cg00_ introduction to cg

8/6/2019 CG00_ Introduction to CG

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CORPORATE GOVERNANCE:CORPORATE GOVERNANCE:INTRODUCTIONINTRODUCTION

ssues relating to CGssues relating to CGstablishing Need of CGstablishing Need of CGCodeodeode of Corporateode of CorporatePracticesracticesenefits of Good CGenefits of Good CG


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Corporate GovernanceCorporate Governance

Dr. Sareen, Chairman, Indian Medical Council

at IMA annual meet in New Delhi on 30-Jan-2011 said,

India is crossing over from a Developing to a

Developed nation. It is disgusting to be facingone scam after another ever since the start of

globalization in India. There is a character crisisin India today.

Ethics cant be taught, Ethics is a way of life.


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Customer&Society


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Corporate governance is the newbuzzword in corporate and academiccircles today.

Everyone is talking about it.

It means several things to differentpeople, depending on the sensitivityand sensibility of the analyst.

This overview discusses evolution of theconcept of Corporate Governance, and

Explains its relevance and impact on the

economy.

Issues in Corporate Governance:Issues in Corporate Governance:


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v Increasing Awareness

v

vGlobal Concerns

v

vHistorical Perspective of CorporateGovernance

v

v Issues in Corporate Governance

Issues in Corporate Governance:Issues in Corporate Governance:


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Relating Governance with EthicsRelating Governance with Ethics

E t h i c st h i c s - set of beliefs about right andwrong behaviour

(Ethical behaviour conforms to

generally accepted social norms) V i r t u e si r t u e s - Habits that incline people to dowhat is right (acceptable behaviour)

V i c e si c e s - Habits of unacceptable behavior a l u e s y s t e ma l u e s y s t e m - Scheme of moral values I n t e g r i t yn t e g r i t y Integrity is a cornerstone of

ethical behavior


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The Importance of IntegrityThe Importance of Integrity

People with ,ntegrity

.1 Act in accordance with a personalcode of principles

.2 Extend to all people the samerespect and consideration that

you desire

.3 Apply the same moral standards inall situations


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Role of Ethics in the BusinessRole of Ethics in the Business

Riskis the product of multiplying thelikelihood of an event by the impact ofits occurrence

Risks associated with inappropriatebehaviour have increased due to

Globalization

Keen vigilance by EMPLOYEESEMPLOYEES ,SHAREHOLDERS AND,SHAREHOLDERS AND REGULATORY AGENCIESREGULATORY AGENCIES


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The Importance of Good BusinessThe Importance of Good BusinessEthicsEthics

1.To gain the goodwill of thecommunity

2.To create an organization thatoperates consistently

3.To produce good business

4.To protect the organization and its

employees from legal action

5.To avoid unfavorable publicity


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Recent Frauds in the BusinessRecent Frauds in the BusinessWorldWorld

Effect of unethical behaviour is seen therecent scandals in companies worldover:

WorldCom

Enron Energy Corporation

Lehman Bros.

Dhabol Power Corporation


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vGiant corporations such as Enron,WorldCom, Lehman Bros. and various

other global cos. failed and wereinvestigated for fraud and malpractices

v

vMany of their top executives werepenalized for committing fraud andirregularities.

v

American Scenario in 2002American Scenario in 2002


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v Reasons for Corporate MisgovernanceReasons for Corporate Misgovernance Indian corporations were insulated. AIndian corporations were insulated. A

closed economy, a sheltered market,closed economy, a sheltered market,limited need and access to globallimited need and access to global

business/trade, lack of competition,business/trade, lack of competition,lack of adequate regulatory frameworklack of adequate regulatory frameworkwere all the causes. Besides, promoterwere all the causes. Besides, promoterfamilies ruled the roost. As a result,families ruled the roost. As a result,

there were a series of scams.there were a series of scams.v Increasing AwarenessIncreasing Awareness

v Global ConcernsGlobal Concerns

v What is Corporate Governance?What is Corporate Governance?

Corporate Misgovernance in IndiaCorporate Misgovernance in India


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r o m A c a d e m i c P o i n t o f V i e wr o m A c a d e m i c P o i n t o f V i e w orporate governance addressesorporate governance addressesroblems that result from theroblems that result from the

e p a r a t i o n o f o w n e r s h i p a n de p a r a t i o n o f o w n e r s h i p a n dc o n t r o lo n t r o l . e v e l o p e d Ve r s u s D e v e l o p i n ge v e l o p e d Ve r s u s D e v e l o p i n gC o u n t r i e so u n t r i e s ,n developing economies one,n developing economies one

ust look to supportingust look to supporting ,nstitutions for example ,nstitutions for exampletrengthening weak judicial andtrengthening weak judicial andegal systems in order to betteregal systems in order to betternforce contracts and protectnforce contracts and protect.roperty rights.roperty rights ( . )John D Sullivan th e r P e r c e p t i o n sth e r P e r c e p t i o n s orporate Governance isorporate Governance isefined narrowly as relationshipefined narrowly as relationship ;f a company to its shareholders;f a company to its shareholdersr broadly as a relationship tor broadly as a relationship to

