRINCIPLES & SARBANES- 8 25

OXLEY ACT 2002

IMPORTANCE OF CORPORATE 26 30
GOVERNNACE

CONCLUSION/SUMMARY 31

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KPJ Seremban Specialist Hospital (KPJ Seremban) is located at Kemayan Square, Seremban
with 151 operational beds. It is a private one stop medical and therapeutic centre offering a
comprehensive range of medical, surgical and 24-hour emergency services. Our affiliation with
one of the country's best health system provides our patients with access to the most advanced
technology and leading edge medicine available. With the man power are about 500 people. And
had been established by itself without having joining venture with other union or organization.

With 134 operational beds, it is a private one stop medical and therapeutic centre offering a
comprehensive range of medical, surgical and 24-hours emergency services. Other services
include Cardiac Intensive Care units, modern and well equipped Operating rooms, nursery and
delivery, laboratory and medical investigation, imaging centre and patient education. Our
hospital been accredited through the Malaysian Society for Quality in Health (MSQH) and ISO
meaning that it's in compliance with standards and "good practices" set by the independent
accreditation agency.

Since our beginnings in 2004, we are aware of our responsibilities for the results of our activities.
In order to ensure that all levels in the organization are aligned with the culture of delighting our
customers and staff by preventing risks and impacts, we have developed a policy. Our
commitment to healthcare excellence continues to be our guiding principle. We strive to ensure
that the care and services we provide exceed your expectation as a patient, a visitor or even a
member of our staff.

We value your input. Upon your discharge, you may receive a satisfaction survey. This is your
opportunity to tell us what we did well, and where we could use some improvement. However, if
we are not meeting your expectations, please don't hesitate to share your thoughts with the Unit
Manager or Head of Services while you are here. We want to make sure you have a positive,
nurturing experience and will do our best to correct and shortcomings on the spot. KPJ
Healthcare has developed a corporate logo symbolizing corporate dynamic and shared
commitment to the loyalty of one vision and mission for KPJ Healthcare.

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The objectives of KPJ Seremban Hospital are to provide a full range of specialist, clinical and
support services. To emphasize on work ethics and confidentiality. To provide a safe, secure and
conducive environment. To ensure that patients are cared for and serviced by well trained and
competent professionals. To motivate staff by ensuring staff satisfaction, their well being and
enhancing, career development through education and training. To strive and commit to provide
quality par excellence service by continuous improvement in quality assurance programs. To
provide continuous improvement in quality assurance programs.

KPJ Healthcare has developed a corporate logo symbolizing corporate dynamic and shared
commitment to the loyalty of one vision and mission for KPJ Healthcare. In addition of that, the
vision of hospital is to be the preferred healthcare provider. Among all the private hospital in this
town. Deliver healthcare quality services had been the mission the hospital since they had been
established 10 years ago. The core values that had been hold since the earliest year of the service
are safety, courtesy, integrity, and professionalism & continuous improvement. Here the KPJ
Seremban Hospital had been applied the integrated information system in their services. The
implement of this application shows that they want to be best healthcare provider.

At KPJ Seremban Specialist Hospital, we are aware of our responsibilities for the results of our
activities. In order to ensure that all levels in the organization are aligned with the culture of
delighting our customers and staff by preventing risks and impacts, we have developed a policy.

To develop, implement and sustain an integrated management system based on the ISO 9001:
2008, OHSAS 18001: 2007, ISO 14001:2004, MSQH Accreditation, JCI Accreditation standards
and 5S in order to utilize best practices to continually improve our services and Integrated
Management System (IMS).

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The UK Corporate Governance Code (formerly the Combined Code on Corporate Governance)
(the Code) prescribes expected actions and behavior of the board directors which includes
setting the tone on values throughout the company. The Code sets out standards of good practice
in relation to issues such as leadership, effectiveness, accountability, remuneration, and relations
with shareholders. The Code was most recently amended in September 2014, with these
amendments being effective for periods commencing on or after 1 October 2014.

Leadership: The Code provisions recommend regular board meetings and distinct and separate
roles for the chairman and chief executive. It advocates for non-executives to apply skepticism
in order to challenge and scrutinize management effectively.

