A Presentation on CORPORATE GOVERNANCE

Presented in class of:Dr. Ashish Pareek

Faculty of Management Studies

Maharshi Dayanand Saraswati University, Ajmer

Presented by:Anusuya MehraHarmeet SinghManish SharmaRajkumar RanwaRoopal JainVijay Mundel

Meaning of corporate governance

Corporate governance is the way, a company manages itself in order to ensure fair and equitable returns to all shareholders and other financial stakeholders.

The Cadbury Committee report defines it as “the system by which companies are directed and controlled.

Corporate governance is the process where by people in power direct, monitor and lead corporation, and thereby either create, modify or destroy the structure and system and under which they operate.

DefinitionCorporate Governance may be defined as a set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders. It is the system by which companies are directed and controlled. It is about promoting corporate fairness, transparency and accountability. In other words, 'good corporate governance' is simply 'good business'

Objectives:-

Predictability

Transparency

Accountability

Efficiency & effectiveness

Stakeholder satisfaction

Aim of corporate governance The aim of "Good Corporate Governance" is to

ensure commitment of the board in managing the company in a transparent manner for maximizing long-term value of the company for its shareholders and all other partners. It integrates all the participants involved in a process, which is economic, and at the same time social. The aim is to align as nearly as possible the interests of individuals, corporations and society.

ConceptThe concept of corporate governance

primarily hinges on complete transparency, integrity and accountability of management.

The concept of good corporate governance connotes that ethics as important as economics ,fair play as crucial as financial success , morals as vital as market share.

PRINCIPLES :-1. Right and equitable treatment of

shareholder

2. Interests of other stakeholder

3. Role and responsibilities of the board

4. Integrity and ethical behavior

5. Disclosure and transparency

•Setting corporate strategy, overall direction, mission or vision

•Hiring and firing the CEO and top management

•Controlling, monitoring, or supervisingtop management

•Reviewing and approving the use of resources

•Caring for shareholder interests

Board of Directors

Board of Directors

Members:Inside directors

◦“Management directors”◦Officers or executives employed by corporation

Outside directors◦“Non-management directors”◦May be executives of other firms but not

employed by board’s corporation

Board of Directors

Board ResponsibilitiesMonitor and evaluate corporate

performance.Monitor and evaluate corporate strategy.Determine executive compensation.Evaluate senior management

performance.Communicate with share holders.Evaluate board performance.Manage Executive Director/CEO

succession.

Reasons for growing demand for corporate governanceEconomic reforms that allowed the growth of free

enterprise and freed private investment opportunities.

The growing awareness of investors and investors group of their rights.

Exposures of domestic private and public sector companies to greater domestic and foreign competition ,which has multiplied choices for consumers and compelled increases in efficiency.

The consequential changes in the shareholding pattern of private and public sector companies.

Reasons for growing demand for corporate governance continue…The growing importance of institutional investors

and public financial institutions, gradually asserting and transforming themselves in their new role as active shareholders rather than as lenders.

The stock exchanges becoming increasingly conscious of their roles as self regulatory organizations and exploring the possibility of using the listing agreement as a tool for raising the standard of corporate governance.

Measures to improve Corporate Conduct

The measures that were suggested for improving corporate conduct included: Improving financial disclosure norms. Making relevant nonfinancial disclosure mandatory. Making the management more accountable towards

fulfilling its responsibility to society at large. Changing the composition and functioning of

company boards with greater proportion of competent non executive director.

Suggesting ways of effective involvement of institutional investors in the management and conduct of the affair of a company.

Facilitating free play of market forces in securing a change of management.

Code of Conduct for corporate governance…

SEBI prescribes that there should be a conduct for board of directors. While drafting the code of conduct for corporate governance for the entire corporate sector following aspects can be kept in view:

Prescribing of ethical values which are universally acceptable.

Ensuring transparency in functioning. Encouraging discipline. Avoiding conflict of interest. Respecting one another. Loyalty to the organization. Providing motivation. Providing of requisite incentives for efficient and effective

functioning.

Importance of Corporate GovernanceShapes the growth and future of capital

market & economy.Instrument of investor’s protection.Protecting the interest of Shareholders and

all other stakeholder.Contributes to the efficiency of the business

enterprise.Creation of wealth.Enables firm to compete internationally in

sustained way.Keeps an eye on the issues of insider

training.

Pre Requisites……

A proper system, consisting of clearly defined an adequate structure of roles, authority and responsibility.

Vision, principles and norms which indicate development path, guidelines and norms for performance.

A proper system for guiding, monitoring, reporting and controlling.

Regulatory and Voluntary Actions

According to OECD 1998, good corporate governance can best be achieve through a combination of regulatory and voluntary private action. On regulatory side they should focus on:

FairnessTransparencyAccountabilityResponsibility

Factors influencing corporate governance The ownership structure

The structure of company boards

The Financial structure

The institutional environment

The search for a new approach to corporate governance…

It resulted in the setting up of the:Teadway commission (USA):- It placed great emphasis

on the composition and functioning of Board of Directors. The committee report published in October, 1987.

Cadbury Committee (UK):- It examined the issue of corporate governance from the point of view of share holder of a company. The committee report published in December, 1992.

King Committee (South Africa):- It was setup to develop a code of ethics for business enterprises. The committee report published in November, 1994.

Kumar Mangalam Birla Committee 1999A committee was set up by SEBI under the

Chairmanship of Kumar Mangalam Birla to promote and raise standards of corporate governance. The committee in its report observed that “the strong Corporate Governance if 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.”

Naresh Chand Committee Report, 2002:- The committee was appointed by SEBI to make recommendation on the representation of independent directors on company boards and the composition of audit committees. The major highlight and recommendations are as follows:

It makes no distinction between a board within executive chairman and non executive chairman.

It is sufficient to have compulsory rotation of audit partners in every five years.

Independent directors should play a larger role to ensure the corporate governance practices are improve and that the interest of stock holders other than promoters are protected.

Narayana Murthy committee,2003This committee was constituted by SEBI,

under the chairmanship of Narayana Murthy to suggest how best to further improve corporate governance practice.

The committee included representatives from stock exchanges , chambers of commerce and industry , investors association and professional bodies and debated on key issues and made recommendation…

RecommendationsDisclosure of accounting treatment Audit qualificationRisk management – board disclosureTraining of board membersUse of proceeds of IPOWritten code of conduct for executive

managementNominee directors-exclusive of nominee

directors from the definition of independent director

Internal policy on access to audit committees

Corporate governance and some Indian organisationTata group chairman , Ratan Tata, bagged

the “Corporate governance” award for the year 2001-02 instituted by the government of India.

ICRA assigned an SVG1 rating to the stakeholders value creation and governance practices of Wipro in 2004. Wipro is the first company to be assigned the highest SVG1 rating by ICRA.

Example of corporate governanceSatyam scandal in 2009…………….