Master of Business Laws II

Subject: INVESTMENT LAWS

Topic : Corporate Governance
Date : 14-10-2007, 2-5 P.M.

by Prof. S. Krishnaswamy
CORPORATE GOVERNANCE
Corporate 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”.
CORPORATE GOVERNANCE
Corporate Governance ensures:

1. Adequate disclosures and effective decision making to

achieve corporate objectives
2. Transparency in Business transactions
3. Statutory and Legal compliance
4. Protection of shareholder interests
5. Commitment to values and ethical conduct of business
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• Corporate Governance is the System by which

companies are directed and Controlled.

• Corporate Governance is about promoting corporate

fairness, transparency and accountability.

• Good Corporate Governance is simply Good Business.

CORPORATE GOVERNANCE
Roots of Corporate Governance
• Corporate Governance expression was found in
American Journals in 70’s and imported by United
Kingdom.
• Took firm root in 1991 When Sir. Adrian Cadbury was
asked in May’1991 to chair the committee in the
financial aspects of Corporate Governance by the
Financial reporting council the London Stock Exchange
and the accounting profession.
• The Cadbury Committee was born out of the scandals
(Maxwell, Polly Peck, Barings) which hit the city during
late 80’s.
CORPORATE GOVERNANCE
Roots of Corporate Governance
• The Cadbury committee reported in Dec’1992 and it
took the view that governance was not a matter of
legislation and the report produced a code of Best
Practice, comprising 19 provisions and 14 notes dealing
with Board and committee structures, remuneration and
financial reporting and describing the appropriate
relationship with auditors.
• This led to London Stock exchange asking the listed
companies whether they complied with Cadbury rules or
were asked to explain in case of non-compliance.
CORPORATE GOVERNANCE
Roots of Corporate Governance
• Alongside, Fat cat corporate scandals, on fixing
remuneration, were on the rise. This led to constitution
of Greenbury committee on director remuneration in
jan’19995 reporting in July’1995.

• The Greenbury committee produced its own code in

relation to director’s remuneration and this code was
adopted with the listing rules on a “Comply or explain”
basis.
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Roots of Corporate Governance
• Following the recommendations of Cadbury and
Greenbury committee’s, a committee on CG was
established of Sir. Ronald Ham bell the then Chairman
of ICI.
• The final report of Ronald Hampbell came in Jan’1998
which is popularly known as “Hampbell committee
report”
CORPORATE GOVERNANCE
Roots of Corporate Governance
• Corporate Governance code for the listed
companies in India was framed by SEBI
in 2000 and has been amended few times
since its inception.
• The First code for CG was enacted based
on the Kumar Mangalam Birla Committee
report.
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FRAMEWORK of Clause 49
• Board of Directors
• Audit Committee
• Remuneration to Directors
• Board Procedure
• Management
• Shareholders
CORPORATE GOVERNANCE
FRAMEWORK of Clause 49
• Report on Corporate Governance
• Compliance
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Board of Directors
A. Composition of Board
B. Non-Executive Directors’ compensation
and disclosures
C. Other provisions as to Board and
committees
D. Code of Conduct
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Communicating with Shareholders
The Cadbury report observed (Report 6.15) that it
was important companies should communicate
their strategies to their major shareholders and
that their shareholders should understand them.

Cadbury Pointed that” Institutional shareholders

should encourage regular, systematic contact at
senior executive level to exchange views and
information on strategy, performance, board
membership and quality of management”.
CORPORATE GOVERNANCE
Comparative Corporate Governance
UK – Cadbury, Greenbury and Hampbell
Committee reports as base for the
code for Corporate Governance

Belgium – Cardon Report of the

Belgium Commission on CG for
Belgium listed companies.
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Comparative Corporate Governance
Denmark –Norby commission
Recommendations for Good
Corporate Governance in Denmark.
France – Vienot II, Report of the
Committee of CG and the Bouton
report as base for listed companies.
CORPORATE GOVERNANCE
Comparative Corporate Governance
Germany – The Crommy code of CG is a
hybrid of Comply or explain and
suggestions.
Italy – Preda Report as base for the code
The Netherlands- The Peters Report –
Secretariat Committee on CG with
40 recommendations.
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Comparative Corporate Governance
USA- Securities Exchange Commission
(SEC) provisions combined with
Sarbanes-Oxley Act’2002(SOX).
The Newyork Stock exchange code with
SEC approval
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Corporate Social Responsibility