Effectiveness: The size, skills, experience and balance of non-executive and executives directors
should be adequate to deal with the complexity of the business and its industry. Non-executive
directors should be independent. Board appointment, evaluation and re-selection procedures
should be transparent. All directors, especially non-executive, ought to demonstrate commitment
whilst getting support from management to develop an understanding of the business and its
industry.

Accountability: The board should present a fair, balanced and understandable assessment of the
companys position and prospects in its annual report. The directors should state in annual and
half-yearly financial statements whether they consider it appropriate to adopt the going concern
basis of accounting in preparing them, and identify any material uncertainties to the companys
ability to continue to do so over a period of at least twelve months from the date of approval of
the financial statements. The narrative reporting at the front half of the annual report should be
consistent with the financial statements and corresponding notes at the back. The board is
responsible for ensuring sound risk management and internal control systems are in place whilst
also maintaining an appropriate relationship with the companys auditors. The audit committee,
a sub-committee of the board will look after financial reporting matters and the workings of both
internal and external auditors. At least one member of the audit committee must be a qualified
accountant.

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The September 2014 amendments introduce a new requirement that, in addition to a statement
that the business is a going concern, the directors will also have to make another statement
indicating that they have a reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over an assessed period, the length of which
must also be disclosed. In addition, the directors' responsibility for risk management is enhanced
to include making a robust assessment of the principal risks facing the company and a specific
responsibility for monitoring the company's risk management and internal control systems.

Remuneration: The package should be consistent with the caliber of director that the company
is wishing to attract, whilst not excessive. A director should not be involved in deciding his or
her own remuneration and all arrangements should be transparent, following set procedures. The
remuneration should be set against individual and corporate performance with a focus on
enhancing long term performance of the company which is important to stem against rapid
increases which of directors remuneration are not line with the companys results. The
September 2014 amendments emphasize that the overall objective of the remuneration policy
should be to deliver long-term benefit to the company, supported by a requirement to avoid
paying more than necessary. A specific reference to recovering or withholding performance-
related payments, also known as 'claw back', is also included.

Relations with shareholders: All directors should be fully aware of shareholders concerns and
opinions even though the chief executive and finance director will have more direct interaction
with major shareholders. The annual general meeting is an effective way of maintaining contact
with shareholders and the directors should encourage shareholder participation. The September
2014 amendments include a new provision requiring companies to explain what action they
intend to take in response to situations where a significant proportion of votes have been cast
against a resolution at any general meeting. This is likely to be particularly relevant to
resolutions on directors' remuneration. Complying with the Code does not by itself guarantee
good governance. Directors have to ensure the unique conditions in their Company that require a
tailored response are identified and met.

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The Code recommends that Chairman report personally in the companys annual statements how
the principles relating to the role and effectiveness of the board have been applied. The Code
should be followed on comply or explain basis where a company may find that an alternative
approach may be more beneficial towards good governance than a provision in the Code. In that
case, the company ought to explain the situation in the annual statements. Though unlisted
companies may comply with the Code, the Listing Rules require premium listed companies to
apply the Main Principles and report to shareholders on this.

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Organization For Economic Co - operation and Development (OECD)

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came
into force on 30th September 1961, the Organization for Economic Co-operation and
Development (OECD) shall promote policies designed:

To achieve the highest sustainable economic growth and employment and a rising standard
of living in member countries, while maintaining financial stability, and thus to contribute to
the development of the world economy;
To contribute to sound economic expansion in member as well as non-member countries in
the process of economic development; and
To contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations.

The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following
countries became members subsequently through accession at the dates indicated hereafter:
Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand
(29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary
(7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak
Republic (14th December 2000). The Commission of the European Communities takes part in
the work of the OECD (Article 13 of the OECD Convention)

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 1. Ensuring the Basis for an Effective Corporate Governance Framework

The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities.

To ensure an effective corporate governance framework, it is necessary that an appropriate and

effective legal, regulatory and institutional foundation is established upon which all market
participants can rely in establishing their private contractual relations. This corporate governance
framework typically comprises elements of legislation, regulation, self regulatory arrangements,
voluntary commitments and business practices that are the result of a countrys specific
circumstances, history and tradition. The desirable mix between legislation, regulation, self-
regulation, voluntary standards, etc. in this area will therefore vary from country to country.

