us corporate governance

The United States Corporate

Governance Code

Presented by

Binuja ShresthaVikram MehtaPriya KediaSwatanu Mohan Satpathy

Saturday, April 8, 2023 The United States Corporate Governance Code of 16

Corporate Governance

► Do what you say...Say what you do.....!!► Set of processes, customs, policies, laws, and

institutions affecting the way a corporation is directed, administered or controlled

► Includes relationships among many stakeholders involved and the goals for which corporation is governed

► Stakeholders types:• External: Shareholders, debt holders,

trade creditors, suppliers, customers and communities affected by the corporation's activities

• Internal: Board of directors, Executives, Employees


The old millennium

► Managers did not hold shareholder interests as their primary focus

► Corporate managements represented “the corporation” rather than the share holders

► The goal of the firm not to maximize shareholder wealth, but to ensure the growth (or at least the stability) of the enterprise by “balancing” the claims of all important corporate “stakeholders”

► Raiders and hostile takeovers were relatively uncommon► Internal incentives from management ownership of stock

and options were also modest


The new millennium

► Enron Scandal► Dot Com Bubble► Massive securities fraud and insider trading► Unethical auditing processes

A failure of corporate governance ???

New rules, new games


The key points in focus

► Rights of Shareholders► Insider trading laws► Role of stake holders► Disclosure and transparency► The responsibilities of the board


Rights of shareholders

► Common stock gives voting rights► Common stock holders have right of taking net residual

after liquidation► Common stock can be traded adhering to SEC norms

irrespective of the persons in concern► All stocks give right of registration as shareholders of the

company► Voting can be in person or proxy► For corporate equity securities, the shareholder registry

is kept by the issuer or an agent of the issuer (called a "transfer agent") who affects transfers


Insider trading laws

► Section 17(a) of the Securities Act,1933 prohibits fraudulent practices with the offer or sale of any security

► SEC Rule 14e-3, under Section 14(e) of the Exchange Act and Insider Trading Act,1984 (ITSA) permits the SEC to bring suit against anyone violating the Exchange Act by “trading a security while in possession of material nonpublic information."

► ITSA provides for penalties of up to three times the profits gained or loss avoided by the insider trading and authorizes a criminal penalty for insider trading of up to $100,000.


Role of stakeholders

► Stakeholders in a U.S. company may participate in corporate governance as shareholders (employee stock ownership plans) and through service as directors

► The rights of stakeholders are established by laws

- labor law

- contract law

- insolvency law► If the rights as established by these laws are violated,

stakeholders can obtain effective redress through the courts and, in some cases, administrative agencies


Disclosure and transparency

All of the following information must be disclosed by companies in the registration statements with the SEC

► The financial and operating results of the company► Company objectives► Major share ownership and voting rights► Members of the board and key executives, and their

remuneration► Material foreseeable risk factors► Material issues regarding employees and other

stakeholders► Governance structures and policies


Disclosure and transparency

► Financials – as per US GAAP► Mandatory disclosure of material non-financial

information (IOSCo)► Auditor must be independent of the company and should

not have any business linkages or in an advisory position or any financial interest in the company

► Audit committees to include at least three members and be comprised solely of "independent" directors who are financially literate

► At least one member of the audit committee to have accounting or financial management expertise


Responsibilities of the board

► A majority of independent directors► Directors vacate their position on the board if their term of

appointment expires, they resign or are removed by shareholders on a cause

► Vacancy is filled by vote of the board of directors, and the new director stands for reelection at the next annual meeting or when the term expires and a successor is elected, whichever is later

► Directors set their own compensation unless restricted by the corporation’s certificate of incorporation or bylaws

► Directors usually receive an annual fee or a per meeting fee plus expenses for their service on the board


Responsibilities of the board

► Most actions by the board are taken by majority vote at formally noticed meetings

► Each director has one vote and is not allowed to vote by proxy

► Under state law, directors of a corporation are deemed to owe their corporations a fiduciary duty of care

► If any statement contains materially false or misleading statements or omits statements SEC may also bring an action against the directors and against the officers who signed the statement, mostly debarring further directorships


Anglo-American Model

► Known as "the unitary system”► Emphasizes a single-tiered Board of Directors ► Composed of a mixture of executives from the company

and non-executive directors, all elected by shareholders► Non-executive directors outnumber executive directors

and hold key posts in audit and compensation committees

► The United States and the United Kingdom differ in one critical respect with regard to corporate governance:

- In UK the CEO generally does not serve as Chairman - In US having the dual role is the norm


Anglo-American Model

► In US, corporations are directly governed by state laws► Exchange of securities is governed by federal legislation. ► Many U.S. states have adopted the Model Business

Corporation Act, but the dominant state law for publicly-traded corporations is Delaware

► Individual rules for corporations are based upon the corporate charter and the corporate bylaws

► Shareholders cannot initiate changes in the corporate charter although they can initiate changes to the corporate bylaws.


Anglo-American ModelOwnership structure Dispersed

Ownership identity Individuals Pension and mutual funds

Changes in ownership Frequent

Goals of ownership Shareholder value Short-term profits

Board controlled by Executives Shareholders

Key stakeholders Shareholder


THANK YOU