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Evaluation of Corporate Governance
In third Century BC in the city of Patilupura, Kautilya.
Its Vizier virtually holding in his hands the directions of the
Wrote Arthasastra
History records Patliputra, the capital of Mauryan Empire as a
city well organised and administered according to best principles
of governance.
Writing about the ideal conduct of the king, Kautilya says an
ideal king is one for whom

In the happiness and well being of the subjects,
is the well being of the king,
In the welfare of the subjects,
lies the welfare of the king,
What is desirable and beneficial to the subjects
and not his personal desires and ambitions
is desirable and beneficial to the king.

(English Translation from the Sanskrit version of Arthasastra)

Kautilya further elaborates on the fourfold duty of a
king as:

- raksha, or protection
- vruddhi, or enhancement
- palana or maintenance
- yogakshema or safeguard.

State - Company

King - CEO or the board of the company

Subjects - Shareholders brings out the spirit of
Corporate Governance.
Fourfold duties of the King/CEO
Protecting the shareholders wealth.

Enhancing the wealth through proper utilisation of assets.

Maintenance of that wealth and not frittering away in
unconnected and non profitable ventures or through
expropriation, and above all.

Safeguarding the interests of the shareholders.
Forms of Business

Joint Stock Company
Emergence of Governance
Evaluation of the concept of Joint Stock Companies

Need to protect the shareholders led to the development of
basic company law from mid 19

In the modern Era, the origin of need for appropriate
Governance Structure.

Corporate Governance in Simple
Process by which companies are governed and managed.
Set of Standards, which aims to improve the Companys image
efficiency, effectiveness and social responsibility.
Primarily hinges on complete transparency, integrity and
accountability of management.
Greater focus on investors protection and public interest.
Through a code of good Governance incorporating a system of
checks and balances between key players boards, management
auditors and shareholders emanated from the period the
concept of Board of Directors who as trustees of the
shareholders be responsible for overcastting the management of
the company in order to protect the interest of the


With the passage of time, ownership of shareholdings shifted
from individuals to institutional investors.

Moreover with worldwide move to words privatization, control of
assets shifted from state Sector to a market economy.

Corporate Sector financial irregularities at different points of

Opening of global economy, trade, investment and international
financial market liberalization.

Requiring effective corporate Governance frame work for
sustained Development of the world economy

Definitions Corporate Governance
No universal definition of Corporate Governance.

Milton Friedman defined CG

1. The conduct of business in accordance with shareholders desires,
which generally is to make as much money as possible, while
conforming to the basic rules of the society embodies\d in law and
local customs.
2. Monks and Minow have defined corporate governance as
Relationships among various participants in determining the direction
and performance of a corporation.
3. According to James D. Wolfensohn, President of World Bank,
Corporate Governance is about promoting corporate fairness,
transparency and accountability.
4. Standard & Poors has defined Corporate Governance as the way a
company is organised and managed to ensure that all financial
stakeholders (shareholders and creditors) receiver their fair share
of a companys earnings and assets.

5. OECD has defined corporate governance to mean A system by which
business corporations are directed and controlled. Corporate Governance
structure specifies the distribution of rights and responsibilities among
different participants in the company such as board, management,
shareholders and other stakeholders; and spells out the rules and
procedures for corporate decision- making. By doing this, it provides the
structure through which the company's objectives are set along with the
means of attaining these objectives as well as for monitoring performance.
6. Cadbury Committee, U.K. has defined corporate governance as follows;
(It is ) the system by which companies are directed and controlled.
It may also be defined as a system of structuring, operating and controlling
a company with the following specific aims : -

(i) Fulfilling long-term strategic goals of owners;
(ii) Taking care of the interests of employees;

(iii) A consideration for the environment and local community;
(iv) Maintaining excellent relations with customers and suppliers;
(v) Proper compliance with all the applicable legal and regulatory requirements.

7. CII - Desirable Corporate Governance Code defined Corporate Governance as follows:
Corporate governance deals with laws, procedures, practices and implicit rules that
determine a companys ability to take informed managerial decisions vis-a-vis its
claimants in particular, its shareholders, creditors, customers, the State and
employees. There is a global consensus about the objective of good corporate
governance: maximising long-term shareholder value.

8. The Kumar Mangalam Birla Committee constituted by SEBI has observed that:
Strong corporate governance is indispensable to resilient and vibrant capital markets
and is an important instrument of investor protection. It is the blood that fills the veins
of transparent corporate disclosure and high quality accounting practices. It is the
muscle that moves a viable and accessible financial reporting structure.