As new experiences accrue and business circumstances change, the content and structure of this
framework might need to be adjusted. Countries seeking to implement the Principles should
monitor their corporate governance framework, including regulatory and listing requirements
and business practices, with the objective of maintaining and strengthening its contribution to
market integrity and economic performance. As part of this, it is important to take into account
the interactions and complementarities between different elements of the corporate governance
framework and its overall ability to promote ethical, responsible and transparent corporate
governance practices. Such analysis should be viewed as an important tool in the process of
developing an effective corporate governance framework.

To this end, effective and continuous consultation with the public is an essential element that is
widely regarded as good practice. Moreover, in developing a corporate governance framework in
each jurisdiction, national legislators and regulators should duly consider the need for, and the
results from, effective international dialogue and cooperation. If these conditions are met, the
governance system is more likely to avoid over-regulation, support the exercise of
entrepreneurship and limit the risks of damaging conflicts of interest in both the private sector
and in public institutions.

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 2. The Rights of the Shareholders and Key Ownership Functions

The corporate governance framework should protect and facilitate the exercise of shareholders
rights.

Equity investors have certain property rights. For example, an equity share in a publicly traded
company can be bought, sold, or transferred. An equity share also entitles the investor to
participate in the profits of the corporation, with liability limited to the amount of the investment.
In addition, ownership of an equity share provides a right to information about the corporation
and a right to influence the corporation, primarily by participation in general shareholder
meetings and by voting.

As a practical matter, however, the corporation cannot be managed by shareholder referendum.

The shareholding body is made up of individuals and institutions whose interests, goals,
investment horizons and capabilities vary. Moreover, the corporations management must be
able to take business decisions rapidly. In light of these realities and the complexity of managing
the corporations affairs in fast moving and ever changing markets, shareholders are not expected
to assume responsibility for managing corporate activities. The responsibility for corporate
strategy and operations is typically placed in the hands of the board and a management team that
is selected, motivated and, when necessary, replaced by the board. Shareholders rights to
influence the corporation centre on certain fundamental issues, such as the election of board
members, or other means of influencing the composition of the board, amendments to the
company's organic documents, approval of extraordinary transactions, and other basic issues as
specified in company law and internal company statutes.

This Section can be seen as a statement of the most basic rights of shareholders, which are
recognized by law in virtually all OECD countries. Additional rights such as the approval or
election of auditors, direct nomination of board members, the ability to pledge shares, the
approval of distributions of profits, etc., can be found in various jurisdictions.

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 3. The Equitable Treatment of Shareholders

The corporate governance framework should ensure the equitable treatment of all shareholders,
including minority and foreign shareholders. All shareholders should have the opportunity to
obtain effective redress for violation of their rights.

Investors confidence that the capital they provide will be protected from misuse or
misappropriation by corporate managers, board members or controlling shareholders is an
important factor in the capital markets. Corporate boards, managers and controlling shareholders
may have the opportunity to engage in activities that may advance their own interests at the
expense of non-controlling shareholders.

In providing protection to investors, a distinction can usefully be made between ex-ante and ex-
post shareholder rights. Ex-ante rights are, for example, pre-emptive rights and qualified
majorities for certain decisions. Ex-post rights allow the seeking of redress once rights have been
violated.

In jurisdictions where the enforcement of the legal and regulatory framework is weak, some
countries have found it desirable to strengthen the ex-ante rights of shareholders such as by low
share ownership thresholds for placing items on the agenda of the shareholders meeting or by
requiring a supermajority of shareholders for certain important decisions.

The Principles support equal treatment for foreign and domestic shareholders in corporate
governance. They do not address government policies to regulate foreign direct investment. One
of the ways in which shareholders can enforce their rights is to be able to initiate legal and
administrative proceedings against management and board members.

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Experience has shown that an important determinant of the degree to which shareholder rights
are protected is whether effective methods exist to obtain redress for grievances at a reasonable
cost and without excessive delay. The confidence of minority investors is enhanced when the
legal system provides mechanisms for minority shareholders to bring lawsuits when they have
reasonable grounds to believe that their rights have been violated.

