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CORPORATE

GOVERNANCE

Governance and structures


Accountability

Responsibility

Transparency

Information

Governance

Structure

What is governance?
Broadly, the way that power is taken on

and used by the leaders of an


organisation
Specifically for community based
organisations, it refers to the structures
and processes that are used to steer the
organisation

Good governance is
A transparent decision-making process in

which the leadership of an organisation, in


an effective and accountable way, directs
resources and exercises power on the basis
of shared values
- Marilyn Watt, A Handbook of NGO Governance

Good governance is
A transparent decision-making process in

which the leadership of an organisation,


in an effective and accountable way,
directs resources and exercises power on
the basis of shared values
- Marilyn Watt, A Handbook of NGO Governance

A sharing of decision making so that


power and resources do not accumulate
in the hands of one person or a single
group.
What might bad governance mean?

Shared decision making and


individual accountability
Individual
accountability
Individual
accountability

Individual
accountability

Individual
accountability

Shared
decision
making

Individual
accountability

Individual
accountability

Individual
accountability

The two take place together


Individual accountability for the group

making the best decisions


Not a contradiction

Discuss: Who makes


the decisions?
Who makes the decisions in your

organisation?
How are they made?
How can others participate in this?
Do they participate?

Some more basic features of good


governance
A basic form of accountability
Decisions are discussed and made

collectively
There are restrictions on one person
becoming more powerful than the others
This doesnt happen accidentally, by
chance or because of good will it has to
be formalised through rules and procedures

Corporate Governance
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.
Conduct of business in accordance with
shareholders desires (maximising wealth) while
confirming to the basic rules of the society
embodied in the Law and Local Customs

Corporate Governance
Relationships among various participants

in determining the direction and


performance of a corporation.
Effective management of relationships
among
Shareholders
Managers
Board of directors
employees
Customers
Creditors
Suppliers
community

Why Corporate
Governance?

Better access to external finance


Lower costs of capital interest rates on

loans
Improved company performance
sustainability
Higher firm valuation and share
performance
Reduced risk of corporate crisis and
scandals

Principles of Corporate
Governance

Sustainable development of all stake

holders- to ensure growth of all individuals


associated with or effected by the
enterprise on sustainable basis
Effective management and distribution
of wealth to ensue that enterprise
creates maximum wealth and judiciously
uses the wealth so created for providing
maximum benefits to all stake holders and
enhancing its wealth creation capabilities to
maintain sustainability

Discharge of social responsibility- to

ensure that enterprise is acceptable to the


society in which it is functioning
Application of best management
practices- to ensure excellence in functioning
of enterprise and optimum creation of wealth
on sustainable basis
Compliance of law in letter & spirit- to
ensure value enhancement for all stakeholders
guaranteed by the law for maintaining socioeconomic balance
Adherence to ethical standards- to ensure
integrity, transparency, independence and
accountability in dealings with all stakeholders

Four Pillars of Corporate


Governance
Accountability
Fairness
Transparency
Independence

Accountability
Ensure that management is accountable to

the Board
Ensure that the Board is accountable to

shareholders

Fairness
Protect Shareholders rights
Treat all shareholders including

minorities, equitably
Provide effective redress for violations

Transparency
Ensure timely, accurate disclosure on all
material matters, including the financial
situation, performance, ownership and
corporate governance

Independence
Procedures and structures are in place

so as to minimise, or avoid completely


conflicts of interest
Independent Directors and Advisers i.e.

free from the influence of others

Elements of Corporate
Governance
Good Board practices
Control Environment
Transparent disclosure
Well-defined shareholder rights
Board commitment

Good Board Practices


Clearly defined roles and authorities
Duties and responsibilities of Directors

understood
Board is well structured
Appropriate composition and mix of

skills

Good Board procedures


Appropriate Board procedures
Director Remuneration in line with best

practice
Board self-evaluation and training

conducted

Control Environment
Internal control procedures
Risk management framework present
Disaster recovery systems in place
Media management techniques in use

Control Environment
Business continuity procedures in place
Independent external auditor conducts

audits
Independent audit committee

established

Control Environment
Internal Audit Function
Management Information systems

established
Compliance Function established

Transparent Disclosure
Financial Information disclosed
Non-Financial Information disclosed
Financials prepared according to

International Financial Reporting


Standards (IFRS)

Transparent Disclosure
Companies Registry filings up to date
High-Quality annual report published
Web-based disclosure

