Definition

“Corporate governance is the system by which companies are directed and

controlled….”
Cadbury Report (UK) 1992

“Corporate governance deals with the ways in which suppliers of finance to

corporations assure themselves of getting a return on their investment.”
Shleifer and Vishny
Some further Definitions…!!!
Leadership for efficiency.
Leadership probity.
Leadership with responsibility.
 Leadership which is transparent and accountable.
In A Board Culture of Corporate Governance business author Gabrielle
O'Donovan defines corporate governance as 'an internal system encompassing
policies, processes and people, which serves the needs of shareholders and other
stakeholders, by directing and controlling management activities with good
business savvy, objectivity and integrity. Sound corporate governance is reliant on
external marketplace commitment and legislation, plus a healthy board culture
which safeguards policies and processes'.
O'Donovan goes on to say that 'the perceived quality of a company's corporate
governance can influence its share price as well as the cost of raising capital.
Quality is determined by the financial markets, legislation and other external
market forces plus how policies and processes are implemented and how people
are led. External forces are, to a large extent, outside the circle of control of any
board. The internal environment is quite a different matter, and offers companies
the opportunity to differentiate from competitors through their board culture. To
date, too much of corporate governance debate has centred on legislative policy, to
deter fraudulent activities and transparency policy which misleads executives to
treat the symptoms and not the cause.'[2]
It is a system of structuring, operating and controlling a company with a view to
achieve long term strategic goals to satisfy shareholders, creditors, employees,
customers and suppliers, and complying with the legal and regulatory
requirements, apart from meeting environmental and local community needs.
Report of SEBI committee (India) on Corporate Governance defines corporate
governance as the acceptance by management of the inalienable rights of
shareholders as the true owners of the corporation and of their own role as trustees
on behalf of the shareholders. It is about commitment to values, about ethical
business conduct and about making a distinction between personal & corporate
funds in the management of a company.” The definition is drawn from the
Gandhian principle of trusteeship and the Directive Principles of the Indian
Constitution. Corporate Governance is viewed as ethics and a moral duty.
India Reports On Corporate Governance
1.Kumara Mangalam Birla Committee on Corporate
Governance (2000)
2. Naresh Chandra Committee on Corporate Governance
(2002)
3.Narayana Murthy Committee on
CorporateGovernance(2003)
Impact of Corporate Governance
The positive effect of good corporate governance on different stakeholders
ultimately is a strengthened economy, and hence good corporate governance is a
tool for socio-economic development.

Necessity
1.Too much of power with few individual

2. Large scale diversion of funds to associated companies

& risky ventures

3. Unfocussed business decisions leading to losses

4. Preferential allotment of sweat equity at low prices

5. Spinning off profitable business operations to
subsidiary companies

Clause 49 – Corporate Governance

• SEBI has advised all stock exchanges to amend their

listing agreements by inserting new clause 49 which
deals with good corporate governance practices to
be adopted by all listed private & public sector banks
• Corporate governance implies that the company
would manage its affairs with diligence,
transparency, responsibility and accountability, and
would maximize shareholder wealth.
• Companies are needed to at least have policies and
practices in conformity with the requirements
stipulated under Clause 49 of the Listing Agreement

The company agrees to comply with the

followings provision

• BOARD OF DIRECTORS
• AUDIT COMMITTEE
• SUBSIDIARY COMPANIES
• DISCLOSURE
• Shareholders’/Investors’ Grievance
Committee
WHAT IS CORPORATE GOVERNANCE…???
Corporate governance involves:

 A set of relationships between a company’s

management,
 Its shareholders and other stakeholders It’s board

Importance of Corporate Governance

➢ Business prosperity and accountability.

➢ Stakeholders with a relevant interest in the company’s business
are fully taken into account.
➢ Prevention of malpractice and fraud, although it cannot prevent
them absolutely