The provision of such enforcement mechanisms is a key responsibility of legislators and

regulators. There is some risk that a legal system, which enables any investor to challenge
corporate activity in the courts, can become prone to excessive litigation. Thus, many legal
systems have introduced provisions to protect management and board members against litigation
abuse in the form of tests for the sufficiency of shareholder complaints, so-called safe harbors for
management and board member actions (such as the business judgment rule) as well as safe
harbors for the disclosure of information.

In the end, a balance must be struck between allowing investors to seek remedies for
infringement of ownership rights and avoiding excessive litigation. Many countries have found
that alternative adjudication procedures, such as administrative hearings or arbitration procedures
organized by the securities regulators or other regulatory bodies are an efficient method for
dispute settlement, at least at the first instance level.

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 4. The Role of Stakeholders in Corporate Governance

The corporate governance framework should recognize the rights of stakeholders established by
law or through mutual agreements and encourage active co-operation between corporations and
stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

A key aspect of corporate governance is concerned with ensuring the flow of external capital to
companies both in the form of equity and credit. Corporate governance is also concerned with
finding ways to encourage the various stakeholders in the firm to undertake economically
optimal levels of investment in firm-specific human and physical capital.

The competitiveness and ultimate success of a corporation is the result of teamwork that
embodies contributions from a range of different resource providers including investors,
employees, creditors, and suppliers. Corporations should recognize that the contributions of
stakeholders constitute a valuable resource for building competitive and profitable companies.

It is, therefore, in the long-term interest of corporations to foster wealth-creating cooperation

among stakeholders. The governance framework should recognize that the interests of the
corporation are served by recognizing the interests of stakeholders and their contribution to the
long-term success of the corporation.

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 5. Disclosure and Transparency

The corporate governance framework should ensure that timely and accurate disclosure is made
on all material matters regarding the corporation, including the financial situation,
performance, ownership, and governance of the company.

In most OECD countries a large amount of information, both mandatory and voluntary, is
compiled on publicly traded and large unlisted enterprises, and subsequently disseminated to a
broad range of users. Public disclosure is typically required, at a minimum, on an annual basis
though some countries require periodic disclosure on a semi-annual or quarterly basis, or even
more frequently in the case of material developments affecting the company. Companies often
make voluntary disclosure that goes beyond minimum disclosure requirements in response to
market demand.

A strong disclosure regime that promotes real transparency is a pivotal feature of market-based
monitoring of companies and is central to shareholders ability to exercise their ownership rights
on an informed basis. Experience in countries with large and active equity markets shows that
disclosure can also be a powerful tool for influencing the behavior of companies and for
protecting investors. A strong disclosure regime can help to attract capital and maintain
confidence in the capital markets. By contrast, weak disclosure and non-transparent practices can
contribute to unethical behavior and to a loss of market integrity at great cost, not just to the
company and its shareholders but also to the economy as a whole.

Shareholders and potential investors require access to regular, reliable and comparable
information in sufficient detail for them to assess the stewardship of management, and make
informed decisions about the valuation, ownership and voting of shares. Insufficient or unclear
information may hamper the ability of the markets to function, increase the cost of capital and
result in a poor allocation of resources. Disclosure also helps improve public understanding of
the structure and activities of enterprises, corporate policies and performance with respect to
environmental and ethical standards, and companies relationships with the communities in
which they operate. The OECD Guidelines for Multinational Enterprises are relevant in this
context.

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Disclosure requirements are not expected to place unreasonable administrative or cost burdens
on enterprises. Nor are companies expected to disclose information that may endanger their
competitive position unless disclosure is necessary to fully inform the investment decision and to
avoid misleading the investor. In order to determine what information should be disclosed at a
minimum, many countries apply the concept of materiality.

Material information can be defined as information whose omission or misstatement could

influence the economic decisions taken by users of information. The Principles support timely
disclosure of all material developments that arise between regular reports. They also support
simultaneous reporting of information to all shareholders in order to ensure their equitable
treatment. In maintaining close relations with investors and market participants, companies must
be careful not to violate this fundamental principle of equitable treatment.