9. Corporate Governance is the application of best management
practices, compliance of law in true letter and spirit and adherence
to ethical standards for effective management and distribution of
wealth and discharge of social responsibility for sustainable
development of all stakeholders.
Key Principles of Corporate Governance
Fairness and integrity
Equal Treatment of all Share holders.
Social Responsibility, regulatory and environmental concern.
Objectives of Corporate Governance
Good Governance

integral to the existence of a company.
inspires and strange then & investors confidence by ensuring
companys commitment to higher growth and projects.
To achieve following objectives

(i) A properly structured Board capable of taking independent and
objective decisions is in place at the helm of affairs;
(ii) The Board is balanced as regards the representation of adequate
number of non-executive and independent directors who will take
care of the interests and well beige of all the stakeholders;
(iii) The Board adopts transparent procedures and practices and arrives
at decisions on the strength of adequate information;
(iv) The Board has an effective machinery to sub-serve the concerns of
(v) The Board keeps the shareholders informed of relevant
developments impacting the company;
(vi) The Board effectively and regularly monitors the functioning of the
management team; and
(vii) The Board remains in effective control of the affairs of the
company at al times.

Title Elements of Good Corporate
Role and Powers of Board.

Board main functionary so primary responsible to ensure value
creation for its stakeholders.

The Absence of clearly designated role and powers of Boards
weakens accountability mechanism and threatens the
achievement of organisational goals.

Foremost requirement of good governance be clear
identification of powers, roles, responsibilities and
accountability of Board, CEO and the Chairman of the Board
Role of Board be clearly documented in a Board Charter.

Clear and unambiguous legislation and regulations are
fundamentals to effective Corporate Governance.

Legislation requiring continuing legal interpretation resulting
into deliberate manipulation.

Management Environment
Includes setting up of clear objectives and appropriate ethical
Clear enunciation of responsibility and accountability.
Implementing sound business planning.
Encouraging business risk assessments.
Having right people and right skills for the job.
Establishing Performance evaluation measures.
Sufficiently recognizing individual and group contribution.

Board Skills
Possess the necessary blend of qualities skills,
knowledge and experience.
Operational or technical expertise,
Commitment to establish leadership.
Financial skills
Legal skills
Knowledge of Government and regulatory

Board Appointment
Most competent People be appointed in the Board through
process of extensive research.

Well defined and open procedure for appointment and re-
appointment of directors.

Appointment mechanism should satisfy all statutory and
administrative requirements.

Board of Induction & Training
Board understanding of the area of operation of the companys

Corporate strategy and challenges being faced by the company.

Board Members attending continuing education and professional
Development Plan.
Board Independence
Independence of Board essential for sound Corporate

To be achieved by appointing sufficient number of independent

No actual or perceived conflict of interest.
Board Meetings
Directors must devote sufficient time and give due attention to
meet their obligations.

Attending Board Meeting regularly.

Preparing thoroughly before entering the Board Meeting.

Ask for Board Meeting agenda in advance alongwith relevant
Papers and materials.
Code of Conduct
Prescribed norms of ethical practices and code of conduct be
communicated to all stakeholders.

System be in place to periodically measure, evaluate and if
possible recognize the adherence to code of conduct.
Strategy Setting

Objectives of Company be clearly documented.

Well documented business plan together with
achievable and measurable performance targets and
mile stones.

Business & Community Obligations

Though basic activity of business entity being of commercial
nature but yet it must also take care of community obligations.

Well documented community Service obligations after approval
of board.

Stakeholders must be informed about the proposed and ongoing
initiatives taken to meet the community obligations.
Financial and Operational Reporting

Requires Comprehensive, regular, retable, timely, correct and
relevant information in a form and a quality to discharge its
function of monitoring corporate performance.

Reporting by management to board be comprehensive indicating
the key issues.

Reports be available to Board well in advance.

Monitoring the Board Performance

Must monitor and evaluate its combined performance and also
that of individual directors at periodic intervals.

Monitoring through using key performance indicators besides
peer review.

Audit Committees
Bridge between the Board and management of the company.
Responsible for liaison with the management, internal and
statutory auditors.
Reviewing the adequacy of internal control
Compliance with significant polices and procedures
Reporting to the Board on the key issues.
Quality of Audit Committee significantly contribute to the
Governance of the Company.
Risk Management
Important element of corporate functioning and governance.

Clearly establish process of identifying, analyzing and trading
risks considering established goals and objectives of the

Setting acceptable level of risk and management takes steps to
detect, monitor and control these risks.

Periodic external and internal risk reviews.
Factors Influencing Quality of
Corporate Governance
Integrity of Management.

Ability of the Board.

Adequate of the process.

Commitment level of individual Board members.

Quality of Corporate reporting.

Participation of stakeholders in the management.
Factors adding Greater Value
through Governance
Adoption of good governance practices provides stability and
growth to the enterprise.
Good governance system, demonstrated by adoption of good
corporate governance practices, builds, confidence amongst
stakeholders as well as prospective stakeholders. Investors are
willing to pay higher price to the corporates demonstrating
strict adherence to internationally accepted norms of corporate
Effective governance reduces perceived risks, consequently
reduces cost of capital and enables Board of directors to take
quick and better decisions which ultimately improves bottom line
of the corporates.

In todays knowledge driven economy, demonstrating excellence
in skills has become the ultimate tool in the hands of Board of
Directors to leverage competitive advantage.

Adoption of good corporate governance practices provides long-
term sustenance and strengthens stakeholder; relationship.

A good corporate citizen becomes as icon and enjoys a position
of respect.

Potential stakeholders aspire to enter into relationships with
enterprises whose governance credentials are exemplary.