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corporate governance priyanka icbm ppt

corporate governance priyanka icbm ppt

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06/24/2013

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CORPORATE GOVERNANCE

GROUP-E

WHAT IS CORPORATE GOVERNANCE? 
Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals.  The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.  The aim is to align as nearly as possible the interests of individuals, corporations and society

Cont«..
‡ The primary purpose of corporate governance is to create wealth legally and ethically. ‡ This translates to bringing a high level of satisfaction to five constituencies -- customers, employees, investors, vendors and the society-atlarge. ‡ The raison d'être of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year. ‡ - N R Narayana Murthy

GOVERNANCE AND PERFORMANCE
‡ Good governance leads to good performance ‡ It creates an open and transparent system ‡ It improves communication and breaks down systematic barriers to flow of information ‡ Good governance allows decision making based on data. It reduces risk ‡ Good governance helps in creating a brand and creates comfort for all stakeholders and society

ISSUES IN CORPORATE GOVERNANCE
‡ ‡ ‡ ‡ ‡ ‡ Asymmetry of power Asymmetry of information Interests of shareholders as residual owners Role of owner management Theory of separation of powers Division of corporate pie among stakeholders

CORPORATE GOVERNANCE MECHANISMS
‡ ‡ ‡ ‡ ‡ ‡ Internal Governance Mechanisms Board of director Managerial incentive compensation Ownership concentration External Governance Mechanisms Market for Corporate Control

MECHANISM OF CONTROL
Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behavior, an independent third party (the external auditor) attests the accuracy of information provided by management to investors. An ideal control system should regulate both motivation and ability 1. Internal corporate governance control . 2. External corporate governance control .

EXTERNAL CORPORATE GOVERNANCE CONTROL
It encompasses the control of external stake holders exercise over the organization. 1. Competition 2. Debt covenants 3. Demand for assessment of performance (especially financial statements.) 4. Government regulations 5. Media pressure 6. Take over

INTERNAL CORPORATE GOVERNANCE CONTROL
Organizationally based mechanism ‡ ‡ ‡ ‡ Monitoring by the board of directors. Internal control procedures and internal auditors. Balance of power. Remuneration

Parties to Corporate Governance
Chief Executive officer
‡ ‡ ‡ ‡ ‡ Responsibilities. International Use. Structure. In the Media. CEO Search Firms.

Board of Directors
‡ ‡ ‡ ‡ ‡ Use of corporate property. Transaction with Company. Conflict of duties and interest. Proper purpose. Classification

Management
‡ ‡ ‡ ‡ Basic function of management. Formation of the business policy. How to implement policies and strategy. Where policies and strategies fit in the planning process. ‡ Areas and categories and implementation of management. ‡ Multi divisional management hierarchy.

Share holders
‡ The right to propose shareholder resolution. ‡ The right to share in distributions of the company's income. ‡ The right to purchase new shares issued by the company. ‡ The right to a company's assets during, a liquidation of the company.

Corporate governance & firm performance 
Corporate governance represents the relationship among stakeholders that is used to determine & control the strategic direction & performance of the organization.  Corporate governance involves oversight in areas where owners, managers & members of board director may have conflicts of interest.

&

THE INFOSYS MODEL
‡ A formal code of business conduct and ethics. ‡ To be signed and adhered to by employees. ‡ Action against any employee for violation is taken seriously

THE INFOSYS MODEL -CONTENTS
‡ General standards of conduct ‡ Management of conflicts of interest ‡ Prohibition of exploitation of corporate opportunities ‡ Protection of company¶s confidential information ‡ Use of assets ‡ An entire section on responsibilities to customers and stakeholders.

Infosys Technologies: The Best among Indian Corporate
‡ As per the Credit Lyonnais Securities Analysis (CLSA), the corporate governance ratings of the Software firms are higher than those of other Indian firms. ‡ Infosys, based in Bangalore, is a publicly held, ISO 9001 certified company offering information technology consulting & software services. ‡ The software offered include application development, E-Commerce & Internet Consulting, Software Maintenance. ‡ Respected across the country, with very strong systems, high ethical values & a nurturing working atmosphere.  Net income of US 1,155 million and revenue of US 4,176 million. ‡ At present having US 20.4 billion market capitalization

Achievements
‡ Voted as the Best Managed Company in Asia.

‡ Biggest exporters of Software.

‡ First to follow the US Generally Accepted Accounting Principles before going for Nasdaq listing in 1991.

‡ Championed Corporate Governance in India

Narayana Murthy¶s Global Strategy
1) Global Delivery Model ± Producing where it is most cost effective to produce & selling where it is most profitable to sell. Moving up the Value Chain ± Getting involved in a software development project at the earliest stage of its life cycle. PSPD Model ± Predictability of Revenues, Sustainability of Revenues, Profitability, Decisionmaking and risk taking

2)

3)

ICSI National Award for Excellence in Corporate Governance Best Governed Companies

BENEFITS OF GOOD CORPORATE GOVERNANCE
‡ ‡ ‡ ‡ ‡ Having better access to external finance. Lower costs of capital. Improved company performance. Higher firm valuation and share performance. Reduced risk of corporate crises and scandals

Factor influence the corporate governance
‡ ‡ ‡ ‡ ‡ 1. The ownership structure 2. The structure of company boards 3. The financial structure 4. The institutional environment problems of corporate governance ‡ Demand for information ‡ Monitoring costs ‡ Supply of accounting information

PROBLEM OF CORPORATE GOVERNANCE
‡ We lay structures over the corporate business, and fail to organize the business ‡ Corporate Performance Management reports against overlaid structures ‡ Accounting accounts for only part of the business cycle and against the wrong entities ‡ We govern the corporation by rules and regulations, because we cannot manage the actual business

ETHICS-definitions
‡ Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society ‡ The principle of conduct ± professional ethics ‡ A system or philosophy of conduct ‡ A discipline dealing with what is good and badmoral duty and obligation ‡ A set of moral principles or values

ETHICS AND CORPORATE GOVERNANCE 
Deals with determination what is µright'," fair, prior and just" in decisions and actions made that affect stake holders.  It focuses on the business relationship with employees, customers, stockholders, creditors, suppliers and member of the society in which it operates. ‡ Corporate ethics , is a matter of leadership. .

PURPOSE OF ETHICS
‡ Ethics are the guiding principles. ‡ Where the proposed business activity/ operation of the company borders on the unknown, the company needs to apply the ethics principle to decide on the project.

‡ Ethics help make relationships mutually pleasant and productive- imbibes a sense of community among members- a sense of belongingness to society.

CURRENT STATUS ON CORPORATE GOVERNANCE
‡ ‡ ‡ ‡ ‡ ‡ ‡ Insistence on forms and structures Overarching regulations Regulatory overkill Lack of adequate number of strong, independent directors Large liabilities for companies and officers Has the pendulum swung too far? For the first time in the decade-long history of the Index of Economic Freedom, the U.S. is no longer among the top ten ³most free´ countries Wall Street Journal and the Heritage Foundation ³Index of Economic Freedom´

‡

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

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