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 6. The Responsibility of the Board

The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the boards accountability to the company
and the shareholders.

Board structures and procedures vary both within and among OECD countries. Some countries
have two-tier boards that separate the supervisory function and the management functions into
different bodies. Such systems typically have a supervisory board composed of non-executive
board members and a management board composed entirely of executives. Other countries
have unitary boards, which bring together executive and nonexecutive board members. In
some countries there is also an additional statutory body for audit purposes.

The Principles are intended to be sufficiently general to apply to whatever board structure is
charged with the functions of governing the enterprise and monitoring management. Together
with guiding corporate strategy, the board is chiefly responsible for monitoring managerial
performance and achieving an adequate return for shareholders, while preventing conflicts of
interest and balancing competing demands on the corporation. In order for boards to effectively
fulfill their responsibilities they must be able to exercise objective and independent judgments.

Another important board responsibility is to oversee systems designed to ensure that the
corporation obeys applicable laws, including tax, competition, labor, environmental, equal
opportunity, health and safety laws. In some countries, companies have found it useful to
explicitly articulate the responsibilities that the board assumes and those for which management
is accountable. The board is not only accountable to the company and its shareholders but also
has a duty to act in their best interests. In addition, boards are expected to take due regard of, and
deal fairly with, other stakeholder interests including those of employees, creditors, customers,
suppliers and local communities. Observance of environmental and social standards is relevant in
this context.

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 Sarbanes Oxley Act of 2002( SOX )

Title I: Public Company Accounting Oversight Board

Title I consist of the following nine sections:

I. Section 101: Establishment; administrative provisions

II. Section 102: Registration with the Board
III. Section 103: Auditing, quality control and independence standards and rules
IV. Section 104: Inspections of registered public accounting firms
V. Section 105: Investigations and disciplinary proceedings
VI. Section 106: Foreign public accounting firms
VII. Section 107: Commission oversight of the Board
VIII. Section 108: Accounting standards
IX. Section 109: funding

Title I of SOX contains nine sections related to the establishment of the Public Company
Accounting Oversight Board (Oversight Board). The Oversight Board provides independent
oversight of public accounting firms providing audit services. The Oversight Board also is
responsible for registering auditors, defining processes and procedures for compliance audits,
inspecting and policing conduct and quality control, and generally enforcing compliance with
SOX mandates.

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 Title II: Auditor Independence

Title II consists of the following nine sections:

I. Section 201: Services outside the scope of practice of auditors

II. Section 202: Preapproval requirements
III. Section 203: Auditor partner rotation
IV. Section 204: Auditors reports to audit committee
V. Section 205: Conforming amendments
VI. Section 206: Conflicts of interest
VII. Section 207: study of mandatory rotation of registered public accounting firms
VIII. Section 208: Commission authority
IX. Section 209: Considerations by appropriate State regulatory authorities

Title II of SOX consists of nine sections that establish standards for external auditor
independence. The goal of Title II of the Act is to auditors limit conflicts of interest. Title II
also addresses new auditor approval requirements, audit partner rotation, and auditor reporting
requirements. The new provisions regarding auditor independence restrict auditing companies
from providing non-audit services (e.g., consulting services) for the same clients in which they
audit.

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 Title III: Corporate Responsibility

Title III consists of the following eight sections:

I. Section 301: Public company audit committee

II. Section 302: Corporate responsibility for financial reports
III. Section 303: Improper influence on conduct of audits
IV. Section 304: Forfeiture of certain bonuses and profits
V. Section 305: Officer and director bars and penalties
VI. Section 306: Insider trades during pension fund blackout periods
VII. Section 307: Rules of professional responsibility for attorneys
VIII. Section 308: Fair funds for investors

Title III of SOX contains eight sections and mandate senior executives take individual
responsibility (and liability) for the accuracy and completeness of corporate financial reports.
No longer can corporate executives deflect responsibility for the inaccuracies of their financial
statements. Title III of SOX also defines the interaction between external auditors and corporate
audit committees, and limits the permissible behavior of corporate officers. This section of SOX
contains forfeiture provisions and civil penalties for non-compliance. For example, Section 302
requires that the companys principal officers (usually the Chief Executive Officer and Chief
Financial Officer) certify the veracity of their companys financial statements.

