Corporate Governance

Presented By:
Dhaivat Raval(10)
Chintan Patel(4)
Sumit Patel(8)
Hardik Patel(6)
Abhinav sisaudiya(13)
Introduction
Corporate governance is the 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.
The principal stakeholders are the shareholders/members, management, and the
board of directors. Other stakeholders include labour (employees), customers,
creditors (e.g., banks, bond holders), suppliers, regulators, and the community at
large.
An important theme of corporate governance is to ensure the accountability of
certain individuals in an organization through mechanisms that try to reduce or
eliminate the principal-agent problem.
It is a system of structuring, operating and controlling a company with a view to
achieve long term strategic goals to satisfy shareholders, creditors, employees,
customers and suppliers, and complying with the legal and regulatory requirements,
apart from meeting environmental and local community needs.

Why Corporate Governance???
In the beginning of the new millennium, several companies in the USA and
elsewhere faced collapse because of corporate mis-governance and unethical
practices they indulged in. the then existing regulatory framework seemed to be
inadequate to deal with the gigantic business corporations that committed
deliberate frauds.

In the year 2000, several American mega corporations collapsed like a pack of
cards. The federal administration of President Bush was quick to slap corrective
measures on blundering corporations and initiated preventive steps to avoid
corporate frauds in future.

In India, the governance of most of the countrys industrial and business
organizations thrived on unethical practices at the market place and showed little
regard for the timeless human and organizational values while dealing with their
shareholders, employees and other stakeholders.

An overwhelmingly large number of Indian corporations used several illegal tactics
such as restricting of industrial licenses with a view to keeping away competitors,
using import licenses to make a quick profit, illegally holding money aboard, and
indulging into corruption and other unethical practices with impunity.



The reasons for the corporate mis-governance in India were many: A closed economy,
a sheltered market, limited need and access to global business, lack of competitive
spirit and an inefficient regulatory framework. These were responsible for poor
governance of companies in India for well over 40 years, between 1951 and 1991.


What is Good Corporate Governance???
Bad governance is being recognized now as one of the root causes of corrupt practices in
our societies. Major donors, institutional investors and international financial institutions
provide their aid and loans in condition that reforms that ensure good governance are put
in place by the recipient nations.
As with nations, corporations too are expected to provide good governance to benefit all
their stakeholders. At the same time, good corporate are not born, but are made by the
combined efforts of all stakeholders, which include shareholders, board of directors,
employees, customers, dealers, government and the society at large.
Law and regulation alone cannot bring about changes in corporate to behave better to
benefit all concerned. Directors and management, as goaded by stakeholders and inspired
by societal values, have a very important role to play.
The company and its officers, who, inter alia, include the board of directors and the officials,
especially the senior management, should strictly follow a code of conduct.

Corporate Governance System
1. The Anglo-American model : This is also known as unitary board model, in which
all directors participate in a single board comprising both executive and non-
executive directors in varying proportions.
2. The German model : Corporate governance in the German model is exercised
through two boards, in which the upper board supervises the executive board on
behalf of stakeholders and is typically societal oriented.
3. The Japanese model : This is the business network model, which reflects the
cultural relationships seen in the Japanese keiretsu network. In this model the
financial institution has accrual role in governance. The shareholders and the main
bank together appoint board of directors and the president.



Importance of Corporate Governance
With good governance we will perform better over time.
Reducing risk.
Facilitate decision making process / fasten exploitation of opportunities
Highlight possible risks and threats
Add value & premium for shareholders / investors.
The importance of corporate governance - that is, responsibility in the handling of
money and the conduct of commercial activities.


Corporate Governance in India- a background

Unlike South-East and East Asia, the corporate governance initiative in India
was not triggered by any serious nationwide financial, banking and economic.
Also, unlike most OECD countries, the initiative in India was 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
Between 1998 and 2000, over 25 leading companies voluntarily followed the
code: Bajaj Auto, Infosys, Dr. Reddys Laboratories, Nicholas Piramal, BSES,
HDFC, ICICI and many others

The Theory & Practices of Corporate
Governance
1. Agency theory
2. Stewardship theory
3. Stakeholder theory
4. Sociological theory

Agency theory
Relationship between share holders and managers.
In this theory, shareholders who are the owners or principals of the company,
hires the agents to perform work. Principals delegate the running of business to
the directors or managers, who are the shareholders agents.
The agency theory shareholders expect the agents to act and make decisions in
the principals interest. the agent may not necessarily make decisions in the best
interests of the principals . Such a problem was first highlighted by Adam Smith in
the 18th century

Stewardship Theory
Stewardship theory has its roots from psychology and sociology and is
defined by Davis & Donaldson (1997) as a steward protects and
maximizes shareholders wealth through firm performance, because by
so doing, the stewards utility functions are maximized.
stewardship theory suggests unifying the role of the CEO and the
chairman so as to reduce agency costs and to have greater role as
stewards in the organization.
Stakeholder Theory
This theory developed by freeman (1984).
Stakeholder theory can be defined as any group or individual who can
affect or is affected by the achievement of the organizations objectives.
Unlike agency theory in which the managers are
Corporate Governance System
1. The Anglo-American model : This is also known as unitary board model, in which all
directors participate in a single board comprising both executive and non-executive
directors in varying proportions.
2. The German model : Corporate governance in the German model is exercised through two
boards, in which the upper board supervises the executive board on behalf of stakeholders
and is typically societal oriented.
3. The Japanese model : This is the business network model, which reflects the cultural
relationships seen in the Japanese keiretsu network, in which boards tend to be large,
predominantly executive and often ritualistic. The reality of power in the enterprise lies in
the relationships between top management in the companies in the keiretsu network. In
this model the financial institution has accrual role in governance. The shareholders and the
main bank together appoint board of directors and the president.



