Professional Documents
Culture Documents
PGDM
The process and responsibility of the Board of Directors in ensuring the management of a corporation conducts business in such a way as to meet the expectations of its various stakeholders
Besides financial returns for shareholders this also includes impact on employees environment and community at large.
Definition-OECD
Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as the board, managers, shareholders and other stakeholders.
Spells out the rules and procedures for making decisions on corporate affairs.
Definition
The Kumar Mangalam Birla Committee constituted by SEBI has observed that:
Strong corporate governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of transparent corporate disclosure and high quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.
Indian Scenario
The standard of corporate governance was poor during the earlier decades dominated by family business houses.
They operated in a virtually closed economy and could manipulate the rules governing the licence-permit raj by generous donations to political parties, and other corrupt practices.
As we are increasingly moving towards open and market driven economic systems, a number of companies catering to international markets These companies are required to comply with enhanced disclosure and stringent listing requirements. Institutional investors, both foreign and domestic are becoming important players in the stock market.
Issues
Efficiency
Issues Issues
Accountability
Opening of Economy Rising importance of institutional investors Growth of private companies Insider Trading Growth and magnitude of corporate groups Rise in hostile takeovers
A properly structured Board capable of taking independent and objective decisions is in place at the helm of affairs;
The board is balanced as regards the representation of adequate number of Nonexecutive and independent directors who will take care of the interests and well being of all the stakeholders;
The Board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information;
The Board has an effective machinery to sub serve the concerns of stakeholders; The Board keeps the shareholders informed of relevant developments impacting the company;
The Board effectively and regularly monitors the functioning of the management team; and
The Board remains in effective control of the affairs of the company at all times. The overall endeavor of the Board should be to take the organization forward, to maximize long term value and share holders wealth.
Separate the role of CEO and Rotate directors through various Chairman committees Avoid inside committees Ensure a directors directors of on the Ensure that outside directors meet alone
majority
Limit the number of other boards Insist on regular attendance at on which the directors can serve board meetings by all directors
of
Good
Corporate
Integrity
Internal Audit
Key Principles
Appointment To board
Directors Remuneration
Accountability
Strategic Role
Systematic level strategy Structural and Portfolio strategy Implementation strategy
Audit committee
Remuneration committee Nomination committee
Corporate
International Developments
Organization for Economic Cooperation and Development (OECD) has set certain principles in areas of corporate governance
The Right of shareholders Equitable treatment of shareholders Role of stakeholders Disclosure and transparency The responsibilities of Board
Developments in UK
Cadbury Committee Reportaccountability aspects
1992
focused
on
Audit Committee to comprise of minimum three members Listed companies to publish full financial statements annually and half-yearly reports interim.
Board to present assessment of companys position Directors to report on effectiveness of internal control systems
Development in USA
Ensure that the corporation complies with all relevant laws, regulations and codes of best business practice Ensure that the corporation communicates with shareholders and other stakeholders effectively Serves the legitimate interests of and account to them fully the shareholders
Regularly review the procedures and processes to ensure the effectiveness of its internal systems and control Ensure annually that the corporation will continue as a going concern in its next fiscal year
Developments in India
Voluntary code of Corporate Governance for listed companies - CII - 1998 Kumar Mangalam Birla committee by SEBI - 2000 Companies (Amendment Act), 2000 & Clause 49 of listing agreement -2000 Naresh Chandra Committee by SEBI - 2002 Companies (Amendment) Bill of 2003 N.R.Narayana Murthy Committee -2003
Board should have an optimum combination of Executive and Non- Executive directors and at least 50 % should be non-executive An independent Audit committee should be set up by Board Remuneration Committee should be set up by Board There should be a separate section on CG in Annual Report with details on level of compliance by the company
It has suggested that the partners and at least 50% of the engagement team responsible for either the audit of a listed company should be rotated every five years The committee also recommends that no partner or member of the engagement team should be employed by or become a director of a client company with whom he worked preceding two years.
The committee has considered the need for reviewing the manner in which the three professional bodies- the Institute of Chartered Accountants. Cost and Works Accountants, the Company Secretaries regulate their membership. It has recommended the setting up of independent quality review boards (QRBs), one for each of the three organizations.
It has also recommended the setting up of Corporate Serious Fraud Office for punishing erring professionals.
and
The essence of good corporate governance is transparency, accountability, investor protection, compliance with statutory laws and regulations and value-creation for shareholders and other stakeholders.
A companys most valuable asset is goodwill it enjoys with its stakeholders and institutional investors are willing to pay 20% more on average for companies with a good governance record.
Corporate Excellence
Profitability
Satisfied stakeholders such as shareholders, customers, employees Revenue and profit growth
Thank You