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 Title IV: Enhanced Financial Disclosure

Title IV consists of the following nine sections:

I. Section 401: Disclosure in periodic reports

II. Section 402: Enhanced conflicts of interest provisions
III. Section 403:Disclosures of transactions involving management and principal
stockholders
IV. Section 404: Management assessment of internal controls
V. Section 405: Exemption
VI. Section 406: Codes of ethics for senior financial officers
VII. Section 407: Disclosure of audit committee financial experts
VIII. Section 408: Enhances review of periodic disclosures by issuers
IX. Section 409: Real time issuers disclosures

Title IV of SOX has nine sections that describe the enhanced reporting requirements for financial
transactions, including off-balance-sheet transactions, pro-forma figures and corporate officers
stock transactions. Title IV of SOX also requires internal controls for assuring the accuracy of
financial reports and disclosures, as well as mandates audit and reporting controls. Companies
are also mandated to provide prompt reporting of material changes in their financial condition.
The Securities and Exchange Commission (SEC) now has enhanced power to review corporate
reports.

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Title V: Analyst Conflicts of Interest

Title V consists of the following one sections:

I. Section 501: Treatment of securities analysts by registered securities associations and

national securities exchanges

Title V of SOX has only one section, but it is still an important one. This section includes
defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts
of interest. This measure is meant to restore investor confidence in the reporting of securities
analysts.

Title VI: Commission Resources and Authority

Title VI consists of four the following sentences:

I. Section 601: Authorization of appropriations

II. Section 602: Appearance and practice before the Commission
III. Section 603: Federal court authority to impose penny stock bars
IV. Section 604: Qualification of associated persons of brokers and dealers

Title VI of SOX contains four sections that define various practices aimed at restoring investor
confidence in securities analysts. It also defines the SECs authority to punish securities
professionals who deviate from standard practices. The SEC now has the power censure or even
bar a securities professional from practicing. The SECs power applies to professionals,
including brokers, advisors, and dealers.

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Section VII: Studies and Reports

Title VII consists of five sections as follows:

I. Section 701: GAO study and report regarding consolidation of public accounting firms
II. Section 702: Commission study and report regarding credit rating agencies
III. Section 703: Study and report on violators and violations
IV. Section 704: Study of enforcement actions
V. Section 705: Study on investment banks

Title VII of SOX consists of five sections and requires the Comptroller General and the SEC to
perform various studies as well as report their findings. These studies and reports are meant to
address the effects of consolidation within the large public accounting firms, analyze the role of
credit rating agencies have within the operation of securities markets, discuss securities
violations and enforcement actions, and determine whether investment banks assisted Enron,
Global Crossing and others players in the financial services industry manipulated earnings and
obscured their true financial conditions.

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Title VIII: Corporate and Criminal Fraud Accountability

The VIII comprises of seven sections as follows:

I. Section 801: Short title

II. Section 802: Criminal penalties for altering documents
III. Section 803: Debts non rechargeable if incurred in violation of securities fraud laws
IV. Section 804: Statute of limitations for securities frauds
V. Section 805: Review of Federal Sentencing Guidelines for obstruction of justice and
extensive criminal fraud
VI. Section 806: Protection for employees of publicly traded companies who provide
evidence of fraud
VII. Section 807: Criminals penalties for defrauding shareholders of publicly traded
companies

Title VIII of SOX, also called the Corporate and Criminal Fraud Accountability Act of 2002,
consists of seven sections. It describes the stiff criminal penalties associated with being guilty of
manipulating, destroying or altering of financial records or otherwise interfering with
investigations. The title also provides certain protections for whistle-blowers.