Well-Defined Shareholder
Rights
Minority shareholder rights formalised
Well-organised shareholder meetings

conducted
Policy on related party transactions

Well-Defined Shareholder
Rights
Policy on extraordinary transactions

Clearly defined and explicit dividend

policy

Board Commitment
The Board discusses corporate

governance issues and has created a


corporate governance committee
The company has a corporate
governance champion
A corporate governance improvement
plan has been created
Appropriate resources are committed to
corporate governance initiatives

Board Commitment
Policies and procedures have been

formalised and distributed to relevant


staff
A corporate governance code has been
developed
A code of ethics has been developed
The company is recognised as a
corporate governance leader

Other Entities
Corporate Governance applies to all

types of organisations not just


companies in the private sector but also
in the not for profit and public sectors
Examples are NGOs, schools, hospitals,

pension funds, state-owned enterprises

Corporate governance in
India

The Indian corporate scenario was more or less

stagnant till the early 90s.

The position and goals of the Indian corporate

sector has changed a lot after the liberalisation


of 90s.

Indias economic reform programme made a

steady progress in 1994.

India with its 20 million shareholders, is one of

the largest emerging markets in terms of the


market capitalization.

Corporate governance of India has


undergone a paradigm shift
In 1996, Confederation of Indian Industry (CII),

took a special initiative on Corporate Governance.

The objective was to develop and promote a code

for corporate governance to be adopted and


followed by Indian companies, be these in the
Private Sector, the Public Sector, Banks or
Financial Institutions, all of which are corporate
entities.

This initiative by CII flowed from public concerns

regarding the protection of investor interest,


especially the small investor, the promotion of
transparency within business and industry

The
Government
of
India's
securities
watchdog, the Securities Board of India,
announced strict corporate governance norms
for publicly listed companies in India.
The
Indian Economy
was
liberalised in 1991.
Securities
and
Exchange
In order to achieve the full potential of
Board of and
India
liberalisation
enable the Indian Stock
Market to attract huge investments from
foreign institutional investors (FIIs), it was
necessary to introduce a series of stock
market reforms.
SEBI, established in 1988 and became a fully

SEBI
On April 12, 1988, the Securities and Exchange Board of

India (SEBI)was established with a dual objective of


protecting the rights of small investors and regulating and
developing the stock markets in India.
In 1992, the BSE ,the leading stock exchange in India,
witnessed the first major scam masterminded by Harshad
Mehta.
Analysts
felt that if more powers had been given to
SEBI,the scam would not have happened.
As a result the GoI brought in a separate legislation by the
name of SEBI Act 1992and conferred statutory powers to it.
Since then, SEBI had introduced several stock market
reforms. These reforms significantly transformed the face of
Indian Stock Markets

SEBI and Clause 49


SEBI asked Indian firms above a certain size

to implement Clause 49, a regulation that


strengthens the role of independent
directors serving on corporate boards.
On August 26, 2003, SEBI announced an

amended Clause 49 of the listing agreement


which every public company listed on an
Indian stock exchange is required to sign.
The amended clauses come into immediate
effect for companies seeking a new listing.

The major changes to


Clause 49

Independent Directors:- 1/3 to depending

whether the chairman of the board is a nonexecutive or executive position.

Non-Executive Directors:- The total term of

office of non-executive directors is now


limited to three terms of three years each.

Board of Directors:- The board is required to

frame a code
members and
each of them
compliance with

of conduct for all board


senior management and
have to annually affirm
the code.

Audit Committee:- Financial statements and the draft

audit report of management discussion and analysis of


Financial condition
Result of operations of compliance with laws
Risk management letters
Letters of weaknesses in internal controls issued by
statutory
Internal auditors
Removal and terms of remuneration of the chief internal
auditor

Whistleblower Policy :- This policy has to be

communicated to all employees and whistleblowers


should be protected from unfair treatment and
termination.

Subsidiary Companies:- 50% non-executive directors &

1/3 & independent directors depending on whether the


chairman is non-executive or executive.

Conclusion
As Indian companies compete globally for access to

capital markets, many are finding that the ability to


benchmark against world-class organizations is
essential.

For a long time, India was a managed, protected

economy with the corporate sector operating in an


insular fashion.

But as restrictions have eased, Indian corporations

are emerging on the world stage and discovering


that the old ways of doing business are no longer
sufficient in such a fast-paced global environment.

Thank You