.ociety.ociety ( n article inn article in in an ci a l T i m esin an ci a l T i m es )Diffe

r

ent

Pe

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Differ

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P

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o r p o r a t e g o ve r n a n ceis a much broaderconcept than just o r p o ra t e m an a g e me n t ,,and includes a fair efficient and

transparent administration to meet certain- .well defined objectives

,It is a system of structuring operating andcontrolling a company with a view to-achieving long term strategic goals

, ,That satisfy the shareholders creditors, ,That satisfy the shareholders creditors,employees customers and suppliers and,employees customers and suppliers and

complying with the legal and regulatorycomplying with the legal and regulatory,requirements apart from meeting,requirements apart from meeting.environmental and local community needs.environmental and local community needs

Different PerceptionsDifferent Perceptions


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Corporate Governance Is Expected toCorporate Governance Is Expected toDeal with:Deal with:

The Rights of ShareholdersThe Rights of Shareholders

The Equitable Treatment of ShareholdersThe Equitable Treatment of ShareholdersThe Role of Stakeholders in CorporateThe Role of Stakeholders in Corporate

GovernanceGovernance

Disclosure and TransparencyDisclosure and TransparencyThe Responsibilities of the Board includingThe Responsibilities of the Board including

those towards the Societythose towards the Society

Need of Corporate Governance:Need of Corporate Governance:


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The Growth of Modern Ideas of CorporateThe Growth of Modern Ideas of CorporateGovernance from the USAGovernance from the USA

England Catches Up With USEngland Catches Up With US

The Cadbury CommitteeThe Cadbury Committee The Aftermath of Cadbury ReportThe Aftermath of Cadbury Report Corporate Governance in the BankingCorporate Governance in the Banking

SectorSector Corporate Governance Issues in 21Corporate Governance Issues in 21centurycentury

Historical Perspective of CorporateHistorical Perspective of CorporateGovernanceGovernance


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Distinguishing the Roles of the Board andDistinguishing the Roles of the Board and

the Managementthe Management

The Board and Related IssuesThe Board and Related Issues CompositionComposition

AppointmentsAppointments Separation of Company and the OwnershipSeparation of Company and the Ownership The Committees under the BoardThe Committees under the Board The RemunerationThe Remuneration Disclosure and AuditDisclosure and Audit Protection of Shareholder Rights and TheirProtection of Shareholder Rights and Their

ExpectationsExpectations

A Socially Responsible Corporate CitizenA Socially Responsible Corporate Citizen

Issues in CGIssues in CG


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vRelevance of Corporate GovernanceRelevance of Corporate Governance

Managements usually have an informationManagements usually have an informationadvantage over others. Good corporateadvantage over others. Good corporategovernance will ensure all stakeholders interestsgovernance will ensure all stakeholders interestsare protected, while their requirements areare protected, while their requirements are

fulfilled.fulfilled.v Need for and Importance of CorporateNeed for and Importance of Corporate

GovernanceGovernance To maximize long-term shareholder valueTo maximize long-term shareholder value

v Governance and Corporate PerformanceGovernance and Corporate Performance These are very closely inter-relatedThese are very closely inter-related

v Investors Preference for Good GovernanceInvestors Preference for Good Governance Shareholders are prepared to pay a premiumShareholders are prepared to pay a premium

for a company with good corporate governancefor a company with good corporate governanceractices.ractices.

Summarizing Relevance and NeedSummarizing Relevance and Need


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Good Corporate Governance Practices throughGood Corporate Governance Practices throughinternal value system, corporate codes,internal value system, corporate codes,internal control systems etc are useful to:internal control systems etc are useful to:

Combating corruption,Combating corruption,Stakeholder protection,Stakeholder protection,Ensuring industrialization andEnsuring industrialization andEconomic development.Economic development.

Primarily it establishes the need for a goodPrimarily it establishes the need for a goodCorporate Governance CodeCorporate Governance Code

How Do You AchieveHow Do You AchieveGood Corporate GovernanceGood Corporate Governance


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.. ultural improvementultural improvement.. hareholders confidence improvementhareholders confidence improvement.. remium on well governed companyremium on well governed companytockstocks.. reventing fraud and malpracticesreventing fraud and malpractices.. rotecting shareholders interestrotecting shareholders interest.. nhancing company s valuationnhancing company s valuation

.. nsuring compliance of laws andnsuring compliance of laws and.. reating competitive advantagereating competitive advantage

Benefits of Good CorporateBenefits of Good Corporate

GovernanceGovernance

cg00_ introduction to cg

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