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Title IX: White Collar Crime Penalty Enhancements

Title IX includes six sections as follows:

I. Section 901: Short title

II. Section 902: Attempts and conspiracies to commit criminal fraud offences
III. Section 903: Criminal penalties for mail and wire fraud
IV. Section 904: Criminal penalties for violations of the Employee Retirement Income
Security Act of 1974
V. Section 905: Amendment of sentencing guidelines relating to certain white collar
offense
VI. Section 906: Corporate responsibility for financial reports

Title IX of SOX, also called the White Collar Crime Penalty Enhancement Act of 2002, consists
of six sections. This section increases the criminal penalties associated with white-collar crimes
and conspiracies. It recommends stronger sentencing guidelines for those guilty of
financial/security-related crimes. A criminal punishment also is implemented for those corporate
officers who fail to certify corporate financial reports.

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Title X: Corporate Tax Returns

Title X comprises of one section as follows:

I. Section 1001: Sense of the Senate regarding the signing of corporate tax return by chief
executive officers

Title X of SOX consists of only one section. The section confirms that the CEO of a public
company should sign the company tax return.

Title XI: Corporate Fraud and Accountability

Title XI includes the following seven sections:

I. Section 1101: Short title

II. Section 1102: Tempering with a record or otherwise impeding an official proceeding
III. Section 1103: Temporary freeze authority for the Securities and Exchange Commission
IV. Section 1104: Amendment to the Federal Sentencing Guidelines
V. Section 1105: Authority of the Commission to prohibit persons from serving as officers or
directors
VI. Section 1106: Increase criminal penalties under Security Exchange Act of 1934
VII. Section 1107: Retaliations against informants

Title XI of SOX, also known as the Corporate Fraud Accountability Act of 2002, consists of
seven sections. It identifies corporate fraud and records tampering as criminal offenses and
provides specific penalties for those crimes. Title XI revises sentencing guidelines and stiffens
penalties for offenses. This Title also enables the SEC to temporarily freeze financial
transactions or payments that are deemed "unusual".

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The importance of corporate governance

Lowering Risk

Another important aspect of corporate governance is mitigating or reducing the amount of risk
that is involved. Through corporate governance, scandals, fraud, and criminal liability of the
company can be prevented or avoided altogether.

Since the people involved in the organization know what they are accountable for, the actions
of one person doesnt mean the downfall of the entire corporation. Properly identifying what
the roles in the corporation are allows decisions to be made that wont have a negative effect
on the overall corporation, and it means that the offender can be much more quickly identified
and punished instead.

Corporate governance is also great because it is a form of self-policing. Before outside forces
are able to do anything to a corporation, its possible for the corporation to handle matters
itself. With corporate governance, everyone is held to a specific standard and communication
is made easier due to their being an established hierarchy and role that everyone involved in
the corporation plays. This level of handling business on its own instead of being forced into
making decisions outside of the company helps keep the corporation sustaining itself.

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Public Acceptance

In terms of business, a company with corporate governance is widely accepted by the public.
This is mostly due to the idea of disclosure and transparency that comes with corporate
governance. With full disclosure and the ability for people who work in the business to get
information, as well as the general public, there is a higher level of trust. Theres also the fact
that due to the way that corporate governance is setup, there is a lower chance of fraud and
company-wide criminal activity, which helps gain the trust of the public as well .

Public Image

Today many corporations hold a high level of corporate governance. This is because a
corporation has a public image to maintain. With corporate governance, the corporation takes
more responsibility for its actions, and also allows it to keep tabs on what is going on as well
as helps those in charge remain more aware of the public image of the corporation.

With the way that businesses are run today, it can be difficult for a corporation to become
successful just by having a high level of profit. Due to the fact that a corporation is also
evaluated based on its image, corporate governance is established to help ensure
that image remains clean. Making sure there is a high level of awareness, ethical behavior, and
understanding of what the public wants is all encompassed in corporate governance.

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Careful Management

Corporate governance ensures the careful management of an organization because there are
various important decisions which could benefit any actor such as shareholders, directors,
social welfare, and so on. Basically, there are two views regarding the maximization of the
economic interest. One is the Anglo American which is directed towards the improvement of
the owners economic interest. Other is Non Anglo American view which is encourages the
social welfare of society. Therefore, care must be taken to protect the multiple goals rather than
protecting the self interest of board of directors or shareholders Wei (2003), Brealey et al.
(2007). Such practices will ultimately lead to transparent management, lower corruption
opportunities and improve risk assessment. Similarly, organization also faces the issue of
distrust in the integrity of executives and management due to popular scandals such as Enron,
Solomon (2005). People perceive integrity of the organization in different ways. Corporate
governance can be used to encourage, measure and protect the integrity.