Obligation
1. Obligation to society at large:

National interest : A company should be committed in all its actions to benefit the
economic development of the countries in which it operates and should not engage in
any activity that would militate against such an objective.

Political non-alignment : A company should be committed to and support a functioning
democratic constitution and system with a transparent and fair electoral system and
should not support directly or indirectly any specific political party or candidate for
political office.
Legal Compliances : The management of a company should comply with all applicable
government laws, rules and regulations.
Rules of Law : Good governance requires fair, legal frameworks that are enforced
impartially. It also requires full protection of rights, particularly those of minority
shareholders.

Honest and ethical conduct : Every officer of the company should deal on behalf of the
company with professionalism, honesty, commitment and sincerity as well as high moral and
ethical standards.

Corporate Citizenship : A corporate should be committed to be a good corporate citizen not
only in compliance with all relevant laws and regulations but also by actively assisting in the
improvement of the quality of life of the people in the communities in which it operates with
the objective of making them self reliant and enjoy a better quality of life.

Ethical behavior : Corporations have a responsibility to set exemplary standards of ethical
behaviour, both internally within the organizations, as well as in their external relationships.

Social concern : The Company should have concerns towards the society. It can help the
needy people & show its concern by not polluting the water, air & land.

Healthy and safe working environment : A company should be able to provide a safe and
healthy working environment

Competition : A company should market its products & services on its own merits & should
not resort to unethical advertisements or include unfair & misleading pronouncements on
competitors products & services.

Timely Responsiveness : Good governance requires that institutions & processes try to serve
all stakeholders within a reasonable time frame.

Obligation
2. Obligation to investor:
Towards shareholder
Measures promoting transparency and informed shareholder participation
Financial reporting and records

3. Obligation to employees
Fair employment practices
Equal opportunities
Humane treatment


Obligation
4. Obligation to customers
Quality of products and services
Products at affordable prices
Unwavering commitment to customer satisfaction

5. Managerial obligations
Protecting companys assets
Behavior toward government agencies
Control
Five Golden Rules
Our Five Golden Rules of best Corporate governance practices are:
Ethics: a clearly ethical basis to the business
Align Business Goals: appropriate goals, arrived at through the creation of a suitable
stakeholder decision making model
Strategic management: an effective strategy process which incorporates stakeholder
value
Organisation : an organisation suitably structured to effect good corporate governance
Reporting: reporting systems structured to provide transparency and accountability
Best corporate governance practice
= best management practice
The regulatory approach to the subject would regard governance as something on its own, to do with
ensuring a balance between the various interested parties in a companys affairs, or more particularly a
way of making sure that the chairman or chief executive is under control, producing transparency in
reporting or curbing over-generous remuneration packages. This indeed is what the Cadbury
recommendations and the subsequent reports and code are all about. However, as we express in the rest
of this website, we regard this as much too limited a view of governance, and hence of best corporate
governance practice.
The essence of success in business is: having a clear and achievable goal ,having a feasible strategy to
achieve it ,Creating an organization appropriate to deliver ,Having in place a reporting system to guide
progress.
There are very many websites and publications advising on how to do this, and of course, this is what is
described as good management.
Best corporate governance practice is about achieving the stakeholders goal, and delivering success in an
ethical way. Hence it follows that it must entail a holistic application of good management.
To demonstrate the totality, and the need for a holistic approach, we present below an illustration
showing the pressures on a large organization.

Conclusion
Corporate governance philosophies differ around the world. However, with a few relatively
minor exceptions, there exists a broad consensus on the elements of good corporate
governance. It is widely understood that the most effective aspects of good corporate
governance include:
A strong board of directors, independent of management and with sufficient expertise to
oversee corporate management on behalf of the companys shareholders;
Management compensation oversight, such as a compensation committee comprised of
independent directors, to prevent opportunistic behavior by management and help link
management compensation to corporate performance;
Strong corporation laws and regulations designed to protect the rights of shareholders;
Extensive public disclosure requirements, including both financial and non-financial
reporting designed to give shareholders and potential investors an accurate, timely and
thorough picture of the companys performance and liabilities; and
A robust independent audit function, with sufficiently thorough procedures to confirm the
accuracy of a public companys financial disclosure statements and overseen by a board
committee comprised of independent directors, or by some other mechanism independent
of management.

Thank you