Presentation By:

Sneha Shah
Kunal Bhatt
Sri Harsha Reddy
Swetha Rani
Puneeth Gupta
Anshu Bafna
Santosh Kumar
& Hardik Deliwala
Index
 What is Corporate Governance?
 History of Corporate Governance
 History of Corporate Governance In India
 Principles of Corporate Governance
 Corporate Governance and Firm Performance
 Effects on Good Corporate Governance Economy
 Effects on Bad Corporate Governance Economy
 New Corporate Governance moves that are Expected
 HR’s Role in Corporate Governance
 Examples of Companies
 Good Corporate Governance
 Bad Corporate Governance
 Good Vs Bad Corporate Governance
 Concluding Remarks
What is Corporate Governance?
 Corporate governance - Set of processes,
customs, policies, laws, and institutions
affecting the way a corporation is directed,
administered or controlled.
 Corporate governance also includes the
relationships among the many stakeholders
involved and the goals for which the
corporation is governed.
History of Corporate Governance
In the 19th century, state corporation laws
enhanced the rights of corporate boards to govern
without unanimous consent of shareholders in
exchange for statutory benefits like appraisal rights,
to make corporate governance more efficient.
Probably United States of America was the first
country to introduce the concept of corporate
governance
History Of Corporate Governance In India
 Unlike South-East and East Asia, the corporate governance
initiative in India was not triggered by any serious nationwide
financial, banking and economic collapse
 Also, unlike most OECD countries, the initiative in India was
initially driven by an industry association, the Confederation
of Indian Industry
 In December 1995, CII set up a task force to design a voluntary code of
corporate governance
 The final draft of this code was widely circulated in 1997
 In April 1998, the code was released. It was called Desirable Corporate
Governance: A Code
 Between 1998 and 2000, over 25 leading companies voluntarily
followed the code: Bajaj Auto, Hindalco, Infosys, Dr. Reddy’s
Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and
many others
History Of Corporate Governance In India
 Following CII’s initiative, the Securities and Exchange Board of India
(SEBI) set up a committee under Kumar Mangalam Birla to design a
mandatory-cum-recommendatory code for listed companies
 The Birla Committee Report was approved by SEBI in December
2000
 Became mandatory for listed companies through the listing
agreement, and implemented according to a rollout plan:
 2000-01: All Group A companies of the BSE or those in the S&P CNX
Nifty index… 80% of market cap
 2001-02: All companies with paid-up capital of Rs.100 million or more or
net worth of Rs.250 million or more
 2002-03: All companies with paid-up capital of Rs.30 million or more
History Of Corporate Governance In India
 Following CII and SEBI, the Department of Company Affairs
(DCA) modified the Companies Act, 1956 to incorporate
specific corporate governance provisions regarding
independent directors and audit committees
 In 2001-02, certain accounting standards were modified to
further improve financial disclosures. These were:
 Disclosure of related party transactions
 Disclosure of segment income: revenues, profits and capital employed
 Deferred tax liabilities or assets
 Consolidation of accounts
 Initiatives are being taken to (i) account for ESOPs, (ii)
further increase disclosures, and (iii) put in place systems
that can further strengthen auditors’ independence
Principles of Corporate Governance

Key elements of good corporate governance principles

include:
 honesty, trust and integrity,
 openness, performance orientation, responsibility and
accountability,
 mutual respect, and commitment to the organization.
Corporate Governance and Firm Performance

 'Global Investor Opinion Survey' of over 200

institutional investors first undertaken in 2000 and
updated in 2002, McKinsey found that 80% of the
respondents would pay a premium for well-governed
companies.
 They defined a well-governed company as one that
had mostly out-side directors, who had no
management ties, undertook formal evaluation of its
directors, and was responsive to investors' requests
for information on governance issues.
Effects of Good Corporate Governance On Economy
Effects of bad Corporate Governance on Economy
New Corporate Governance Moves that are Expected:

There are five reasons why one doesn’t expect the corporate sector
in India to exhibit the excesses that occurred in the US
1. The amount of stock options to be granted to employees is strictly
limited. Expensing options (if adopted) will create a further natural
limit
2. In general, companies are controlled by a sizeable shareholder,
typically owning over 35% of stocks. This tends to limit agency costs
of dispersed ownership
3. The variable compensation package is much more linked to profits
and/or Economic Value Added (EVA), than stock prices or P/E
4. Much greater importance is given to accumulating cash. “Profit is an
opinion; cash is fact”
5. For better or for worse, most Indian companies still don’t have to give
forward looking earnings estimates
New Corporate Governance Moves that are Expected:

After the US crisis, there have been some initiatives:

1. A committee has been set up to examine stock options, including
expensing them
2. Another committee has been set up to recommend tighter
enforcement by DCA and stiffer penalties, including longer prison
terms
3. A third committee has been set up to examine auditor-company
relationships and the role of independent audit committees
4. A fourth committee is examining what additional disclosures and
accounting standards are needed to have even better corporate
governance
HR’s role in corporate governance
 The ASX Corporate Governance Guidelines deal
implicitly and explicitly with a number of HR issues,
such as a transparent and thorough appointment
process for senior executives, executive remuneration
structure and public reporting of reward policies.
 John Egan believes that HR has a “terrific opportunity”
to get closer to boards with these guidelines.
 The senior HR executive could also act as a
‘confidante’ to the CEO and Chairman on these
issues, and serve as advisor and confidential sounding
board.
Examples of Companies
Good Corporate Bad Corporate
Governance Governance
 TATA  Satyam
 Birla  Enron
 Arcelor-Mittal  General Motors
 Microsoft  Ford
 Wipro
Good vs Bad Corporate Governance
REAL CARROT IS NOT GOVERNANCE BUT
RETURNS
Concluding Remarks
 By and large, Indian listed companies have been legally
mandated to follow fairly strict standards of corporate governance
and disclosure
 Comparisons will show that the standards are far stronger than all
Asian countries, and in general stronger than most OECD
countries
 Indian corporate sector regulators and companies have been
quick to incorporate some of the best international corporate
governance and disclosure practices
 The need of the day is more training of directors, audit committee
members and senior executives of companies
 The challenge is to design and sustain a system that imbibes the
spirit of corporate governance and not merely the letter of the law