Stability of Stock Price

Stability of stock prices is one of the important factors for the investors to predict the future
performance of a company or the organization. Corporate governance has a great impact to the
efficiency of stock markets. For example, in the Asian crisis in 1997, poor corporate
governance influenced the stock markets efficiently to the large extent Sabri (2007). This
stability is only possible with the help of good corporate governance. Investors are always
attracted towards well governed companies because such companies adopt transparent
governance policies and have better financial accountability and higher profit margins. There
are worldwide efforts to improve the corporate governance and insure greater shareholders
accountability and corporate transparency, Solomon (2005). Therefore, those organizations
which are seeking new funds for businesses must ensure good corporate governance in place.
Stock prices stability shows the level of risk of investment. Investors will only invest if they
undertake appropriate risk for their investment.

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Training of Directors

It is very difficult for the organization to find the right people for the jobs, and train them once
they are selected. When the directors are selected they are come up with different experience,
expertise, and qualifications. So that its important to train them and they are adhere to the
good corporate governance practices, du Plessis et al (2005). Directors are major integral part
of the organizations. They have major role in decision making process thus the success or
failure of the organization is depend on them. If the directors are incompetent, careless or
selfish, then the chances to be success in future are dark. On the other hand, the competent of
directors, loyal careful and honest are essential for achieving the long term objectives of the
organization. In addition of that, the proper governance, monitoring and training of directors is
very important. Corporate governance encourages the honest and transparent monitoring of
each and every activity. It also assists the training and development if the directors so that they
can perform well in order to make decision.

Talented Workforce

Talented workforce is the human capital and is considered as a competitive advantage by the
organization. The ability of the company to attract and hold good is imperative for its success,
Malik. F. (2006). Its a common misconception that more capital and improved technology
leads to the successful organization or even the company. Although they are important to the
progress of the organization but most important factor which makes differences is the human
capital. People with different skills, knowledge, values and beliefs and more are vital for the
long life of an organization. Corporate governance helps in attracting such a talented
workforce by creating good brand images. Similarly, human skills could be developed through
various training and development programs.

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Checks and Balances

Corporate governance ensure that the system of checks and balances in the organization. The
three important disciplines of checks and balances are: self discipline, market discipline and
regulatory discipline, Fleisher, B (2008). The management of an organization including board
of directors is in s strong position to exploit the resources of the organization for their self
interest. They can charge high bonuses and remuneration for their works. Due to lack of check
and balances, the directors of the organization can take excessive risks. The current financial
crisis is the results of high risks and irresponsible lending by some of the worlds biggest
lenders. Corporate governance is the important tool to check and monitor the risk level of the
organization. If the management is involved in taking high risk projects then all the
stakeholders could be informed with the help of the corporate governance. In this way, the
management will try to take risk with the limits because information will be available to the
stakeholders.

Good will and Market Reputation

Many organizations spend huge sums of money to build brand images because it is imperative
for the long term success of the organization. Goodwill and reputation can be improved
through various tactics such as marketing, corporate social responsibility, strong relationship
with the stakeholders. Corporate governance also can develop the goodwill of the company
over the period of time, Lipman and Lipman (2006). With the help of the good corporate
governance, the organization can build strong customer relationship which is leads to the
development of brand loyalty. Those organization which have good corporate governance,
enjoy the market reputation. In absence of the corporate governance, the goodwill of the
organization is at stake because any fraudulent activity will spoil the image of the company.
Scandals of Enron and WorldCom are the important examples in this regard which collapsed
due to lack of proper governance.

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Summary

Corporate governance, in particular at a principle level, is as relevant for SMEs as for listed
companies. Keeping these principles in mind can help issues that typically face SMEs: for
example balancing CEO, and succession planning. Companies may organically develop, but
there is a point where it makes sense to have a more formal structure.

Once we understand what drives these formalities, corporate governance can be a truly useful
tool for companies of any size in responding to challenges of a rapidly changing business world
while maintaining stakeholder confidence.

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