CORPORATE

GOVERNANCE
R A K I B Z A H O O R WA N I

INTRODUCTION
A corporation brings together many groups Managers ,
employees , suppliers , customers , investors for purpose
of conducting the business.
Various corporate constituencies have sometimes different
and conflicting interests.
The Question Arises
Whos Interest should the corporation run ?
Who should control a corporation ?
What groups ought to have decision making powers?

INTRODUCTION
The group that has the power is able to run the
corporation in its own interest and make its interest the
objective of the firm.
The question of who should control the corporation is the
subject matter of Corporate Governance.
Cracker Barrel Old Country Stores (based in Lebanon )
case.

ANOTHER AREA OF CORPORATE

GOVERNANCE
A corporation also needs a control environment to ensure
that employees do their job well and do not engage in
Unethical and Illegal behavior.
A control environment requires not only rules and policies
but also means of educating employees about proper
conduct and responding to possible misconduct. (Ethics
Programs)
Corporate Accountability Protect shareholders and other
stakeholders. (Enron , Worldcom)

CORPORATE GOVERNANCE
In the standard system of corporate Governance , Ultimate
decision making power or control is held by shareholders. In
addition to control , shareholders are also entitled to the profits
of the corporation.
The Initial Question
Why should shareholders have the control of the
Organization ? And right to Profits ?

PROPERTY RIGHTS & SOCIAL

INSTITUTION THEORIES
Original form of modern corporations was Joint stock
company
Social institution theory emphasize that a corporation is
not merely a private association created for purpose of
personal enrichment but also a public enterprise that is
intended to serve some larger social goal.

FORD MOTOR COMPANY CASE

The Michigan State Supreme Court in 1919
Ford motor could be forced to pay more dividends to
shareholders in spite of Henry Fords view that the
company has made too much profit & ought to share some
of it with public by reducing prices.
Henry ford had no right to substitute another end using
corporate resources for philanthropic purpose.

CORPORATE MANAGERS
Actual control with corporate managers
The result was separation of Ownership and control.

THE CONTRACTUAL THEORY

Economist Ronald Coarse
In a world where market exchanges could occur without
any costs , economic activity would be achieved entirely by
means of contracting among individuals in free market
Consider Firm as a market
Firm specific assets

ROLE OF SHAREHOLDERS
Risk bearing
Corporate Control
a) Right to select board of directors
b) Approve Important changes.

CORPORATE ACCOUNTABILITY
Case Study of Enron
Case study of Satyam Computers

THANK YOU

Any Queries / Questions on the topic are

most welcomed.